Lessons from Byron Deeter

A leading figure in the world of cloud computing and venture capital, Byron Deeter, a partner at Bessemer Venture Partners, has cultivated a reputation for his insightful investment strategies and his guidance for entrepreneurs. [1] Having been a founder himself with Trigo Technologies, which was acquired by IBM, Deeter brings a unique perspective to his role as an investor. [1] He is widely recognized for co-authoring Bessemer's "10 Laws of Cloud Computing," a foundational text for cloud and SaaS businesses. [1]

On Investment Philosophy and Market Trends

On Market Timing: "Great companies are built in all markets so I've really given up trying to time markets, either as a founder or as an investor. Find great people with good vision and pay the fair market price, and generally, really good things happen." [2]
The Power of Megatrends: "It does help to have one of these megatrends as a tailwind. Cloud computing has certainly been one for me, but there are a number of these macro trends in tech." [2]
Looking Ahead of Public Markets: "For us to be successful as venture investors and partners with our entrepreneurs, we need to be five to ten years ahead of what public markets are seeing, or we're just going to be too late by the time the company is at scale." [2][3]
The Inevitable March to the Cloud: "Of course, there will be some categories that remain... But we think, for the vast majority of software in the world, that march is happening, it's happening faster and it's inevitable." [4]
The Future of Innovation: "Our generation's just going to see the most formative transformation in technology in the entire sum of human history, like full stop. What's happening now and about to happen is unprecedented and is just wildly exciting to fathom." [4]
Scale Wins in the Cloud Economy: "Market leaders generally command over 50% of the total market's enterprise value; second place captures less than 30%, and third place is lucky to get 20%." [5]
The Incumbent's Disadvantage: Deeter believes the traditional advantage of incumbent companies is now a disadvantage in the face of agile, cloud-native startups. [6]
Pace of Innovation: "The pace of innovation is incredibly compressed right now. and the best teams are using that for their advantage. and just iterating at mind-boggling rates and the the marginal. companies are getting passed faster than ever." [7]
On Competition: "Now there's 15 in every single thing... the social graces are gone aren't they it's kind of a bummer." [7]
The Rise of AI: Deeter acknowledges the high stakes in AI and the changing nature of defensibility in this new landscape. [8]

Advice for Founders and Startups

Key Traits of Successful Founders: "One is aggressive clarity of vision and then the second is really hyper aggressive execution... they run through walls to get things done." [9]
Build an Efficient Business: "Efficient businesses will be rewarded. Businesses that can scale without needing to consume lots of capital or going way out on their ski tips in terms of customer acquisition." [2][3]
Maintain an Even Keel: "It's important to temper the highs and lows and encourage the team to keep their head down and keep building real value." [2]
When Things Aren't Working: "There are really two choices you have if it's not working. I don't mean to be crass, but it's cut bait or buy time. Your value of time is more expensive than our cost of capital." [10]
The Importance of a Vision Statement: "You set out a vision statement that inspires... It is the dream it is what is getting people inspired and excited." [11]
Hiring Great People is the Primary Job: "Your primary job as CEO or senior executive is to hire great. people you're a tech. business you're an IP based. company that's the asset you have." [11]
The Value of Diverse Teams: "You're fighting for diverse teams. not because it's politically correct but because the data shows they make better decisions diverse teams will make you better as a company." [11]
Follow the Customer for Mobile Strategy: "Follow the customer on that, in the sense of think through what are their use cases where mobility could be an enabler for them, and get ahead of it." [10]
Experiment with Sales and Marketing: "Experiment with the sales and marketing model. Prove it's the right match for the business before scaling hiring efforts." [5]
Know Your Business Model: "The important thing is to track and figure out what your business model is there's not one answer. but you need to understand what your answer is." [11]

