Financial ratios for startups differ from traditional company ratios. The most important: Gross Margin (product economics), Burn Multiple (capital efficiency), Rule of 40 (growth + profitability balance), Magic Number (sales efficiency).
Burn Multiple
Burn Multiple = Net Burn / Net New ARR
<1x = amazing. 1-2x = good. >2x = concerning. Measures how much you burn to add $1 of ARR.
Rule of 40
Rule of 40 = Revenue Growth Rate + EBITDA Margin
Should be ≥40%. E.g., 60% growth + (-20%) margin = 40. ✓
Key Takeaways
- Burn Multiple: <1x amazing, 1-2x good, >2x concerning.
- Rule of 40: Growth % + EBITDA Margin % ≥ 40.
- Pre-revenue: focus on burn rate and runway.
- Post-revenue: focus on gross margin and capital efficiency.
Frequently Asked Questions
A company growing at 100% with -70% EBITDA margin. Rule of 40 score?▼
Answer: 30
100% + (-70%) = 30. Below 40 — needs to improve efficiency or growth.
Burn Multiple of 0.8x means:▼
Answer: For every €1 burned, you added €1.25 of ARR — very efficient
Burn Multiple < 1x means you're adding MORE ARR than you're burning cash. Very capital efficient.
Which ratio matters most for a pre-revenue startup?▼
Answer: Burn rate and runway
Pre-revenue, you have no revenue ratios. Burn rate and runway determine survival.