Rule of 40
A rule of thumb Brad Feld relayed from a late stage investor: your growth rate plus your profitability should add up to 40 percent. You can reach the same score by growing faster or by lifting margin.
Real Growth and CashTerm 57 / 81
Formula
Rule of 40 score = Annual growth % + Profit margin %
In practice
The score moves with the profit metric you pick: Feld uses EBITDA, while Bessemer, under the name "efficiency score", adds ARR growth to free cash flow margin. Choose one and do not compare yours with figures built on another. Bessemer says that score generally only becomes meaningful after $25 million of ARR; Feld describes his rule for companies with at least $50 million in revenue. In the early stages the score says little. The same total can hide two very different businesses.