Byron Deeter is likely waking up this morning and wondering what kind of day he’ll have. It was Deeter who led Bessemer Venture Partners into its seed-stage investment in Twilio, a now nine-year-old company that offers services like messaging, voice, image transfers, authentication and video as a software platform, so developers can incorporate them into their own apps.
Bessemer has since invested in each of Twilio’s private funding rounds, amassing a 28.5 percent stake in the company at a cost of nearly $70 million. And that bet — one of the firm’s largest — is being put to the test today as Twilio debuts on the public market.
So far, there’s reason for optimism. Twilio started trading about an hour after the NYSE opened at a price of $23.99 per share, which is nearly 60 percent above its IPO price of $15. Either way, if Deeter is sweating the details, he didn’t let on yesterday when we chatted about Twilio and the kind of impact its long-awaited public offering may have on the broader market.
TC: Twilio last sold shares to private investors at $11.31 a share, at a valuation of about $1 billion, and its initial IPO pricing puts its valuation just above that billion-dollar mark. You’ve said you can’t talk about Twilio’s valuation; generally speaking, do you think it matters whether a company surpasses its private market number at the time of its IPO?
BD: I can’t even comment generally right now; our lawyers would get very upset with me.
TC: WhatsApp accounts for 17 percent of Twilio’s revenue, which Twilio listed as a risk factor, noting that WhatsApp has “no obligation” to give Twilio notice before taking its business elsewhere. Can you comment on whether you believe the company is overly reliant on any one customer?
BD: Can’t comment on that, either. [Laughs.]
TC: Bessemer has more than two times as big a stake as any other shareholder, including Twilio co-founder and CEO Jeff Lawson (who owns 11.9 percent of the company). Did you know him before he started Twilio?
BD: We knew of Jeff, but we met him in the context of his initial discussion with us about seed funding, when it was still a concept. But Jeff is a force of nature and an extremely compelling CEO and visionary. And from a market standpoint, [his] was a disruptive idea. There wasn’t proof at that point that the business-to-developer market was real.
TC: Do you think the success or not of its IPO will be seen as a bellwether?
BD: I think there’s a lot of attention around it because it’s the first meaningful IPO of the year; it’s not just the first cloud IPO, but it’s the first venture-backed unicorn to go public.
TC: Other cloud companies in your portfolio have gone public. How are they faring?
BD: As a firm, we had four cloud IPOs last year, including Instructure in November and Shopify [last May], both of which are trading above their IPO prices. Since January 2015, including Twilio, there have been eight cloud companies to go public, and we’ve been an anchor investor in five of them.
So far this year, there’s been a very dry spell. But in the last two months, we’ve seen massive cloud M&A. LinkedIn’s deal was the largest in history… But a half a dozen notable acquisitions [preceded that deal], including Marketo, Cvent, Textura and Demandware, all four public companies that were purchased for large premiums.
TC: Oracle bought Textura and Salesforce acquired Demandware, but we’re seeing more private equity firms zero in on these companies. Does that surprise you?
BD: It’s very surprising, and it’s a reflection on valuation.
TC: Your portfolio is very “cloud” heavy, correct?
BD: As a firm, we’ve had 105 cloud companies historically, and we have north of 40 active cloud companies currently in our portfolio.
TC: As a rule, what ownership percentage do you target with these companies? You’re the biggest shareholder in Twilio. You were the the biggest shareholder in Shopify heading into its IPO.
BD: We also had the biggest stake in MINDBODY [a company that make fitness studio software that went public last summer]. We tend to invest very early and to support our companies all the way through. We don’t have a hard and fast ownership target, but we typically own [at least] 20 percent.
TC: While we wait to see what happens with these cloud companies and their valuations, where are you shopping now? We’ve talked a bit about mobile enterprise apps in the past.
BD: We’re still active there, but it’s early. We also think the business-to-developer API economy is very interesting and will present great companies for us and others in the coming years.
We also think vertical SaaS is hitting its stride right now. There are a number of companies that are reaching critical mass [in part] because they have the benefit of less competition. Winners can get more than 50 percent market share whereas in horizontals, like CRM, a winner might get 10 percent of the market. [Our portfolio company] Procore, which targets the construction vertical, is bigger than its next biggest competitors combined, because it’s going up against legacy companies with no mobile strength and just two or three SaaS competitors. Compare that with Box where you have 50 different collaboration companies.
Update: A company spokeswoman asked that we clarify that Bessemer partners David Cowan and Ethan Kurzweil were also involved in Twilio’s seed round, saying it’s “normal for BVP to have a team approach to deals.”
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