Bessemer's own cloud metric weighs growth over margin by design

The record

Bessemer Venture Partners publishes State of the Cloud 2024, an annual research letter on cloud and AI investing dated 20 June 2024. On the same Atlas site, Bessemer partners Byron Deeter and Sam Bondy published The Rule of X on 2 January 2024, defining a growth-efficiency formula the firm says it now applies across its cloud coverage. The formula is stated as Rule of X equals growth rate multiplied by a weighting factor, plus free cash flow margin, with the multiplier set at roughly 2x for private companies and 2x to 3x for public ones. The essay frames this as a deliberate replacement for the long-used Rule of 40, which simply adds growth and margin without weighting either term.

What the documents establish

The Rule of X essay is Bessemer's own house formula, not an audited or third-party-verified standard: it establishes what Bessemer's investment team says it uses, and the essay supplies its own worked example. A business growing 30% with a 15% free cash flow margin scores 45 under the Rule of 40, identical to a business growing 15% with a 30% margin. Under Rule of X the two diverge because growth carries the multiplier: the faster-growing, lower-margin business scores roughly 75, while the slower-growing, higher-margin one still scores 45. The State of the Cloud 2024 report applies a related idea to Bessemer's own portfolio, describing an average 'BVP Efficiency Ratio' of roughly 1.1x for its Vertical AI holdings above $4 million in annual recurring revenue, defined as net new committed ARR divided by net cash burn. Both figures describe Bessemer's own framework and portfolio; neither is a market census, and neither should be read against another firm's benchmark without adjusting for the different formula.

The operating read

Editorially, the useful distinction is between a metric a company reports about itself and a metric an investor applies to rank companies it does not control. Rule of X is Bessemer's stated lens for its own diligence; a founder who hears it cited by an investor should ask which multiplier is being used, since the essay allows a range, and a small change in that multiplier changes which of two similar businesses scores higher. The same caution applies to the Efficiency Ratio, which describes a self-selected group of Bessemer's later-stage AI holdings, not vertical software generally. Treating either figure as an external pass-or-fail bar risks importing one investor's shorthand into a decision it was not built for.

What to check before you decide

Before adopting either formula as an internal target, check the following against your own documents.

• Which multiplier is applied to growth in the Rule of X calculation, and does whoever cites it disclose that choice?
• Is free cash flow margin defined the way Bessemer defines it, or is a different margin measure being relabeled?
• Does the benchmark come from Bessemer's own portfolio, or is it blended with another provider's report?

Rule of X is a reasoning tool one venture firm uses to explain how it weighs growth against cash burn, not an accounting standard, and a board remains free to weigh that trade-off differently.