Metrics & Performance
EBITDA
Last updated
Quick Answer
Earnings Before Interest, Taxes, Depreciation, and Amortization — a proxy for operating cash flow and profitability, especially relevant for growth equity and PE deals.
Earnings Before Interest, Taxes, Depreciation & Amortization
EBITDA = Revenue - COGS - Operating Expenses + D&A
Where
- Revenue
- = Total revenue
- COGS
- = Cost of Goods Sold
- D&A
- = Depreciation and Amortization (added back)
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a measure of a company's core operational profitability. By stripping out interest, taxes, and non-cash items (depreciation, amortization), EBITDA approximates cash generated from operations before capital structure and accounting decisions. For early-stage VC companies, EBITDA is often negative (they're intentionally burning cash to grow). EBITDA becomes more relevant at growth equity and private equity stages, where investors pay EBITDA multiples to value mature companies. In the Rule of 40 framework for SaaS, EBITDA margin is one of the two inputs alongside revenue growth rate.
Related Concepts
Further Reading
ARR: What Annual Recurring Revenue Means in Venture Capital
ARR (Annual Recurring Revenue) is the single most-watched metric in SaaS venture capital. Here's exactly what it means, how it's calculated, what benchmarks matter, and why VCs obsess over it.
Startup Valuation Methods: 7 Approaches VCs Actually Use
Startup valuation is more art than science — especially at early stages. Here are the 7 methods VCs actually use to price rounds, with formulas, worked examples, and the common founder mistakes that leave money on the table.
How to Prepare a Financial Model That VCs Take Seriously
A strong startup financial model can make or break your fundraise. Learn exactly what VCs expect — from unit economics to scenario planning — and how to build one that earns credibility.
Valuation Policy for Venture Funds: ASC 820 Compliance Guide
A practical guide to building an ASC 820-compliant valuation policy for venture funds — covering governance, methodologies by stage, LP reporting, and common mistakes emerging managers make.
Tools & Resources
Frequently Asked Questions
What is EBITDA in venture capital?
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a measure of a company's core operational profitability. By stripping out interest, taxes, and non-cash items (depreciation, amortization), EBITDA approximates cash generated from operations before capital structure and...
Why is EBITDA important for startups?
Understanding EBITDA is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does EBITDA fall under in VC?
EBITDA falls under the metrics category in venture capital. This area covers concepts related to the quantitative measures used to evaluate fund and company performance.
Newsletter
The VC Beast Brief
Join thousands of founders and investors. Every Tuesday.
The VC Beast Brief
Master VC terminology
Get smarter about venture capital every week. Our newsletter breaks down the terms, concepts, and strategies that matter.
VentureKit
Ready to launch your fund?