What are the current valuation multiples for software companies?

What Are the Current Valuation Multiples for Software Companies?

Valuation multiples for software companies remain one of the most closely watched metrics in the M&A and investment landscape. Whether you’re a founder considering an exit, a private equity firm evaluating a platform acquisition, or a strategic buyer looking to expand capabilities, understanding where the market is pricing software assets is essential for informed decision-making.

As of mid-2024, software company valuations are stabilizing after a period of significant volatility. The post-2021 correction in public tech markets has filtered into private dealmaking, but high-quality software businesses — especially those with recurring revenue and strong unit economics — continue to command premium multiples.

This article breaks down the current state of valuation multiples across different software business models, the key drivers behind those multiples, and what sellers and buyers should consider in today’s environment.

Current Valuation Multiples by Software Business Model

Valuation multiples vary significantly depending on the type of software business, growth profile, and revenue model. Below is a snapshot of where the market stands as of Q2 2024:

1. SaaS (Software-as-a-Service)

Public SaaS Companies: According to SaaS Capital, the median EV/Revenue multiple for public SaaS companies is currently around 6.5x trailing twelve months (TTM), up from lows of ~4x in late 2022 but still below the 2021 peak of 15x–20x.
Private SaaS Companies: In the lower middle market (sub-$50M revenue), private SaaS businesses with strong retention and growth are trading at 3.5x to 7x revenue, depending on scale, churn, and profitability. EBITDA multiples range from 10x to 18x for mature, profitable SaaS firms.

As we noted in SaaS Valuation Multiples: A Guide for Investors and Entrepreneurs, metrics like net revenue retention (NRR), gross margin, and the Rule of 40 continue to be key valuation drivers.

2. On-Premise or Perpetual License Software

Traditional software companies with perpetual license models and limited recurring revenue are seeing lower multiples. These businesses typically trade at:

1.5x to 3x revenue, depending on customer concentration and maintenance revenue
6x to 10x EBITDA, with a discount applied for lack of scalability or cloud transition risk

Buyers often view these companies as turnaround or modernization opportunities, which can impact deal structure and earn-out terms.

3. Vertical SaaS and Niche Applications

Vertical SaaS companies — those serving specific industries like legal, healthcare, or logistics — often command a premium due to lower churn and deeper customer integration. These businesses can trade at:

4x to 8x revenue for high-growth, capital-efficient models
10x to 20x EBITDA for mature, profitable platforms with strong market share

Firms like iMerge often work with vertical SaaS founders to position these businesses for strategic exits, where acquirers value domain expertise and defensible customer relationships.

Key Factors Driving Valuation Multiples

While headline multiples are useful benchmarks, the real story lies in the underlying metrics. Buyers and investors are increasingly focused on:

Revenue Quality: Recurring vs. non-recurring revenue, customer retention, and upsell potential
Growth Rate: Sustained ARR growth above 30% can justify premium revenue multiples
Profitability: EBITDA margins above 20% are increasingly valued in a capital-constrained environment
Customer Concentration: Heavy reliance on a few clients can significantly depress valuation
Scalability: Cloud-native architecture and automation drive higher perceived value

As we outlined in What Are the Key Financial Metrics Buyers Look for in a Software Company?, these factors often matter more than top-line revenue alone.

Market Trends Impacting Multiples

Several macro and sector-specific trends are shaping the current valuation environment:

1. Return to Fundamentals

After years of growth-at-all-costs, the market has shifted toward sustainable growth and profitability. Investors are rewarding capital efficiency, not just velocity. This has compressed revenue multiples for unprofitable or cash-burning companies, while rewarding those with strong unit economics.

2. Private Equity Discipline

Private equity buyers — who remain active in software M&A — are applying more rigorous diligence and valuation discipline. Many are targeting platform acquisitions at 6x to 10x EBITDA, with add-ons priced more conservatively. This has created a two-tier market where premium assets still command strong multiples, but average performers face downward pressure.

3. Strategic Buyer Re-Emergence

Strategic acquirers, particularly in enterprise software and cybersecurity, are returning to the market with renewed interest. With public valuations recovering and cash on hand, many are seeking tuck-in acquisitions to accelerate product roadmaps or enter new verticals.

Implications for Founders and Sellers

For software founders considering a sale, understanding where your company fits on the valuation spectrum is critical. A few strategic takeaways:

Benchmark Early: Engage with advisors like iMerge to assess your valuation range before entering the market.
Optimize KPIs: Improving metrics like NRR, CAC payback, and gross margin can materially impact your multiple.
Prepare for Diligence: As we discussed in Completing Due Diligence Before the LOI, buyers are scrutinizing financials and customer data more than ever.
Consider Timing: If your business is approaching a growth inflection or profitability milestone, it may be worth waiting to capture a higher multiple.

Conclusion

Valuation multiples for software companies in 2024 reflect a more rational, fundamentals-driven market. While the days of 20x revenue multiples for pre-profit startups are behind us, high-quality software businesses — especially those with recurring revenue, strong retention, and efficient growth — continue to command attractive valuations.

Whether you’re planning an exit, raising capital, or evaluating acquisition targets, understanding the nuances behind these multiples is essential. Firms like iMerge specialize in helping software founders navigate this landscape — from valuation modeling to deal execution.

Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.