The 10 Laws of Cloud is a roadmap for cloud CEOs to scale their businesses. Some of the key points are...

• In the cloud economy, scale wins: Cloud market leaders often capture more than 50% of the market value, benefiting from a virtuous cycle in which a first mover, product, execution, or leadership advantage generally creates a flywheel of successful financing, hiring, product refinement, and customer retention in which the winner takes most. The market leadership and presence also allows companies to think about "second acts" (new products, adjacent markets, etc.) to expand their total addressable markets (TAM) earlier in their lifecycles, expanding their moats further while enjoying the benefits of scale.
• Growth at optimal cost: This law examines the trade-off between revenue growth and profitability and tries to ensure that the cash burn is rational and sustainable.
• Invest behind the cloud sales and marketing learning curve: Sales and marketing (S&M) is generally the largest operating expense of a cloud company, so ensuring that a go-to-market strategy is optimized (CLTV/CAC is positive, reps are attaining quota, etc.) before investing behind that strategy is imperative. In other words, experiment with S&M before scaling.
• Product as a competitive advantage: Although finding the optimal go-to-market strategy is paramount, it is the company's product that ultimately determines market leadership in the long term. This is why BVP is looking to partner with founders that are product-obsessed, product evangelists that understand customer pain points and are laser-focused on investing in research and development (R&D) and solving customer problems. Increasingly, enterprise products that capture market share are able to deliver consumer-like experiences with an easy-to-use, sleek user interface and great customer service.

The Cash Conversion Score (which D'Onofrio created) is a proxy for return on invested capital (ROIC) on dollars invested into a cloud company. Across the Bessemer portfolio, Cash Conversion Score is directly correlated with the internal rate of return (IRR) generated by an investment. In other words, after back testing, D'Onofrio found that it is highly predictive of future returns! The metric is simple to calculate (and D'Onofrio provides a Good, Better, and Best Framework for different scores), but it is a highly robust summary metric because it is impossible for a cloud company to have a good Cash Conversion Score without having strong underlying software-as-a-service (SaaS) fundamentals including strong product-market fit and a scalable S&M engine. For cloud company CEOs, the lesson of the Cash Conversion Score is that capital should only be raised and deployed when that capital can be successfully used to generate revenue.

I look forward to incorporating D'Onofrio's framework into my research of publicly traded cloud companies. Fool on!

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