Subjectivity in valuations
News, insights and updates from the team at Bloom Equity Partners
Happy Friday Founders & Friends!
We are back with some more insights from the team at Bloom Equity Partners! Hope everyone is having a great start to April! We wanted to bring back our software insights section this week. Enjoy!
We have previously shared some quick takes on valuations. If you haven’t read those yet, make sure to check them out:
Subjectivity & Scale of Valuations
Although there are certain benchmarks for given metrics and performance, it is important to remember that investors aren’t all using the same valuation models. Even though investors are all looking at the same data, the discrepancy in data interpretations is vast. This is dependent on risk tolerance, investor mandates (growth v.s. value add) and their overall investment strategy (VC v.s. buyout).
One of the biggest impacts on valuations is a strategic fit. How might it fit in with a buyer’s existing business or portfolio? What are the synergies? Should the buyer pay the seller for those synergies?
Scale and Valuations
Additionally, the size of your company will have a strong impact on how potential investors interpret your metrics. For example, 80% growth for a $5M ARR business will not have as large of an impact on valuation compared to 80% growth for a $20M ARR business. Certain benchmarks become more and less achievable as a business scales and investors are aware of this. The same can be said for other metrics like retention and sales efficiency.
In reality, it is not just metrics that impact valuations. There is a multitude of other factors that impact a company's valuation. A few to consider:
How experienced is the management team?
How competitive is the M&A/fundraising process?
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About Bloom Equity Partners
Bloom Equity Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.