Tomasz Tunguz (Theory Ventures) · 2022-10-13 · 1330d

Software Valuation Compression: How Far Could Forward Revenue Multiples Fall?

Enterprise-value-to-forward-revenue multiples for public software companies have compressed to 2016 levels, driven primarily by Federal Reserve rate increases. A linear regression model suggests multiples could fall as low as 2.1x if the 10-year bond yield reaches 5.0%, though the model has limitations and only explains about 50% of valuation movement.

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Metrics in this report

10-Year Bond Yield Correlation with Forward Revenue Multiple

-0.49correlation coefficient (R²)

mean

Period since 2019

Enterprise Value to Forward Revenue Multiple

3.3x

25th percentile

Public software companies as of October 2022

Enterprise Value to Forward Revenue Multiple

4.9x

median (50th percentile)

Public software companies as of October 2022

Enterprise Value to Forward Revenue Multiple

7.3x

75th percentile

Public software companies as of October 2022

Enterprise Value to Forward Revenue Multiple

4.0x

25th percentile

Public software companies in 2016

Enterprise Value to Forward Revenue Multiple

5.6x

median (50th percentile)

Public software companies in 2016