{"id":338106,"date":"2017-04-12T05:37:24","date_gmt":"2017-04-11T21:37:24","guid":{"rendered":"http:\/\/techcrunch.com\/?p=1475596"},"modified":"2017-04-12T05:37:24","modified_gmt":"2017-04-11T21:37:24","slug":"an-inside-look-at-bessemer-venture-partners-investment-process-for-twilio","status":"publish","type":"post","link":"https:\/\/people.utm.my\/asmawisham\/an-inside-look-at-bessemer-venture-partners-investment-process-for-twilio\/","title":{"rendered":"An inside look at Bessemer Venture Partners\u2019 investment process for Twilio"},"content":{"rendered":"

<\/p>\n

Mark Twain once said that history doesn\u2019t repeat itself, but it does rhyme. If Twilio provides any indication of what\u2019s to come, we believe now more than ever in the future of the business-to-developer (B2D) space. As we reflect on 2016, Twilio\u2019s IPO is a real highlight.<\/span><\/p>\n

We recently published<\/span> Eight Laws for Developer Platforms<\/a>. L<\/span>ooking back at our early investment memos recommending an investment in Twilio, the company exemplifies these laws in practice. With permission from Twilio, we\u2019re open sourcing an inside look at our original investment memos, which Byron Deeter, David Cowan and I co-authored.<\/span><\/p>\n

We diligence each company before investing and compile our findings into an investment recommendation that forms the basis for our internal discussions and consideration. Interestingly, we can clearly pattern match Twilio to almost all of our Eight Laws.<\/span><\/p>\n

Law No. 1: Delivers a service that can be metered<\/em><\/strong><\/p>\n

Not unlike SaaS businesses, successful developer platforms need to deliver predictable, recurring revenue \u2014 ideally that expands on a customer basis over time. Twilio charges by the call, phone number or text message, and this pricing schema has been core to Twilio\u2019s 155 percent dollar-based net expansion rate (from their Q3 2016 10-Q).<\/span><\/p>\n

Law No. 2: Grows with the business<\/em><\/strong><\/p>\n

This law runs in parallel with the first. Developer businesses sometimes mirror consumer businesses in that an initially free or cheap product becomes so valuable that developers are later willing to pay for it. Consider the number of companies that rely on AWS. Amazon allows customers to provision EC2 instances for as little as several dollars a month and scale as usage (and dependency!) grows to some very large numbers. AWS now does more than $13 billion\/year in revenue with 60 percent year-over-year growth; a large part of this growth comes from existing businesses. In our Series B investment memo, we called out one such customer for Twilio:<\/span><\/p>\n

\"\"<\/p>\n

Series B investment memo ~ 2010<\/p>\n<\/div>\n

The Series C investment memo shows Twilio was growing, as planned, with their customers. Our concerns that the company\u2019s revenue was solely from smaller startups were largely erased:<\/span><\/p>\n

\"\"<\/p>\n

Series C investment memo ~ 2011<\/p>\n<\/div>\n

Developer platforms need to be so mission critical and such a step function improvement over the status quo that customers don\u2019t mind paying up as their business succeeds.<\/span><\/p>\n

Law No. 3: Replaces something that companies already pay for<\/em><\/strong><\/p>\n

It\u2019s hard to get enterprises to make major spend commitments to new categories that aren\u2019t replacing existing budget lines. We noted some examples of this in action at Twilio in our seed memo; here\u2019s one case in point:<\/p>\n

\"\"<\/p>\n

Seed IR memo ~ 2009<\/p>\n<\/div>\n

Law No. 4: Offers an amazing user experience for the developer<\/em><\/strong><\/p>\n

This one is self-explanatory. Enterprise products aren\u2019t traditionally known for a focus on user experience or design (of course, there are exceptions). Twilio was an outlier here with an insane focus on making the experience super smooth and beautiful for the developer. We called this out in our memo:<\/span><\/p>\n

\"\"<\/p>\n

Seed investment memo ~ 2009<\/p>\n<\/div>\n

Law No. 5: Receives tons of explicit developer love<\/em><\/strong><\/p>\n

This law runs in parallel with No. 4. Developers are the consumers; if they are unhappy with a product, they will quickly go elsewhere and not return. True story: Twilio CEO Jeff Lawson used to kick off every board meeting by reading tweets from happy Twilio users. When people are vocal about their love of a product, something is being done right. This only partially dawned on us at the time of the original Twilio memo as we did scour Twitter for complaints \u2014 but only as it related to their support team:<\/p>\n

