Capital Efficiency

Capital efficiency describes how much output (revenue growth, user growth, product development) a company generates per dollar of capital consumed. A capital-efficient company reaches key milestones with less money. Metrics used to evaluate capital efficiency: burn multiple (net burn / net new ARR), CAC payback period, revenue per employee, and gross margin trajectory. Capital efficiency has become a primary VC evaluation criterion, particularly after the 2021-2022 era when many companies raised huge rounds and grew inefficiently. 'Default alive' companies (those that would reach profitability on current trajectory without raising more capital) are valued for their capital efficiency. Efficient companies have more leverage in fundraising — they aren't desperate for cash.