Software Index
State of the Market
2024 proved to be a banner year for markets. The S&P 500 delivered an impressive return of 25.0% (including dividends), while the tech-heavy NASDAQ outperformed with a 28.6% gain. Though lagging its counterparts, the Dow Jones Industrial Average still posted a solid 13.1% return.
The economic landscape saw significant positive developments as inflation, which peaked at 8% in 2022, finally came under control (most recently reported at 2.9%). This improvement allowed the Federal Reserve to pivot towards a more accommodative monetary policy, implementing several rate cuts that brought the target range down from its high of 5.25%-5.50% to 4.25%-4.50%.
Artificial intelligence also defined the year, with AI-related innovations serving as a significant catalyst for startups and enterprise software giants. According to Pitchbook, almost half of the $209 billion raised by US startups last year went to AI companies.
Enterprise software valuations ended the year in line with historical norms. In December, the median NTM revenue multiple was 5.5x, just shy of the 3-year average of 5.9x. However, the valuation difference between the median and the top 10 companies in the Scalar Software Index reached its widest gap, with the top 10 NTM revenue multiple at 15.7x. Revenue growth stands out as the key factor, with the top 10 companies achieving growth rates double that of the index average. Data analytics, cybersecurity, cloud services, and supply chain software are all prominent among the fastest-growing sectors.
The enterprise software market faces a few key questions in 2025. Both fiscal and monetary policies for 2025 appear hazy, creating uncertainty for businesses and investors alike. The performance of early-year IPOs could reignite public market activity. And private markets could set new records for deal activity and valuations as the AI-landscape continues to take shape.
Median
NTM Rev Multiple
5.5x
Median
NTM Rev Growth
11.2%
Median
Gross Margin
75.3%
Top 10*
NTM Rev Multiple
15.7x
Top 10*
NTM Rev Growth
20.9%
Top 10*
Gross Margin
75.5%
*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 (> 20%)
11.6x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Average Growth (10%-20%)
5.9x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Low Growth (< 10%)
3.5x
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
108.0%
Median
ARR Growth
15.2%
Median
Payback Period
33 months
Top 10*
Net Dollar Retention
112.5%
Top 10*
ARR Growth
26.7%
Top 10*
Payback Period
23 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.
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Data Sources: S&P Global Market Intelligence and PitchBook Data, Inc.
Enterprise Software Operating Metrics provided by Public Comps.
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