Software & SaaS
Net revenue retention, then gross margin, then everything else.
Software diligence is a revenue schedule exercise. Every figure presented as recurring gets tied back to a contract, and anything that cannot be tied back is reclassified. That reclassification, not the negotiation, is where most software valuations move.
Who acquires in this sector.
The buyer set determines the process. These are the parties we approach on a mandate here, and the reason each of them pays.
What moves the number, and what moves it back.
Both lists are what buyers in this sector actually examine. The first is where preparation earns its return. The second is where processes lose ground once diligence opens.
What lifts the multiple
Worth fixing twelve to twenty-four months before you go to market.
- Net revenue retentionThe metric that most determines the multiple, because it is the closest thing to compounding without spend.
- Contracted ARR and term lengthMulti-year contracts with committed value are underwritten differently from monthly rolling revenue.
- Gross margin and hosting efficiencyInfrastructure cost per customer separates software economics from services economics.
- Sales efficiencyWhat it costs to acquire a unit of recurring revenue, and how quickly it pays back.
- Clean product ownershipFully assigned IP, documented architecture and no licence surprises.
What gets discounted
Found in diligence if it is not addressed first, and repriced when it is found.
- Services revenue counted as recurringImplementation and support billed as ARR is the most common reclassification in software diligence.
- Churn masked by expansionNet numbers that hide gross logo loss are unpicked cohort by cohort.
- Customer or segment concentrationA handful of accounts carrying retention makes the metric fragile.
- Open-source licence exposureCopyleft components in a commercial codebase are a diligence stop, not a negotiation.
- Contractor-built code without assignmentIP the business does not demonstrably own is IP the buyer will not pay for.
How a process runs here.
Build the revenue schedule before the buyer does. Contract by contract, tied to the ledger, with services separated from subscription and every renewal dated. A software business that can hand that over on day one negotiates from a completely different position than one that assembles it under pressure.