Early development Software product/publisher valuations
January 10, 2022
by a searcher from Brigham Young University in Kahului, HI, USA
I looked through BVR and didn't see relevant info, so if it's there let me know and I'll go back and re-search.
When I am looking at startup/development opportunities I always want to be aware of exit strategies. One of my methods is to always know a valuation at given plateaus along the process. We are looking at developing some software that would work well in and around our other business operations. At this point it is only an idea. We are working through development plan and I am curious about the value of this type of asset as a stand alone. How is value determined after development but prior to user implementation. If portions are offered as freeware, are users valued prior to revenues generated, etc. This will be a healthcare management tool that could be a game changer once all modules are developed and combined.
Is there a decent resource for this type of data available? Also appreciate references to good advisors in the space. Thank you.
#software #saas #healthcare #valuation #ai #machinelearning
from New York University in Menlo Park, CA, USA
Typically, if a strategic buyer can be identified, you'll be able to achieve the very high multiples you see in the press. This is obviously rare and very hard to achieve on a small scale. To frame this idea, think of having US patents protecting key pieces technology or user counts in the millions that would prove attractive to a strategic buyer.
Most software companies will trade in the range of 2-5x revenue, if they are showing strong revenue growth (>50%) year to year and have at least some scale $5m+ in ARR. The average public software company trades around 14x revenue (from memory) so the smaller the company the lower the multiple.
If the revenue isn't growing and no strategic buyers can be easily identified and pursued, then a software company is just like any other product based company and will trade in the 4-12x EBITDA range.
This has been my experience in the lower middle market. Middle market companies have higher multiples and will attract even more attention from financially oriented buyers.
in Portland, OR, USA
Very broadly, I know from experience that the healthcare SaaS market is hot and the pace of both PE and strategic M&A continues to accelerate. Lots of publicly available data published by PE, consulting , research firms out there to support this.
Happy to jump on a call and discuss if I can help. I have 15+ years of experience consulting and building SaaS tools in the Healthcare billing and finance space.