- Jan 8, 2025
- 1,245
- 138
Something I keep going back and forth on, and I'd rather hear it from people who have actually been on one side of a deal than from another blog post.
When a software business changes hands, what does the number actually get anchored to? Two answers seem to compete. One says it's a multiple of monthly net and everything else is noise. The other says you add up what's there, the code, the domain, the content, the audience, and you argue from that.
Those two produce very different numbers for the same thing, which is what bothers me. A business with several finished products and no revenue history is worth almost nothing under the first method and quite a lot under the second. A business with steady income and nothing behind it lands the other way round.
So a few questions for anyone who has been through this.
*How many months of consistent revenue does an acquirer actually want to see before a multiple is even on the table? Does anything short of that just get valued as parts?
*Does the multiple move much depending on what the revenue is, one off sales against something recurring? I'd assume recurring is worth more, but I've no feel for how much more.
*Where do finished but unproven products land? Everybody repeats that code is worth nothing without customers. Is that literally true in practice, or does a working product move the number at all?
*How much does the niche itself discount things, before anyone even looks at the numbers?
*And the practical one. Where do these actually change hands? I don't mean the famous names everyone lists, I mean where deals in this size range genuinely get done, and whether a broker earns their cut or you're better off finding the other side yourself.
I realised I've no idea how the arithmetic works and I'd rather learn it now than the first time it matters.
Best,
Floqal
When a software business changes hands, what does the number actually get anchored to? Two answers seem to compete. One says it's a multiple of monthly net and everything else is noise. The other says you add up what's there, the code, the domain, the content, the audience, and you argue from that.
Those two produce very different numbers for the same thing, which is what bothers me. A business with several finished products and no revenue history is worth almost nothing under the first method and quite a lot under the second. A business with steady income and nothing behind it lands the other way round.
So a few questions for anyone who has been through this.
*How many months of consistent revenue does an acquirer actually want to see before a multiple is even on the table? Does anything short of that just get valued as parts?
*Does the multiple move much depending on what the revenue is, one off sales against something recurring? I'd assume recurring is worth more, but I've no feel for how much more.
*Where do finished but unproven products land? Everybody repeats that code is worth nothing without customers. Is that literally true in practice, or does a working product move the number at all?
*How much does the niche itself discount things, before anyone even looks at the numbers?
*And the practical one. Where do these actually change hands? I don't mean the famous names everyone lists, I mean where deals in this size range genuinely get done, and whether a broker earns their cut or you're better off finding the other side yourself.
I realised I've no idea how the arithmetic works and I'd rather learn it now than the first time it matters.
Best,
Floqal
