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What Predicts a Software Company's Success?

An article we liked from Thought Leader Tomasz Tunguz of Redpoint:

Growth is No Longer the Best Predictor of a Software Company's Value

Net Income and Revenue GrowthIn 2020, revenue growth was the most important factor explaining a public software company’s forward multiple.

The formula has changed since then.

Net income has surged to the highest correlate of a public software company’s multiple surpassing revenue growth. Narratives published in newspapers trumpeting the importance of profitability correctly assess investor sentiment on stock exchanges.

Revenue growth & sales efficiency round out the top 3 with gross margin & cash flow from operations margin rounding out the 5 tested metrics.

Preference changes pop out of the data. Net income surges to 0.71 correlation up from 0.12 in 2020. Revenue growth diminishes to 0.61 from 0.81. Sales efficiency also falls by...

Read the rest of this article at

Thanks for this article excerpt and its graphics to Tomasz Tunguz, venture capitalist at Redpoint.

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