Software Index

State of the Market

The Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) results for June, which decreased by 0.1%, resulting in a 3.0% annualized gain for June, compared to May’s increase of 3.3% annualized. June’s results mark the first month-over-month decline in inflation since the spring of 2020. The BLS also reported that total nonfarm payroll employment increased by 206,000 in June, leaving the unemployment rate approximately at 4.1%. The results from the BLS reports have increased the odds of the Federal Reserve cutting the Federal Funds Rate before the presidential election in the fall.

The Scalar Software Index rallied this month, with the next twelve months (NTM) top-10 revenue multiple up 10.5% month over month to 14.1X, and the Scalar Software Index NTM median revenue multiple up 8% month over month to 4.7X.

The NASDAQ continued to increase in value, reaching its all-time high of 18,647.45 on July 10, 2024. The S&P 500 followed suit, reaching its all-time high of 5,667.20 on July 16, 2024. The SPAC market is also making a comeback, with many new SPAC IPOs successfully completed in the past couple of months.

Late-stage private companies are continuing to stay private longer rather than tapping the IPO market. The post-zero-interest-rate policy (ZIRP) era continues to plague companies that raised private rounds of funding at massive valuations. Many of these companies’ management teams are navigating the balance between going public at a lower valuation compared to their last private round of funding or holding out for more time to hopefully grow into a valuation comparable to what they received during the ZIRP era.

While management teams wait to grow into their ZIRP-era valuations, institutional investors will continue to seek liquidity via secondaries and continuation vehicles. Venture and growth equity investors are aware that distributed to paid-in capital (DPI) is a more important metric to limited partners than reporting generous unrealized gains. Therefore, the funds that have meaningful DPI will be able to continue raising new funds, while those without meaningful DPI will struggle to raise new investment vehicles.