Key Metrics Every Pre-IPO Investor Should Track

Late-stage companies produce a great deal of data. A handful of metrics carry most of the signal about whether growth is healthy and durable.

Net revenue retention

Net revenue retention measures how much a cohort of existing customers grows or shrinks over a year, before adding any new customers. Consistently above 120% is a strong sign that the product becomes more valuable over time; below 100% means the company is filling a leaking bucket.

Gross margin

Gross margin tells you how much of each dollar of revenue is left after delivering the product. Software businesses typically run high; a margin far below the sector norm can indicate hidden services costs or infrastructure intensity.

The burn multiple

The burn multiple — net cash burned divided by net new revenue added — captures how efficiently a company converts capital into growth. A lower multiple means growth is being bought cheaply; a high one means each unit of growth is expensive and dilutive.

The rule of 40

A useful shorthand: revenue growth rate plus profit margin should exceed 40%. It forces a trade-off between growth and profitability and quickly flags companies buying growth at any cost.

• Revenue growth: durable and, ideally, efficient.
• Net retention: is the existing base expanding?
• Gross margin: quality of the underlying business model.
• Burn multiple: capital efficiency of growth.
• Rule of 40: the balance between the two.