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The Bessemer Cloud Index

Quick definition: The Bessemer Cloud Index is an annual report analyzing the financial performance of public cloud/SaaS companies, providing industry benchmarks for growth, profitability, valuation, and other metrics.

Key Takeaways​

  • Bessemer publishes annual Cloud Index reports tracking 50-100+ public SaaS/cloud companies, providing the most comprehensive industry benchmark
  • The index reveals median growth rates, median margins, median valuations, and survival rates, showing what "normal" looks like for public cloud companies
  • The index is used by founders, investors, and public company executives to benchmark their own performance against peers
  • Metrics tracked include: growth rate, ARR, Rule of 40, NRR, customer concentration, margins, and valuation multiples
  • Bessemer's analysis influences investment thesis and company strategy, making it essential reading for growth investing

What Is the Bessemer Cloud Index​

The Bessemer Venture Partners Cloud Index is an annual study analyzing the financial metrics of 50-100+ publicly traded cloud and SaaS companies. It's produced by Bessemer Venture Partners, one of the most active venture investors in cloud software, and is widely considered the most authoritative industry benchmark for SaaS performance.

The index emerged in response to the cloud software boom of the 2010s. As the SaaS market matured and went public, investors needed industry-level benchmarks to understand whether specific companies were exceptional or typical. Bessemer aggregated publicly available financial data (from SEC filings, quarterly earnings, investor presentations) to create a comprehensive picture.

The annual Cloud Index typically includes:

  • Revenue growth distribution: What percentage of public companies achieve 20%+, 40%+, or 60%+ growth?
  • Profitability metrics: What percentage are profitable? What are median operating margins?
  • Rule of 40 distribution: What percentage of companies score above 40?
  • Valuation multiples: What do public cloud companies trade at by growth rate?
  • Customer metrics: NRR, customer concentration, CAC payback.
  • Survival analysis: How many companies went public in the past 10 years, and how many are still independent (not acquired)?

Each edition is released annually, usually in October or November, and immediately becomes a reference point for the venture and growth investing community.

Key Findings from Recent Bessemer Cloud Indexes​

While specific data changes annually, the Bessemer Cloud Index consistently reveals several patterns:

Growth rates are decelerating. Public cloud companies in the 2010s often grew 40-80% annually. By the 2020s, the median had moved to 20-30%. This reflects the natural lifecycle—as companies mature and enter larger markets, growth rates decelerate.

Profitability is improving. Historically, many public cloud companies traded at large losses, prioritizing growth. The 2020s trend shows improving operating margins. The median operating margin for public cloud companies has moved from negative to low-single-digit positive, and the percentage of profitable companies is increasing.

Rule of 40 is more common. Recent years show that 50-60% of public cloud companies achieve Rule of 40 scores of 40+. This suggests the market is maturing and companies are converging on sustainable models combining growth and profitability.

Valuation multiples have compressed. In 2021, high-growth SaaS companies commanded 15-25x revenue multiples. By 2023-2024, the range had shifted to 5-10x. This reflects macro repricing (higher discount rates) and the market rationalizing valuations around cash flow generation.

There are clear growth tiers. The index reveals a distribution where some companies maintain 40%+ growth (exceptional), many are in the 20-35% range (good), some are in the 10-20% range (mature), and a tail are below 10% (late stage). This distribution is relatively stable across years.

How Companies Use the Bessemer Cloud Index​

Founders use the index to benchmark growth and profitability. A founder raising Series C capital reviews the Bessemer index to understand: "What's the median growth rate for companies at our stage and revenue level? What's the median margin? How do we compare?" This informs fundraising strategy and valuation discussions. A founder whose company is above-median on both metrics has strong arguments for aggressive valuation.

Investors use the index to understand market dynamics. VCs track whether median cloud company growth is accelerating or decelerating, whether margins are improving or deteriorating, and whether valuations are expanding or compressing. These trends inform investment thesis and allocation decisions. If median cloud company growth is 25% but a specific company claims 60% growth, investors dig deeper to understand whether the company is exceptional or making misleading claims.

Public company executives use the index to set expectations. A public SaaS company uses Bessemer data to understand investor expectations. If the median public cloud company has Rule of 40 of 42 and the company is at 38, this signals a need to improve either growth or margins. If the company is at 48, it's performing exceptionally and might consider aggressive capital allocation (M&A, buybacks, dividends).

Investment committees use the index to calibrate valuations. When evaluating a private company for investment, investors reference Bessemer data: "Companies with similar growth and margins trade at 8x revenue publicly. This private company is asking for 10x, which is a 25% premium. Is that justified by the lower risk profile?" The index is the pricing anchor.

Bessemer's Stages of Cloud Maturity​

The Bessemer Cloud Index sometimes segments companies by maturity stage, showing how companies progress:

Stage 1: Growth at all costs. Young public companies (recent IPOs) with 50%+ growth and negative margins. Rule of 40 driven entirely by growth. Valuation depends on trust in eventual profitability.

