Rule of 200
The current economic situation and the blow to technology companies in the public market have shifted the focus to company efficiency, which is especially meaningful for the fintech segment.
Proven and unproven business models are what now segregate future winners and losers. That said, while we see different levels of drawdown in the fintech segment with the anti-leaders in Insurtech and Consumer Finance, even in the leading segments the companies differ significantly in quality.
For the SaaS, VCs came up with a simple Rule of 40 to help quickly evaluate performance. This evaluation is not quite suitable for fintechs because of the peculiarities of the sector, which make it easy to meet this benchmark. Coatue proposed a fairly simple and logical indicator – Rule of 200 = 12M Net Dollar Retention + Revenue growth + Gross margin + Operating margin. This indicator does not allow a company to hide behind one or two good metrics and greatly expedites the sifting out of bad business models
Based on this indicator, we can now select companies that are more likely to weather the storm and give good X’s due to the fact that the wave hit all companies plus or minus the same, but we believe that only efficient players with an emphasis on efficiency rather than growth will survive
It seems to us that the rule of 200 can be a good additional benchmark in the analysis of the company and investors should add it to the checklist.