\"\"<\/p>\n

Series B investment memo ~ 2010<\/p>\n<\/div>\n

The product love was so strong that Twilio was able to hold off on building a large sales team early on:<\/span><\/p>\n

\"\"<\/p>\n

Seed investment memo ~ 2009<\/p>\n<\/div>\n

Law No. 6: Exhibits strong network effects<\/em><\/strong><\/p>\n

Networks effects aren\u2019t only for consumer social applications. Developer platforms often exhibit similar characteristics. The marketplaces that exist at<\/span> GitHub<\/span><\/a>,<\/span> npm<\/span><\/a>\u00a0and<\/span> Stack Overflow<\/span><\/a> are both made increasingly valuable as more developers become active users and contributors. Twilio clearly has economies of scale through an advantageous cost structure; as higher volumes of communications are routed through their Super Network, they have increasing leverage. This network effect is subtler, but equally present in the case of Twilio, although it wasn\u2019t until the Series C in 2011 that we called it out in our investment memo \u2014 and even then, it\u2019s a fairly minor mention:<\/span><\/p>\n

\"\"<\/p>\n

Series C investment memo ~ 2011<\/p>\n<\/div>\n

The truth is that as Twilio has grown, the network effect has become more prominent, given the large number of developers with active accounts (34,457 as of the company\u2019s Q3 2016 10-Q \u2014 active account defined as spending at least $5 in the most recent month). The more developers trained on how to use Twilio, the more likely an enterprise or ISV will turn to Twilio to build a particular piece of functionality.<\/span><\/p>\n

Law No. 7: Eliminates the need for non-core skillsets that no one enjoys<\/em><\/strong><\/p>\n

Developer platforms can have incredible leverage if they obviate the need for companies to build functionality that isn\u2019t core to their competitive advantage. For example, payment processing was a headache for many until the advent of<\/span> Stripe<\/span><\/a> and other payment APIs geared to developers. Stripe eliminated the need for expertise in this area \u2014 well outside of most businesses\u2019 primary domain \u2014 thus freeing up time to work on core product features. The opportunity cost of a developer\u2019s time is not to be discounted. This is from our seed investment memo:<\/span><\/p>\n

\"\"<\/p>\n

Seed investment memo ~ 2009<\/p>\n<\/div>\n

Law No. 8: Democratizes development<\/em><\/strong><\/p>\n

Developer platforms that enable and empower non-developers are truly a needle in a haystack \u2014 but extremely powerful once the core mechanics are working. As we note below, we loved that some of Twilio\u2019s earliest customers were from ordinarily non tech-enabled organizations, such as the DNC and RNC. Twilio enabled them to power voter outreach, which felt especially prescient given the election around the corner (by which we meant the 2010 mid-term election) and how candidates were trying to capture constituents on their platforms of choice (e.g. on mobile!).<\/span><\/p>\n

\"\"<\/p>\n

Series B investment memo ~ 2010<\/p>\n<\/div>\n

Twilio was Bessemer\u2019s first investment in the business-to-developer space, and the first pure B2D API company to go public. It has been a pleasure to get both a backstage pass and front-row seat to Twilio\u2019s success from a seed investment to an extremely successful company by any measure. Working so closely with Jeff Lawson and Twilio\u2019s team over the years is not an honor we take lightly.<\/span><\/p>\n

We are excited for the future of developer platforms, particularly the role they will play in transforming traditionally non tech-enabled industries into the modern framework of Web development.<\/span><\/p>\n

We feel strongly that Twilio\u2019s success in enabling developers to build creative and engaging applications in an area with clunky, inefficient alternatives \u2014 e.g. communications \u2014 is a trend we are going to see more and more of in the future.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

\"\" Mark Twain once said that history doesn’t repeat itself, but it does rhyme. If Twilio provides any indication of what’s to come, we believe now more than ever in the future of the business-to-developer (B2D) space. As we reflect on 2016, Twilio’s IPO is a real highlight. Read More<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

\"\"\/ <\/p>\n","protected":false},"author":5817,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[25],"tags":[59,66,26],"class_list":["post-338106","post","type-post","status-publish","format-standard","hentry","category-technology","tag-media","tag-techcrunch","tag-technology"],"_links":{"self":[{"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/posts\/338106","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/users\/5817"}],"replies":[{"embeddable":true,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/comments?post=338106"}],"version-history":[{"count":0,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/posts\/338106\/revisions"}],"wp:attachment":[{"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/media?parent=338106"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/categories?post=338106"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/people.utm.my\/asmawisham\/wp-json\/wp\/v2\/tags?post=338106"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}