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www.intelcapital.comIntel Confidential
Investing in global innovation
June, 2016
Disruption in Enterprise Software
Vibhor Rastogi, Director, Intel [email protected]
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2 www.intelcapital.comIntel Confidential
Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Big data/Cognitive applications/Real-time workloads• Open Source
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3 www.intelcapital.comIntel Confidential3
Market Leader
* Number Includes New and Follow-on Deals Investment data as of March 31, 2016
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4 www.intelcapital.comIntel Confidential
A Proven Track Record of Engagement• Investments ranging
from $250,000 to $250 million+
• Any stage of funding• Lead or supporting
investor• Agile decision-making
• Unparalleled network of Global 2000 companies
• Resources beyond capital
• Active board participation
• New and follow-on rounds 4 Investing $300 - $500 million per year in innovative
companies
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5 www.intelcapital.comIntel Confidential
A Global Presence Like No Other• US $11.7 billion invested in 1,445 companies in 57 countries• Proven ability to connect startups to international technologists and partners
Intel Capital Invested
5
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6 www.intelcapital.comIntel Confidential
6*other marks and brands are the properties of their respective owners Data as of March 31, 2016
Solid History of Success212 portfolio companies have gone public; 383 were acquired or participated in a merger
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7 www.intelcapital.comIntel Confidential
Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Cognitive applications/Real-time workloads• Open Source
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8 www.intelcapital.comIntel Confidential
Spend on Software growing 2x than Enterprise spend. Sub-sectors such as SaaS growing at 6x overall IT spend
2013 2014 2015$0.00
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
$3,500.00
$4,000.00
$4,500.00
$300.00 $317.00 $335.00
$3,673.00 $3,737.00 $3,828.00
Global spend on Enterprise Software ($B) vs. ICT spend ($B)
Enterprise Software spend ($B) Total ICT spend ($B)
Source: Gartner
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9 www.intelcapital.comIntel Confidential
Software (with smart hardware) is eating every industry including those that are digital laggards – Agriculture, Healthcare and Transportation
Healthcare: Basis smartwatch used to collect patient data for Parkinsons patients and analyzed in the Cloud
Agriculture: Precision Hawk drone being used for mapping of agriculture fields
Transportation: Peloton fleet management software helps reduce fuel consumption
Source: MGI
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10 www.intelcapital.comIntel Confidential
VC investment in Software has grown in the last 5 years due to better liquidity (IPO and M&A) environment
20092012
20142015
$17.70 $26.70
$49.30
$59.06
$3.19 $8.28
$20.21 $23.62
Software investment by VCs
Total VC investment ($B) Software investment ($B)Source: NVCA
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11 www.intelcapital.comIntel Confidential
Next-generation software companies trading at significantly higher multiples of revenue than legacy software companies
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
$- $50,000
$100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000
Market cap ($B)
Microsoft Oracle SAPVmware Workday Salesforce
Source: CapitalIQ
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12 www.intelcapital.comIntel Confidential
M&A market for high-growth software companies is stronger than ever
May’16 -Textura acquired for $552M
Apr’16 - Opower acquired for $683M
June’16 - Symantec acquires Blue coat for $4.9B
June’16 – Salesforce acquires Demandware for $2.9B
June’16 Microsoft acquires Linkedin for $26B
Acquirer Targets
Source: CapitalIQ
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13 www.intelcapital.comIntel Confidential
Software companies with strong cash flow also good targets for PE
Jan’15 - Informatica taken private by Premira for €4.7B
Dec’14 – TIBCO taken private by Vista Equity Partners for $4.7B
June’16 – Qlik taken private by Thoma Bravo for $3B
Source: CapitalIQ
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14 www.intelcapital.comIntel Confidential
The IPO market slowed down in 2015 due to underperformance of companies that went public. Twilio’s strong after-market performance expected to benefit pre-IPO private companies
Private Software Companies >$1B valuation
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15 www.intelcapital.comIntel Confidential
Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Cognitive applications/Real-time workloads• Open Source
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16 www.intelcapital.comIntel Confidential
SaaS market has grown 4x on-premise software and has created several multi-billion dollar market-cap venture backed companies
Venture backed success stories
$47B Market cap*
$14B Market cap*
$11B Market cap*
Source: CapitalIQ, as of June 30 2016
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17 www.intelcapital.comIntel Confidential
Public Cloud spend growing at 50% CAGR (2009-2015) making it easier than ever for software companies to develop, test and deploy SaaS applications
