We have been involved in the valuation of software for over 20 years, including buy-side and sell-side transactions. One of our specialities is working with companies to help them understand the value of intangible software assets, and we have represented clients in court-related actions in this regard.
We’ve learned that software valuation has two perspectives – the buyer and seller, and without some form of alignment, there will be no satisfactory transaction.
Please take a look at the attached PDF summary of our views and a few examples. The document was originally part of a presentation to technology professionals. But before that, here’s an extract, including …
“Robert’s Rules of Software Valuation – But You Heard Them All Before”
- The last transaction sets the value.
- Investors with ready cash set the value.
- Competition is a good thing – validates the market.
- Customer lists have no long term value.
- Mature technology is a declining asset.
- The bleeding edge needs deep pockets to realize value
- Strategic value is huge.
- Patents have value if you can defend them.
- No one likes “hockey stick” forecasts.
- Human capital has value if it can be retained.
- Never rely only on a forecast and DCF to set value
- Comparables are interesting but can’t be used alone
- Forecasts set by sales people are worrisome
- Exploitable tax credits are worth about 10% of book
- Good will has no value
- Use marketing $ to get customers – don’t buy them
- Lines of code can’t be used for valuation
- Sunk development costs to date measure value
- Always try to leave debt behind
- Technology without a business has low value
There are likely many more rules, and in some cases our readers will likely disagree with our “Rules”. Here’s the complete PDF…
Valuing Software Companies and Software Assets 2013
On the last page – our strongest advice…leave software valuation to the experts, as doing it yourself leads to problems.
Questions? Call us at 1-888-277-1174
