Key Takeaways
- • Bessemer Venture Partners proposes "MT SAAS" as the successor investment thesis to FAANG, citing saturation in internet penetration and slowing analyst forecasts for mature tech giants as rationale for the portfolio shift.
- • MT SAAS basket delivered 803% total return and 65% annualized IRR versus FAANG's 330% total return and 39% annualized IRR over the measurement period (12/31/09–11/30/20), demonstrating material outperformance.
- • Cloud computing represents the next mega-trend with potential to produce market leaders comparable to FAANG, driven by accelerating software adoption as the fastest-growing technology segment and its expanding share of global GDP.
- • MT SAAS comprises a diversified mix of application-layer companies (CRM, Adobe, Shopify) and infrastructure providers (Microsoft, Twilio, Amazon), including both incumbent giants and emerging challengers positioned for cloud-native growth.
- • FAANG's historical dominance—24x returns since 2010 and 14x since 2013—reflects dual macro tailwinds of internet and mobile adoption, conditions that Bessemer argues are reaching maturity in North America and unlikely to repeat at scale.
Summary
Bessemer Venture Partners has introduced MT SAAS as a reframed investment narrative for institutional capital seeking the next generation of technology market leaders. The thesis challenges the enduring dominance of FAANG (Facebook, Amazon, Apple, Netflix, Google), which has served as the canonical proxy for technology exposure since Jim Cramer popularized the acronym in 2013. While acknowledging FAANG's historical performance—including a 24x return since 2010 and 14x since the term's coinage—Bessemer contends that the structural tailwinds supporting these stocks have materially weakened. Internet penetration saturation in North America and increasingly conservative analyst forecasts suggest the era of outsized FAANG outperformance is approaching exhaustion.
The performance differential between the two baskets is substantial. Over the 12-month period ending November 30, 2020, the equally weighted FAANG Index generated 34.3% annualized returns, outpacing the Nasdaq 100 Index's 20.2% and the broader market's 13.7%. However, Bessemer's longer-term analysis reveals a more decisive shift: MT SAAS delivered 803% total return with a 65% annualized IRR, compared to FAANG's 330% total return and 39% annualized IRR—a gap that underscores the venture capital firm's conviction in cloud-driven technology as the secular growth narrative.
MT SAAS encompasses a strategically diversified portfolio spanning both application and infrastructure layers of the cloud economy. The basket includes application-layer software companies such as customer relationship management (CRM) platforms, Adobe (ADBE), and Shopify (SHOP), alongside infrastructure providers including Microsoft (MSFT), Twilio (TWLO), and Amazon (AMZN). This composition blends established technology incumbents with specialized cloud-native operators, providing exposure to both the reshaping of legacy technology franchises and the emergence of new market leaders built on distributed, cloud-first architectures.
Bessemer's central investment thesis rests on cloud computing as the defining mega-trend of the next decade, comparable in scope and impact to the internet and mobile adoption cycles that enriched FAANG investors. Software continues to represent the fastest-growing segment within the technology sector, and the collective contribution of technology to global GDP shows no signs of saturation. The shift reflects a maturing recognition among institutional investors that the next generation of compounding returns will likely flow toward companies positioned at the infrastructure and application layers of cloud ecosystems rather than the consumer-focused, platform-centric business models that defined FAANG leadership.
The performance differential between the two baskets is substantial. Over the 12-month period ending November 30, 2020, the equally weighted FAANG Index generated 34.3% annualized returns, outpacing the Nasdaq 100 Index's 20.2% and the broader market's 13.7%. However, Bessemer's longer-term analysis reveals a more decisive shift: MT SAAS delivered 803% total return with a 65% annualized IRR, compared to FAANG's 330% total return and 39% annualized IRR—a gap that underscores the venture capital firm's conviction in cloud-driven technology as the secular growth narrative.
MT SAAS encompasses a strategically diversified portfolio spanning both application and infrastructure layers of the cloud economy. The basket includes application-layer software companies such as customer relationship management (CRM) platforms, Adobe (ADBE), and Shopify (SHOP), alongside infrastructure providers including Microsoft (MSFT), Twilio (TWLO), and Amazon (AMZN). This composition blends established technology incumbents with specialized cloud-native operators, providing exposure to both the reshaping of legacy technology franchises and the emergence of new market leaders built on distributed, cloud-first architectures.
Bessemer's central investment thesis rests on cloud computing as the defining mega-trend of the next decade, comparable in scope and impact to the internet and mobile adoption cycles that enriched FAANG investors. Software continues to represent the fastest-growing segment within the technology sector, and the collective contribution of technology to global GDP shows no signs of saturation. The shift reflects a maturing recognition among institutional investors that the next generation of compounding returns will likely flow toward companies positioned at the infrastructure and application layers of cloud ecosystems rather than the consumer-focused, platform-centric business models that defined FAANG leadership.
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