Interactive online tool enables founders to compare their growth and profitability against an index of publicly-traded SaaS companies
BOSTON, April 11, 2022 /PRNewswire-PRWeb/ -- Volition Capital, a leading technology and consumer growth equity firm, today launched its Rule of 40 index and calculator—a tool that provides a live view of the public market's current prioritization of growth vs. profitability. This free tool allows private market founders and executive teams to plot their company's metrics in the index to measure their performance against these two fundamental metrics.
Updated daily, the Rule of 40 index currently tracks 84 publicly-traded Software-as-a-Service (SaaS) companies including Salesforce, Shopify, Snowflake, Qualtrics, Zendesk, HubSpot, Zoom and more.
As the market shifts from a primarily growth-focused valuation mindset to one that considers both growth and profitability, it becomes increasingly important for companies to evaluate their specific market and capital availability to determine if growth is sustainable. Growth at all costs introduces financing risk and assumes that capital will remain readily available to fund continued losses. As SaaS companies are often recurring revenue businesses, striking a balance between growth and profitability is a more reliable indicator of future success.
The Rule of 40 is considered a "back of the envelope" calculation and quick measure of how well a company is prioritizing top line growth versus bottom line profitability. Essentially, the Rule of 40 is achieved if year-over-year growth rate plus profitability margin equals 40% or greater.
"SaaS companies are historically difficult to value," said Sean Cantwell, a Managing Partner at Volition Capital who invests in software and technology-enabled business services. "While not a silver bullet, the Rule of 40 provides a quick line of sight into companies that may command a premium valuation. As investors and board members, benchmarking where a company measures on the Rule of 40 over time can provide valuable insights into long term success on a path to exit."
To use the Rule of 40 calculator, founders can enter their growth and EBITDA margins and the calculator will plot their metrics on the graph, giving them their own Rule of 40 score. Generally speaking, companies with high revenue multiples do beat the Rule of 40, but there are exceptions to the rule and it is important to note that it is possible to command a premium valuation without beating the Rule of 40.
Read more about Volition's Rule of 40 index and calculate your own Rule of 40 score here.
About Volition Capital
Volition Capital is a Boston-based growth equity firm that principally invests in high-growth, founder-owned companies across the software, Internet, and consumer sectors. Founded in 2010, Volition has over $1.1 billion in assets under management and has invested in over 30 companies in the United States and Canada. The firm selectively partners with founders to help them achieve their fullest aspirations for their businesses. For more information, visit http://www.volitioncapital.com or follow us on Twitter @volitioncapital.
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SOURCE Volition Capital
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