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BG2 with Bill Gurley, Brad Gerstner & Aaron Levie | Software Valuations, Earnings, AI, Immigration & More | E02
BG2Pod with Brad Gerstner and Bill Gurley
Rule of 40 Importance in Evaluating Companies
The rule of 40 states that if a company maintains a 20% free cash flow margin and a 20% growth rate, it achieves a rule of 40. However, the speaker suggests that the investment community in Silicon Valley should move beyond being bound by the rule of 40. They argue that growth has historically been a significant factor in valuation, but there is a need to shift focus towards other metrics like margins when evaluating companies for public market investors.
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