Valuation Multiples For Software Companies [2020 Updated Compared to 2019] | Download Data Set

Since last year, the valuation multiples for software companies have gone up significantly after the spike in the market post-covid. 

This is an updated article, so here’s the 2019 post if you want to read that first. I also talk about why the revenue multiple and EBITDA multiples are used for valuing software companies in that post.

How Much Did Valuation Multiples for Software Companies Go Up By Post Covid?

Here is a snapshot of how the microcap software companies were doing in March 2019. 

valuation multiples for software companies 2019

Back in March 2020, we saw a huge dip in the market after the Coronavirus hit the US and it became a reality that we would be experiencing the same quarantine as we saw in Asia and Europe. 

Then since the end of March, investors started dumping all their money into the stock market, resulting in a huge spike since then. 

As a result, as of September 2020, microcap software companies have much higher valuation multiples:

valuation multiples for software companies 2020

I think investors from, novice to pro, are all dumbfounded. But one speculation is that it’s because government bonds aren’t worth returns, and so investors have nowhere to put it. Another reason for the spike is that during quarantine, retail investors have been investing like crazy. 

If you compare the increase in each valuation multiple, that’s a 30% increase for average Price-to-Sales multiple for microcap software companies and 18% increase for average EV/EBITDA multiple:

valuation multiples for software companies 2020 Comparison to 2019

30% increase in P/S multiple has a huge impact on company transactions. If a small software company is on the market, they can increase their selling price significantly. 

The small software company will use a combination of DCF valuation methodology and comparables. If there’s equal weighting between the valuation methodologies, the company can command a price at least 10% higher.

For example, if a 3 year old startup that has a negative EBITDA and revenues of $10M per year, they would weight P/S multiple higher as the valuation methodology. 

If it were last year pre-Covid, they could’ve asked for $40M in selling price (i.e. $10M * 4.1x P/S multiple). Now, they could ask for $50M in selling price (i.e. $10M * 5x). 

Of course, it’s a simple example and more qualitative and quantitative considerations go into it, but regardless, that’s a huge increase in selling price. 

How Do the Valuation Multiples Compare to Industry 

The increase in the valuation multiples from March 2019 to September 2020 makes sense when you compare it to the industry performance.

Software microcap companies stock performance 2020

The graph above shows software indices from March 1, 2019 to September 18, 2020. 

The orange line (higher) is the S&P 500 Software industry index. The increase over the 1.5 years is +65%. 

The green line (lower) is the Nasdaq US Small Cap Software companies index. The performance in the 1.5 years is +25%. 

The large software companies (i.e. S&P 500 software) did almost three times better than the small software companies. This makes sense, because the large tech companies thrived during the pandemic as they catered to people in quarantine. Companies like Amazon, Apple, Fastly, Zoom, Etsy, etc. 

Since the smaller companies aren’t as well known as the mega tech companies, they performed fantastically as well but not as much as the large tech software companies.

We’ll have to see if the market normalizes after the pandemic is over. Once this happens, I’ll update the valuation multiples for software companies again. 

Download Data Set

Here’s a sample of the data set. Toggle between the data set and the averages tabs. Full data set download info below the table.

Company Year Founded Market Cap (US$M) LTM Revenue (US$M) Enterprise Value (US$M) LTM EBITDA (US$M) P/S EV / EBITDA Country
I Synergy Group Limited 2008 10.0 5.66 7.22 (1.44) 1.8x Australia
BigDish Plc 2016 10.1 0.034 8.45 Jersey
Anacle Systems Limited 2006 10.3 13.4 6.93 0.972 0.8x 7.1x Singapore
Intense Technologies Limited 1990 10.3 9.07 9.84 2.76 1.1x 3.6x India
Validian Corporation 1989 10.3 12.3 United States
VGrab Communications Inc. 10.5 10.8 (0.672) Canada
Blockchain Foundry Inc. 10.7 0.932 10.7 (0.482) 11.5x Canada
Iveda Solutions, Inc. 10.7 United States
Voicetel Communications S.A. 2012 10.7 0.354 11.0 (4.72) 30.2x Poland
Agent Information Software, Inc. 1950 10.8 5.56 8.15 1.37 1.9x 5.9x United States
Oblong Inc. 2000 10.9 15.9 16.7 (7.39) 0.7x United States
TFP Solutions Berhad 11.0 10.9 10.6 (1.04) 1.0x Malaysia
Adapt IT Holdings Limited 11.3 107.4 57.8 17.3 0.1x 3.3x South Africa
Ether Capital Corporation 11.3 0.002 11.2 Canada
Intellinetics, Inc. 1996 11.3 4.43 14.7 (0.639) 2.6x United States

To download the ~600 companies data set in this analysis, enter your email below.  The spreadsheet with the data set will be sent to your email directly.

Thanks for reading as always and leave a comment if you found it useful!

4 thoughts on “Valuation Multiples For Software Companies [2020 Updated Compared to 2019] | Download Data Set”

  1. ALYSSA NG

    Would love a copy of the data set.

    1. microcap.co

      Thanks for your comment, Alyssa! It should be on your way to your email. Cheers.

  2. alan s

    would love copy of data set. thank you.

    1. microcap.co

      t should now be up and running and on your way to your email! If not, then there now should be a field for your email address.

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