The Rule of 40 Arrives in Latin America: Why Efficiency Is Now a Default Benchmark

‍

Latin American capital is returning, with stricter expectations

Venture funding in Latin America increased in 2025 to about US$4.1B, a 14.3% rise year over year.

The shift is less about whether capital exists and more about how investors are pricing risk. Late-stage checks are increasingly tied to operating discipline, clearer unit economics, and a credible path to sustainable margins.

One shorthand investors use to express that discipline is the Rule of 40.

‍

‍

‍

What the Rule of 40 is (and what it signals)

The Rule of 40 is a simple calculation:

Revenue growth rate (%) + profit margin (%) ≥ 40

A company growing 50% with a -10% margin meets the benchmark. A company growing 20% with a 20% margin also meets it. The “win condition” is balance: growth that does not depend on indefinite burn.

For founders, the Rule of 40 is useful because it compresses a broad question into a quick test:

• Is growth supported by a model that can converge to profitability?
• Is profitability achieved without stalling growth?

For investors, it is a filter to compare companies across a category without relying only on top-line momentum

‍

‍

Why this matters more in Latin America now

Several dynamics converged:

1) The correction reshaped what “good” looks like

After the peak cycle, the region saw a pullback in available capital and a reset in valuation expectations. This period rewarded teams that could operate with tighter constraints and still deliver product outcomes.

2) Funds are back in-market with tighter underwriting

Cuantico VP reports that 106 venture capital firms secured Latin America-focused capital between 2021 and 2023, and many are returning to deploy within typical fund cycles.

That matters because returning capital often comes paired with lessons learned from the prior cycle: selectivity increases, and metrics become more standardized.

3) Category leaders set the expectation for discipline

Fintech and infrastructure-like businesses tend to make the unit economics conversation unavoidable early: risk, margins, loss rates, and payback periods are operational, not theoretical. Market reports and quarterly summaries also highlight fintech as consistently prominent in major LatAm rounds.

‍

‍

A practical way to apply Rule of 40 as a founder

Rule of 40 is a benchmark, not a full operating system. Teams get more value from it when they pair it with a short set of supporting checks:

Step 1 — Calculate it consistently

• Define the revenue measure (ARR, net revenue, GMV-based revenue) and keep it consistent quarter to quarter.
• Define the margin measure (often EBITDA margin; some teams use operating margin). Use one definition and document it.

Step 2 — Explain the “why” behind the number

If you are below 40, investors will ask one of two questions:

• What is the growth plan that does not require disproportionate incremental spend?
• What is the margin plan with specific operational levers (pricing, COGS, support load, infra cost, sales efficiency)?

Step 3 — Pair it with unit economics, not slogans

Have these ready as operating facts:

• CAC, LTV, and payback period 
• Gross margin trend 
• Burn rate and runway 
• Optionally: burn multiple (how much you burn to generate incremental revenue) 

Step 4 — Translate discipline into milestones

A credible plan reads like a sequence of measurable decisions:

• what changes in pricing or packaging,
• what gets automated,
• what gets standardized in operations,
• what cost drivers move down as volume increases.

‍

Where infrastructure and operational efficiency show up in the Rule of 40

For many startups, margins are heavily influenced by operational cost drivers:

• cloud spend that scales faster than revenue,
• reliability work handled through manual toil,
• incident response that consumes engineering capacity,
• vendor lock-in that limits optimization options.

This is where operational efficiency becomes directly financial. The same product can produce different Rule of 40 outcomes depending on how delivery and operations are designed.

At Cuemby, we generally see three levers that matter in practice:

1. Visibility: cost and reliability signals tied to ownership (teams can act fast). 
2. Automation: fewer repetitive ops tasks, fewer preventable incidents. 
3. Building blocks that compound: reusable patterns, open-source foundations, and standardized workflows reduce marginal effort over time.

‍

What this shift means for the region

A market that rewards sustainable unit economics tends to produce:

• companies that survive cycles,
• products built for long-term customers,
• healthier hiring and delivery cadence.

Funding rebounds that come with stronger benchmarks can be constructive. In 2025, venture investment increased versus 2024, pointing to renewed momentum with clearer expectations.

‍

Quick checklist: are you moving toward Rule of 40?

Use this as a simple self-audit:

• We can compute growth and margin with one consistent definition.
• We know the top 3 cost drivers that move margin each quarter.
• CAC, LTV, and payback are tracked monthly (not retroactively for decks).
• We can explain burn in terms of specific growth bets.
• Operational work is increasingly automated and standardized.

‍

‍

Let's continue

Rule of 40 is becoming a common language for evaluating quality in growth. For founders, the advantage comes from treating efficiency as an operating discipline, not a last-minute adjustment for fundraising.

When teams try to improve the score, the bottleneck is rarely “work harder.” It’s usually visibility into what’s driving margin (and what’s quietly eroding it): infrastructure cost behavior, reliability and incident load, delivery friction, and decision-making based on incomplete technical signals.

This is where Cuemby’s work often starts, especially in situations where capital allocation, M&A readiness, or scaling plans demand a clearer picture. Through our technical due diligence practice, we help companies translate technical reality into business risk and action: what is structurally limiting efficiency today, what can be improved in weeks vs. quarters, and what should be treated as a strategic constraint. Learn more here.

For teams that want a faster baseline before going deep, Cuemby TechScore can help frame the conversation: a structured view of technical health signals that tend to correlate with cost control, scalability, and reliability outcomes—useful for leadership alignment and prioritization. Know more about TechScore.

Website: https://www.cuemby.com

Talk with our team: https://app.lemcal.com/@cuemby/30-minutes