January 29th I wrote about the Rule of 40. The reference was to posts in 2015. There is new data in Piper Jaffray’s 2018 Software Market Review which was analyzed by Dave Kellogg.
Piper’s chart that plots R40 score against enterprise value / revenue.
Amongst the findings –
– Less than half of all companies in this set are Rule 40 compliant; The median R40 score was 31.7%
– The median multiple for companies in the set was 6.6x
‘Early stage startup executives misapply these charges forgetting the selection bias within them…..The big question around the Rule of 40 is: when should companies start to target it? A superstar like Elastic had 76% growth and 8% FCF margin so a R40 score of 84% at its spectacular IPO. However, Avalara had 26% growth and -28% FCF margin for an R40 score of -2% and its IPO went fine. Ditto Anaplan.’ observes Dave.
If this interests you read the whole post. It has some very interesting points. Link in the first comment.
I will keep looking for more such analysis and bring them to your notice from time to time.
Link to Dave’s post An Update on the SaaS Rule of 40