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18 www.intelcapital.comIntel Confidential
Improvement in ROI is a significant driver for SaaS spend
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19 www.intelcapital.comIntel Confidential
SaaS companies need significant capital prior to a liquidity event
• SaaS is a capital intensive business Model
• Median amount raised by SaaS companies >$50M
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20 www.intelcapital.comIntel Confidential
What are next-gen SaaS companies focused on?• Applications powered by Machine
learning, e.g, Next-gen B2B sales and digital marketing powered by machine learning and predictive analytics
• Video powered B2B collaboration, e.g., employee recruiting, customer service
• Analytics embedded in the SaaS applications vs. a separate enterprise data warehouse
• Beautiful user interface and consumer marketing DNA
• Mobile first strategy• Social collaboration built into the
product• Expertise in Vertical markets – e.g
Healthcare, Commerce, Transportation
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21 www.intelcapital.comIntel Confidential
Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Cognitive/AI applications/Real-time workloads• Open Source
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22 www.intelcapital.comIntel Confidential
Lower compute and storage costs accelerating adoption of Big data by Enterprises
22
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23 www.intelcapital.comIntel Confidential
Big data problems are a top priority in IT spending
23
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24 www.intelcapital.comIntel Confidential
45ZB of data expected to be created by 2020 which coupled with cheap compute creates rich datasets for Cognitive computing/AI
24
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25 www.intelcapital.comIntel Confidential
Cognitive Computing/AI is a nascent market segment today but expected to grow quickly
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26 www.intelcapital.comIntel Confidential
Cognitive computing/AI is disrupting every major industry
• Fintech - Automated lending decisions, wealth-management
• Retail – Personal Concierge• Media - Programmatic buying• Education – Personalized curriculum• Transportation – Autonomous fleets• Agriculture – Autonomous vehicles for precision
agriculture• Manufacturing – Industrial robotics• Healthcare – Automated claims processing.
Clinical decisions (couple years away)• Horizontal use cases
• Personal assistant• Sales and Marketing • Help desk• Recruiting
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27 www.intelcapital.comIntel Confidential
“Flood” of machine (45% of data created by 2020) and social data, falling cost of memory creates the need and opportunity to run analytics in real-time vs. traditional store and process
Security Event
Processing
Risk & FraudAlerting
Quality of Service Management
Consumer Analytics
DataCenter Management
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28 www.intelcapital.comIntel Confidential
Next-gen web/mobile applications leveraging data stored in Big data repositories
Personalized Gaming/Adtec
h
Recommendation Engines
User and Behavior analytics
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29 www.intelcapital.comIntel Confidential
Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Cognitive applications/Real-time workloads• Open Source
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30 www.intelcapital.comIntel Confidential
Open source disruption
• Linux disrupted the $150B data center market
• Android disrupted the $1.5T mobile market
• Hadoop and Spark disrupting the $100B analytics market
• Which other markets can open source disrupt?• Autonomous cars?• Enterprise IoT?• Machine learning?• Vertical SaaS?
30
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31 www.intelcapital.comIntel Confidential
Linux and Android grew significantly faster than their commercial alternatives to dominate the data center and mobile markets
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $-
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
$1,400.00
$1,600.00
$1,800.00
$2,000.00 RedHat revenues
25% CAGR, 4
x Soft
ware
growth
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32 www.intelcapital.comIntel Confidential
Open source has gone mainstream. Every commercial and governmental organization worldwide uses open source. Most technology companies are significant contributors
Web 2.0
Government
Enterprise
High-Tech
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33 www.intelcapital.comIntel Confidential
Open Source Business models for startups to consider
Support• Give software
away for free• Charge for
support• Examples
33
Open Core• Core
functionality is free
• Premium features are paid
• Examples
Leverage Open Source• Commercial
product built on open source
• Examples
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34 www.intelcapital.comIntel Confidential
Key takeaways• VC interest in Enterprise Software continues to accelerate• Ample liquidity/exit options available to high-growth software
companies with the right unit economics via M&A, IPO and PE markets
• The virtuous cycle of Cloud, Open Source software, Big data and Cognitive computing will create the next trillion dollar of market cap in Enterprise Software