Software Index
State of the Market
In October, the NASDAQ decreased by 3.4%, and the Scalar Software Index median NTM revenue multiple fell to 5.1X, a 7.8% decrease from September’s level. Each of the three technology companies that had IPOs in September traded below their offering prices as of the end of October. This mirrors the result of more than 80% of companies that went public via a traditional IPO since 2020 that are now trading below their IPO price.
Total nonfarm payroll increased by 150,000 according to the Bureau of Labor Statistics, leaving the national unemployment rate nominally higher at 3.9%. The Bureau of Economic Analysis reported that the real gross domestic product (GDP) increased at an annual rate of 4.9% in Q3 2023.
The Federal Reserve did not increase the Federal Funds Rate during its most recent FOMC meeting, leaving the Federal Funds Rate unchanged at a target between 5.25% and 5.50%. The 10-year treasury rate increased from 4.69% to 4.88% during the month of October, and the 3-month treasury rate held flat near 5.50%. The average 30-year mortgage continues to hover over 8%, and the Mortgage Bankers Association reported a continued decrease in mortgage applications throughout the month of October.
Pitchbook issued its Q3 Venture Monitor, where it reported that the median 2023 YTD funding for pre-seed deal size and pre-money valuations are holding steady at $500K and $5.7M, respectively. Early-stage deal volume is on track to hit a six-year low at an estimated 4,015 deals, and late-stage venture has seen deal sizes falling to 2019 levels and median valuations falling below 2022 levels. Venture growth rounds continue to decline, with an estimated 175 deals completed in Q3 2023.
We believe the Scalar Software Index median NTM revenue multiple will continue to fluctuate based on the market multiples exhibited between August and October. We believe private funding will continue to be difficult, and venture capital firms and private equity firms will stay consistent with their “flight to quality” investment approach that has persisted throughout 2023.
Median
NTM Rev Multiple
5.1x
Median
NTM Rev Growth
13.4%
Median
Gross Margin
75.1%
Top 10*
NTM Rev Multiple
11.8x
Top 10*
NTM Rev Growth
20.0%
Top 10*
Gross Margin
74.8%
*Median multiple, growth rate, and gross margin for the top 10 companies based on EV/NTM Revenue.
Valuation Trends
Index Leaders
Top 10 companies in the Software Index based on current EV / NTM Revenue Multiple.
Multiples by Growth Tranche
Valuation multiples are strongly correlated to expected growth. Scalar has selected the tranches based on current market conditions.
EV/NTM Revenue Multiple
High Growth (> 25%)
9.2x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Average Growth (15%-25%)
7.0x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Low Growth (< 15%)
3.3x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple - Top Quartile
NTM Revenue Multiple and NTM Growth Rate for the top quartile of companies in the Scalar Software Index, ordered by NTM Growth Rate.
Pre- & Post- Money Deals
Averages for the trailing 6 months of successful software and SAAS fundraising, including rounds Series A through Series D.
Average
Deal Size
Average
Pre-Money Valuation
Average
Post-Money Valuation
The data for the Scalar Software Index is collected based on market data on the last trading day of the previous month.
Metric definitions:
- EV/NTM Rev: Enterprise value to next twelve months revenue.
- EV $MM: Enterprise value, calculated as the market value of equity plus net debt and minority interest, in millions of USD.
- LTM Rev $MM: The last twelve months revenue in millions of USD.
- NTM Rev Growth: The expected growth rate of revenue for the next twelve months.
- LTM Rev Growth: The growth rate of revenue over the last twelve months.
- Gross Margin: The percentage calculated from gross profit over revenue.
- Operating Margin: The percentage calculated from operating income (EBIT) over revenue.
- FCF Margin: The percentage calculated from unlevered free cash flow over revenue.
The information contained in this newsletter is for general information purposes only. The information is provided by Scalar and while we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the newsletter or the information, products, services, or related graphics contained in the newsletter for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this newsletter.
Every effort is made to keep the newsletter up and running smoothly. However, Scalar takes no responsibility for, and will not be liable for, the newsletter being temporarily unavailable due to technical issues beyond our control.
Data Sources: S&P Global Market Intelligence and PitchBook Data, Inc.
Enterprise Software Operating Metrics provided by Public Comps.
Get the monthly Software Index delivered to your email
** By clicking the button I agree to receive a monthly E-mail from Scalar