The Rule of 40: Declining Predictive Power but Still Relevant

Dave Kellogg analyzes the Rule of 40 metric using Battery Ventures data, finding that while it explains 58% of EV/revenue multiples, its explanatory power has declined from 20% above revenue growth alone (2015-2016) to only 7-8% (2017-2018). The article argues the Rule of 40 remains useful for thinking about growth vs. profitability balance but has limited applicability for early-stage startups.