The Rule of 40 is a very popular concept and we see founders doing whatever they can to generate growth and profitability at the same time. But valuable publicly traded companies are not actually achieving Rule of 40.
Below is every SaaS company that has IPO’d since October 2017, of which 58 are still public. The data shows their Rule of 40 results in Q1 2025. The median is 6%, average is 0%, and interestingly median Rule of 40 is below median growth of 15% which implies negative profitability. If we look at only those companies that are growing above the 15% median, we’re seeing more like the rule of 13% on median.
So where is the Rule of 40? Few publicly traded companies are achieving it. Our advice to founders is to continue to push hard for cash-efficient growth. That means generating ARR of at least $0.80 for every dollar of operating loss. Don’t forsake growth just to get to profitability; the former is still far more valuable than the latter as long as you’re achieving it cash efficiently.
Thank you for the readership. Visit blossomstreetventures.com for more blogs and SaaS data. Email the author at sammy@blossomstreetventures.com or connect on LinkedIn.
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