Investors still love software more than life
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Despite some recent market volatility, the valuations that software companies have generally been able to command in recent quarters have been impressive. On Friday, we took a look into why that was the case, and where the valuations could be a bit more bubbly than others. Per a report written by few Battery Ventures investors, it stands to reason that the middle of the SaaS market could be where valuation inflation is at its peak.
This morning, instead, we’re talking about an old favorite: software valuations. The folks over at Battery Ventures have compiled a lengthy dive into the 2020 software market that’s worth our time you can read along here; I’ll provide page numbers as we go because it helps explain some software valuations.
There’s little doubt that there is some froth in the software market, but it may not be where you think it is.
The Battery report has a lot of data points that we’ll also work through in this week’s newsletter, but this morning, let’s narrow ourselves to thinking about rising aggregate software multiples, the breakdown of multiples expansion through the lens of relative growth rates, and cap it off with a nibble on the importance, or lack thereof, of cash flow margins for the valuation of high-growth software companies.