Stage 2: Growth and profitability inflection. Companies growing 30-40% while approaching positive margins. This is the inflection point where the company is proving it can be profitable. Valuation often expands during this stage.

Stage 3: Mature growth. Companies growing 15-25% with positive 10-20% margins. Rule of 40 is comfortably achieved. Valuations are reasonable, and cash generation is strong.

Stage 4: Slow growth and cash generation. Companies growing 10-15% or lower with 15%+ margins. Cash generation exceeds growth rate. Valuation multiples compress, but absolute returns are strong via cash and dividends.

Companies typically progress through these stages over 10-15 years from IPO. Some accelerate (find new markets, launch new products), and some decelerate (market saturation, commoditization).

Specific Metrics in the Index​

The Bessemer Cloud Index typically tracks:

Rule of 40: The percentage of companies achieving 40+ points, often segmented by company age and size. Newer public companies are less likely to achieve Rule of 40; mature companies are more likely.

Net Revenue Retention (NRR): The median NRR for public cloud companies is typically 100-110%, depending on the year. Companies above 110% are exceptional; below 100% face churn challenges.

Customer Acquisition Cost (CAC) payback: The median is typically 12-18 months, depending on segment. SMB companies have faster payback; enterprise companies slower. Improving payback signals more efficient growth.

Customer concentration: The percentage of public companies with top 10 customers > 40% of revenue, top customer > 10%. High concentration is rare among large public companies, but common among smaller ones.

Gross margin: The median is 65-75% for cloud companies, with range from 50% (low-margin infrastructure) to 90%+ (high-margin SaaS). Improving gross margins signal scale and pricing power.

Operating margin: The median has improved from negative territory to single-digit positive in recent years. Distribution is wide (negative 30% to positive 40%), reflecting company diversity.

Valuation multiple: The median EV/revenue multiple is tracked alongside growth rate, showing how multiples correlate with growth. Also tracked by company age and ARR size.

Data Availability and Limitations​

The Bessemer Cloud Index uses publicly available information from SEC filings (10-K and 10-Q forms), quarterly earnings releases, and company presentations. This data is rigorous and verified, but not perfectly representative.

Selection bias: The index includes only public companies, which skews toward larger, more mature businesses. Breakout growth companies like Stripe or Figma (still private) are not included. The index thus underrepresents hyper-growth, venture-backed companies.

Industry mix: The index includes software companies, but definitions vary. Some years include infrastructure and marketplace companies; other years exclude them. This affects median metrics across editions.

Timing: The index is published annually, so it reflects a snapshot at one point in time. The market might shift meaningfully (interest rate changes, macro conditions) between editions.

Survivorship bias: Companies that were public 10 years ago but were acquired or went private are sometimes excluded, inflating the median performance of companies that "survived" as independent public entities.

Using Bessemer Data for Investment Analysis​

An investor evaluating a Series B SaaS company can use Bessemer Cloud Index data as follows:

  1. Identify the relevant segment. Is this company targeting SMB or enterprise? Vertical SaaS or horizontal? Find public companies in the same segment.

  2. Gather median metrics. What's the median growth rate for companies of similar size? Median margins? Median Rule of 40?

  3. Benchmark the target company. How does the target company compare to the median? Is it above or below on growth, margins, unit economics?

  4. Determine the valuation range. If the median company in the segment trades at 8x revenue, the target company should trade at 6-10x depending on whether it's above or below median.

  5. Assess maturity stage. Is the target company progressing toward Stage 3 (Mature growth) or Stage 4 (Slow growth)? This determines valuation trajectory.

Bessemer data doesn't determine valuation alone, but it provides essential context for calibration.

Bessemer publishes editions yearly, creating a time series of data. Tracking trends across editions reveals industry dynamics:

Median growth decelerating (from 30% five years ago to 22% today) indicates market maturation and rising competitive intensity. Companies face harder growth and must compete on profitability.

Median margins expanding (from 5% to 12%) indicates companies are capturing operating leverage and shifting from growth-at-all-costs to profitable growth.

Median Rule of 40 increasing (from 35 points to 42 points) indicates the industry is healthier and more sustainable. Fewer companies are betting the farm on future profitability.

Valuation multiples compressing (from 10x to 6x) indicates the market is repricing away growth premia and focusing more on cash flow and profitability.

Survival rate declining (from 85% of IPOs in 2010s still public in 2024 to 70%) indicates increasing M&A activity. Large acquirers (Google, Microsoft, Salesforce, etc.) are consolidating the cloud market.

These trends inform broader investment theses and market expectations.

The Bessemer Index and Growth Investing​

For growth investors, the Bessemer Cloud Index is indispensable. It defines the "Rule of 40" benchmark, reveals what healthy SaaS metrics look like, shows valuation frameworks, and tracks market trends.

Reading the most recent edition (available at bvp.com) is essential for anyone investing in or building SaaS companies. It takes 30-45 minutes to review the full report and instantly updates your mental models of what's normal, exceptional, or concerning in the cloud software market.

Next​

Read EV-Sales for Hypergrowth to explore advanced valuation techniques for companies beyond the Rule of 40.