Volition Capital Launches Rule of 40 Index and Calculator for SaaS Companies to Evaluate Growth and Profitability
An interactive online tool allows founders to benchmark 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 company, today launched its Rule of 40 Index and Calculator, a tool that provides a live view of the current priority of the public market between growth and profitability. This free tool allows private market founders and management 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 many more.
As the market shifts from a primarily growth-focused valuation mindset to one that considers both growth and profitability, it is becoming increasingly important for businesses. assess their specific market and the availability of capital to determine if growth is sustainable. Growth at any cost introduces funding risk and assumes that capital will remain readily available to fund ongoing losses. Since SaaS businesses 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 a quick measure of how well a company prioritizes revenue growth over bottom line profitability. Essentially, the rule of 40 is met if the year-over-year growth rate plus profit margin equals 40% or more.
“SaaS companies are historically difficult to value,” said Sean Cantwell, a managing partner of Volition Capital which invests in software and technology-enabled business services. “While not a silver bullet, the Rule of 40 provides a quick overview of companies that may achieve higher valuation. As investors and board members, Benchmarking a business that measures the Rule of 40 over time can provide valuable insight into long-term success on the road 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. High earnings multiples beat the rule of 40, but there are exceptions to the rule and it’s important to note that it’s possible to get a higher valuation without beating the rule of 40.
Learn more about Volition’s Rule of 40 Index and calculate your own Rule of 40 score here.
About Volition Capital
Volition Capital is a Bostongrowth-based private equity firm that invests primarily in high-growth, founder-owned companies in the software, internet and consumer industries. Founded in 2010, Volition has over $1.1 billion of assets under management and has invested in more than 30 companies United States and Canada. The company selectively partners with founders to help them achieve their most comprehensive aspirations for their businesses. For more information, visit http://www.volitioncapital.com or follow us on Twitter @volitioncapital.
Pierre MoranIndicate Media, 347-880-2895, [email protected]
SOURCE Will Capital