Valuation Framework and Execution Risk

 Today we are breaking down the cybersecurity giant, Cloudflare. 

Today, Cloudflare controls over 20% of the world’s web traffic, and more impressively, absorbs 2.5mn cyber attacks per second.

My guest is Sam Eden, Investor at Square Peg’s Global Tech Fund. And while I understood on the surface what Cloudflare does, Sam helped me get into the weeds on how the digital pipes actually work.

So we go through the rise of Cloudflare and how they differentiated themselves vs. the incumbents and fellow upstarts. Through this story, Sam details the product offerings that led to Cloudflare's leading market share, and what growth looks like moving forward. 

Please enjoy this episode on Cloudflare. 

For the full show notes, transcript, and links to the best content to learn more, check out the episode page⁠⁠⁠⁠⁠⁠⁠ here.⁠⁠⁠⁠⁠⁠⁠

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Timestamps 

(00:00:00) Welcome to Business Breakdowns

(00:02:33) Episode Intro: Cloudflare

(00:03:56) What Cloudflare Does: A Digital Postal Service

(00:06:24) How Shopify Uses Cloudflare

(00:07:29) Serving 20% of the Internet’s Traffic

(00:08:19) The Internet Before Cloudflare

(00:12:01) Cloudflare’s Founding Story

(00:14:32) Easy Onboarding, Powerful Network Effects

(00:16:05) Why Hackers Were Early Customers

(00:16:58) How Cloudflare Benefited from the Innovator’s Dilemma

(00:19:38) Why Partnering with ISPs Was a Win-Win

(00:20:44) Bigger is Better: Cloudflare’s Reinforcing Loop

(00:22:50) Product Evolution Over Time

(00:26:37) How the Internal Security Offering Works

(00:27:53) Act 3: Developing a Proprietary Software Stack

(00:33:21) Four Ways AI Impacts the Business

(00:37:04) Building Out the Enterprise Sales Function 

(00:40:06) The “Pool of Funds” Bundling Strategy

(00:43:55) How Channel Partners Drive Growth

(00:46:58) Revenue in 3 Acts

(00:48:23) Mastering the Freemium Model

(00:51:00) Margins & EBITDA

(00:52:47) Capital Allocation: Reinvestment Rules

(00:54:09) Potential New Competitors and Threats

(00:55:17) Lessons Learned From November 2025’s Outage

(00:59:17) Why Cloudflare’s Competitive Position is Strong

(01:01:19) How Canva Uses Cloudflare

(01:02:29) How Sam is Thinking About Risks

(01:04:36) 25x Sales Requires Flawless Execution

(01:07:21) 4 Lessons from Studying Cloudflare