Software Index
State of the Market
Enterprise software valuations expanded rapidly in November. Buoyed by solid Q3 earnings, resilient economic data, and decreased uncertainty following the US election, the top-10 NTM revenue multiple grew by 12.7% to a near-three-year high of 16.4x, and the median NTM revenue multiple grew 15.9% to 5.5x, which aligns with its historical average.
Private markets should follow suit. Software deal activity had been sluggish in 2024, and depressed post-pandemic valuations led to a rise in down-rounds. But rising valuations and the reopening of the IPO window will fuel VC and PE activity. ServiceTitan popped more than 40% following its IPO on December 12th. Several more promising IPOs (including Canva, Databricks, and Stripe) are slated for 2025-2026.
Employment bounced back in November, with total nonfarm payroll rising by 227,000. The unemployment rate changed little at 4.2% in November compared to 4.1% in October. The Consumer Price Index (annual inflation rate) measured a slight uptick to 2.7%. On December 18th, the Federal Reserve cut the target funds rate by a quarter point to 4.25% to 4.5%, and signaled a slower pace of rate cuts in 2025, forecasting a total cut of 50 basis points for the year. Markets reacted with a sharp downturn but remained near all-time highs. The US continued to defy fears of a recession by reporting gross domestic product (GDP) growth at an annualized 2.8% rate in Q3 2024.
Median
NTM Rev Multiple
5.5x
Median
NTM Rev Growth
11.2%
Median
Gross Margin
75.3%
Top 10*
NTM Rev Multiple
16.4x
Top 10*
NTM Rev Growth
20.9%
Top 10*
Gross Margin
75.6%
*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%)
10.1x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Average Growth (15%-25%)
9.9x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Low Growth (< 15%)
4.3x
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.
Enterprise Software Operating Metrics
Last updated Q3 2024
Median
Net Dollar Retention
110.0%
Median
ARR Growth
14.8%
Median
Payback Period
33 months
Top 10*
Net Dollar Retention
114.0%
Top 10*
ARR Growth
26.7%
Top 10*
Payback Period
20 months
*Median multiple, growth rate, and gross margin for the top 10 companies based on EV/NTM Revenue.
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