Software Index
State of the Market
Upward momentum continued in 2024, with the S&P 500 reaching its all-time high and the NASDAQ 100 following suit. However, the Scalar Software Index's top 10 median next-twelve-month ("NTM") revenue multiple declined by 2.1% month-over-month to 15.0X, and the Scalar Software Index median NTM revenue multiple declined by 4.7% to 5.6X.
The US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased by 3.1% in January, and total nonfarm payroll employment rose by 353,000 in January, leaving the unemployment rate flat at 3.7%. Both results were stronger than expected and resulted in economists reforecasting the number of potential federal funds rate cuts expected this year.
According to AlleyWatch, $6.1B was invested in US venture-backed companies in January, in more than 470 deals. This marked a 10.5% decline from January 2023 but an increase of 21.4% from December 2023.
As the private markets continue to struggle to regain their footing, and the absence of an active M&A environment for venture-backed companies persists, venture funds are actively looking for ways to increase their distributed paid-in capital (DPI) by engaging in secondary sales of some of their portfolio companies. We anticipate this trend to continue as limited partners focus on a GP's ability to return capital versus merely reporting unrealized returns. We believe this focus will create increased opportunities for secondary funds.
Median
NTM Rev Multiple
5.6x
Median
NTM Rev Growth
11.3%
Median
Gross Margin
74.9%
Top 10*
NTM Rev Multiple
15.0x
Top 10*
NTM Rev Growth
26.8%
Top 10*
Gross Margin
75.4%
*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%)
14.7x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Average Growth (15%-25%)
8.2x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Low Growth (< 15%)
4.1x
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