Software
Selling a software company on institutional terms.
Software buyers diligence revenue quality, retention, and code ownership before they discuss price. We prepare your company for that scrutiny and run a process built to protect what it uncovers.
Know the terrain
What makes software exits different
Selling this kind of business involves realities that don't apply to most other industries. Understanding them upfront leads to a stronger exit.
How revenue is recognized
Software revenue is usually recognized ratably over the contract term, so reported revenue and the run-rate of contracted subscriptions can diverge. Buyers rebuild your revenue from bookings, deferred revenue, and ARR to see what is genuinely recurring rather than one-time services and implementation.
Retention is the asset
A software business is bought for the revenue it keeps. Buyers examine net and gross retention by cohort to separate durable, expanding accounts from a base masked by new sales. Churn and downgrades that quietly offset growth change the quality of every dollar of revenue.
Who owns the code
Value rests on clean title to the codebase. Buyers verify that every employee and contractor assigned their work, that open-source components carry compatible licenses, and that no copyleft obligation reaches your proprietary code. Unassigned IP or an open-source license conflict surfaces quickly in technical diligence.
Key-person dependency
When the founder or a few engineers hold the architecture in their heads, the buyer is acquiring people as much as software. Concentrated knowledge raises transition risk and shapes retention packages, escrow, and how much of the purchase price is held back or tied to your continued involvement.
Security and compliance
Enterprise customers buy against security commitments, so buyers test whether yours are real. A SOC 2 report, documented access controls, and a clean vulnerability and incident history reduce friction; gaps in data handling, privacy obligations, or subprocessor terms become remediation the buyer prices into the deal.
Valuation
What drives valuation
Buyers don't value every business in this sector equally. These are the factors that move the multiple — in both directions.
Recurring revenue mix
The share of revenue under subscription or contract, versus one-time services and implementation, sets the basis you are valued on. A high proportion of predictable, contracted revenue is worth more per dollar than project work that has to be resold each period.
Net revenue retention
Retention above breakeven means the installed base grows without new sales, and buyers pay for that compounding. Expansion through seats, usage, and upsell, net of churn and downgrades, signals a product customers grow into rather than one they leave.
Growth and profitability
Buyers read growth and margin together. Rapid growth funded by heavy cash burn is valued differently than capital-efficient growth, and the balance buyers expect moves with market conditions. CAC payback and the combined view of growth rate and profitability frame where your company sits.
Gross margin
Software gross margin sets the ceiling on the cash the business can generate. Hosting, third-party data, support, and any human delivery baked into cost of revenue tell the buyer how much of each new dollar drops through, and whether the model scales like software or like services.
Customer concentration
When a few accounts or a single channel carry the revenue, the buyer inherits that risk. Concentration in customers, a platform you build on, or one acquisition channel invites a discount, because the loss of any single relationship would move the whole company.
Defensibility and moat
What keeps customers from leaving supports the multiple. Deep integrations, proprietary data, workflow embedded in a customer's operations, and real switching costs make revenue harder to displace, and buyers pay more for revenue a competitor cannot easily take away.
Valuation premium
Recurring, contracted revenue is what buyers pay up for. On this measure, public software companies trade at roughly a quarter above the broad market.
EV/EBITDA, enterprise value to operating earnings. Private lower-middle-market companies sell at a fraction of these public multiples — the point is the gap between the sectors, not the absolute level.
Source: Prof. Aswath Damodaran, NYU Stern — EV/EBITDA by industry (U.S.), January 2026, positive-EBITDA basis. Public-company trading multiples, shown as a market reference, not private deal multiples.
The buyer pool
Who buys software businesses
Each buyer type underwrites differently, and the right one for you depends as much on your goals after close as on price.
Strategic acquirers
Software and adjacent companies that buy for product, customers, or a capability they would otherwise build. They can pay for synergy, whether cross-sell, a technology gap closed, or a competitor removed, and often integrate your team and roadmap into their own.
Private equity platforms
Financial sponsors acquiring a platform to build on, adding bolt-on acquisitions and professionalizing operations. They underwrite recurring revenue, retention, and margin expansion, and frequently keep founders in place with meaningful equity in the combined company for a second outcome later.
Growth equity
Investors taking a minority or control stake in a company that is scaling and needs capital rather than a full exit. They offer partial liquidity while you keep building, and they weight growth durability and unit economics over near-term profit.
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