Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
We presented two strategies. The strategy focused on Cloud Computing is designed to give investors exposure to primarily software companies that are providing enterprise solutions to companies and that operate with cloud-based subscription revenue models. Bessemer Venture Partners (BVP) is an expert in the space, and it is their knowledge and experience that is driving the semi-annual component selections. The strategy focused on Cybersecurity is designed to give investors to cybersecurity companies that are focused on providing solutions for the future of cybersecurity. Team8 is an expert in the space, and they have a leadership team involving professionals that have held leadership positions in the NSA and Unit 8200 in the Israeli army. Their knowledge is what helps determine the critical forward-looking themes in cybersecurity, as well as the companies that are offering those specific solutions.
We would emphasise that both of these strategies are focused on a long-term megatrend. When we think of our outlook, we are tending to think five or even ten years into the future as opposed to the next twelve months at any point. Our thinking is that our expert partnerships allow us a stronger chance to get in the way of particularly successful firms in these spaces. Currently, every firm needs cybersecurity solutions, even if they choose those not represented by companies in our portfolio. Cloud Computing represents the way in which software would be consumed, if the trends hold, regardless of where people are working, be it from home or an office.
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
The concept of Cloud Computing received a lot of attention during the Covid-19 pandemic because many people needed to almost instantly shift from being office-based to home-based. Importantly, Cloud is really just a description of infrastructure, and it is this infrastructure that drives a degree of flexibility such that if the user is connected to the Internet, they can access what they need. Most likely, there was a bit of ‘euphoria' in terms of the market's response to the theme—and really high short-term returns as a result, but it is important to note that the cloud transition had already started prior to the pandemic and should continue long after it is over.
The concept of Cybersecurity also received a lot of attention during the Covid-19 pandemic, as attackers had more targets given that many workers shifted from centralised offices to decentralised work-from-home setups. It was also a catalyst for many firms in different industries to re-think their infrastructure and cybersecurity strategies. It was not valid to have no strategy prior to the pandemic, and it will be even more essential to have one after the pandemic, as there have been many phishing, ransomware and other attacks to contend with.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
Cybersecurity & Privacy in the digital space are themes important to both strategies at the present time. During 2020, Cloud Computing was dominated by companies focused on communication, since many companies needed a solution to replace physical in-person interaction. Zoom Video Communications was the company most widely associated with this function, and its revenue growth and returns in 2020 reflected this result. Now, it would be incorrect to assume that the same functionality would dominate returns in 2021, and with many people continuing to work from home and companies adopting flexible working approaches to location in the future, new types of cybersecurity and privacy solutions will be important. The cloud strategy has some exposure to these concepts, whereas the cybersecurity strategy is designed fully around these concepts. There are estimates that companies focused on Cloud Security could see annualised revenue growth to the tune of 30% per year for the coming five years, admittedly from a low base.
We are confident in Bessemer's forecast that we are moving towards more than 80% of enterprise software being cloud-based by 2030, and we are confident that all companies are in the process of re-thinking how they address their own unique cybersecurity risks.
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