On SaaS and Cloud Metrics

The Single Most Important Metric: "Committed Annual Recurring Revenue (CARR) This is the single most important metric for a cloud business to monitor, as the change in CARR growth provides the clearest visibility into the health of any cloud business." [5][12]
The 5 C's of Cloud Finance: Deeter emphasizes the importance of what he calls the "5 C's of cloud finance": Committed Monthly Recurring Revenue (CMRR) or Committed Annual Recurring Revenue (CARR), Customer Acquisition Cost (CAC), Customer Lifetime Value (CLTV), Churn, and Cash Flow. [5][12]
Sales Efficiency is Oxygen: "Sales efficiency is your oxygen. It's not food. It's not water. I could live a couple of days without water. I've got enough fat on this body to live weeks without food... Oxygen. You're out there. It's the person in the pool." [10]
The Cost of Churn: "Death and marriage the only acceptable reasons to lose a customer they go out of business or they get acquired customer success retention and renewal rates are the path to a successful business." [11]
Quantifying the Impact of Churn: A 1% change in monthly churn can equate to a significant difference in annual recurring revenue over several years. [11]
Growth Benchmarks: "A top tier $10 million ARR company should be growing 300% year over year." [10][11]
Discover Your Secret KPIs: "Great cloud companies have a bespoke metric (or multiple) that is a leading indicator of success." [5][13]
Customer Success is Company Success: This is a core law in his framework, emphasizing the shift from just acquiring customers to ensuring their long-term success. [5][9]
Efficiency by Channel: "We particularly look for efficiency by channel, then marginal efficiency by channel and what is most scalable." [12]
Scaling with Venture Capital: "It makes sense to raise venture capital when the business can access growth opportunities through marketing expansion and wants to use venture capital specifically for sales and marketing expansion." [12]

On Building a Unicorn

The Path to a Billion-Dollar Valuation: Deeter provides a roadmap for building a product and service that can surpass the $1 billion mark, emphasizing that while difficult, it is achievable. [10]
The Importance of a "Second Act": "Expand your company's TAM with a Second Act to dominate the market." [5]
Product as a Competitive Advantage: In the competitive cloud landscape, a superior product is a key differentiator. [5]
Mastering Financial Metrics: A deep understanding and mastery of the "5 C's of Cloud Finance" is crucial for scaling. [5]
The Role of Leadership in Culture: "Great leaders set the moral compass and define the corporate culture." [5]
Mapping Your "Fuel Stops": This refers to planning future funding rounds and strategic milestones. [5]
The "Public Playbook": Successful private companies should start operating with the discipline and rigor of a public company. [5]
The Value of Patience: "The best companies can typically wait until the market timing is ideal to go out, certainly on the IPO side." [2]
Saying No to Acquisitions: "Almost every one of our companies that inevitably goes public has also said no to multiple credit acquisitions offers along the way." [2]
The Power of a No-Friction Sales Model: While not the only path to success, a low-friction or no-friction sales model can be a significant advantage. [11]

Personal Reflections and Learnings

From Founder to VC: Deeter's experience as a founder of an early cloud company gave him "empathy (and entrepreneurial scar tissue)" that informs his work as an investor. [2]
Early Belief in SaaS: He recalls being "turned down by many venture firms as a CEO and specifically because they didn't believe the software as a service business model would ever make a penny of money." [3]
The Importance of Trust: He emphasizes the need for "radical trust" between investors and founders. [2]
Continuous Learning: Deeter advocates for being a "scholar of the industry" to stay ahead. [13]
The Human Element: Despite the focus on metrics and technology, Deeter consistently highlights the importance of people, vision, and teamwork. [2][11]
On Board Membership: He stresses the importance of preparation and strategic focus for board members. [3]
Backing Visionary Entrepreneurs: A core part of his investment thesis is to back founders with a strong and clear vision. [3]
The Long-Term View: His investment in Twilio, from a small initial check to Bessemer's largest position, demonstrates his commitment to long-term partnerships. [6]
Optimism Amidst Uncertainty: Even in challenging economic times, Deeter remains optimistic about the future of the cloud, believing that the "unstoppable wave of innovation will certainly dominate in the big picture." [4]
Grateful for Everything, Entitled to Nothing: This ethos from his Cal Rugby days has shaped his character and work ethic. [1]

Learn more:

Lessons from Byron Deeter

On Investment Philosophy and Market Trends

Advice for Founders and Startups

On SaaS and Cloud Metrics

On Building a Unicorn

Personal Reflections and Learnings

Written by Antoine Buteau

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