What is the Bessemer Efficiency Score?
The Bessemer Efficiency Score is a measure of capital allocation and spending habits to determine the efficiency at which a SaaS company is growing.
Bessemer Efficiency Score Framework
Coined by Bessemer Venture Partners, the BVP Efficiency Score is a framework for evaluating a company’s spending efficiency.
Unlike many early-stage metrics used in venture capital, the efficiency score is unique in that it is more about tracking a company’s spending habits rather than solely its revenue growth, i.e. the ”top line”.
While the growth at all costs mindset is common during bull markets — where profitability is not the near-term priority and is instead deferred to the future — issues emerge in bear markets when the capital markets dry up.
A single-minded focus on growth, in lieu of operating efficiency and discipline, eventually catches up with these growth-oriented companies.
Over the long run, efficient growth is more stable and reliable than growth that comes with unsustainable spending.
If the economy were to undergo a contraction, companies with inefficient spending and poor capital allocation would struggle to remain afloat (and would need to raise more outside capital).
BVP Efficiency Score
The BVP scoring system is segmented into three primary classifications:
- Good → <0.5x
- Better → 0.5x to 1.5x
- Best → >1.5x
BVP Efficiency Score (Source: State of the Cloud Report)