How do you value your company at time of transaction? Many founders I talk to are looking for the definitive formula. But that just doesn’t exist. There are some valuable heuristics for valuations, especially things like your annual 409A valuations. But when it comes time to sell, you’ll want to maximize your enterprise valued.
The Rule of 40—the principle that a software company’s combined growth rate and profit margin should exceed 40%—has gained momentum as a high-level gauge of performance for software businesses in recent years, especially in the realms of venture capital and growth equity. Bain & Co. <see below>.
As we see deals maturing in this current market, buyers and growth investors are leaning toward higher growth and profit numbers. I’m not sure if that is based on simply a negotiating stance (likely) or actual market comparable data.