Valuations in Today’s Mid-Market Software Environment

Valuation is usually the first topic founders raise with us. Selling a software company is more than a financial event. It represents years of product building, customer trust, operational discipline, and leadership. It is natural for founders to want to understand how that work translates into today’s market.

At Solen, we evaluate mid-market software opportunities every week across many verticals and geographies. Over the last two years, we have seen a clear shift in how valuations are determined. Valuation ranges still exist, but the reasoning behind them has changed.

From 2020 to 2022, valuations often became disconnected from underlying unit economics. Growth alone could overshadow weaknesses. Today, valuations remain healthy, but the market has become more disciplined. Buyers now reward retention, predictability, and cash efficiency. We make this point very clear in our conversations with founders. Durable recurring revenue still earns a premium, but the criteria buyers use are different from the last cycle.

Not all revenue dollars are valued the same

Revenue quality is the starting point. Subscription revenue with clear renewal structures, standardized contracts, and low churn is valued very differently than one-time implementation fees or project-based services.

This is why two companies with the same eight million dollars of ARR can receive meaningfully different valuations. One company may have 92 percent gross retention and workflows deeply embedded in daily customer operations. That company will be viewed as durable. Another may have 75 percent gross retention, higher switching risk, and customers who regularly negotiate pricing. The ARR number may match, but the risk profile does not. We see this pattern repeatedly at Solen.

Profitability is increasingly valued

Profitability and unit economics have become central to valuation. Efficient companies are now rewarded rather than discounted. A business growing 15 to 25 percent per year with 15 to 25 percent EBITDA margins may receive a stronger valuation than a business growing 45 percent while burning capital. This reverses the norms of 2021. Profitability signals discipline, pricing power, and product-market fit without reliance on external capital. Investors are once again recognizing cash flow as proof of strength.

Strategic fit matters more than headlines

Strategic fit has also become more important. A deeply vertical product with strong domain expertise and meaningful switching costs can command attractive valuations even without rapid growth. This is where we spend much of our time at Solen. A specialized ERP for logistics fleets or a compliance workflow product for medical labs might not attract general-market attention, but to the right acquirer these businesses are highly valuable. Their strength comes from depth and workflow importance, not broad-market exposure.

Sellers should prepare their valuation narrative

Founders benefit from building their valuation narrative before entering a process. Document retention cohorts. Highlight your strongest unit economics. Explain your pricing logic. Show why your product remains sticky within its vertical.

Valuation is not simply a model. It is a demonstration of how risk and durability connect. The market today is very willing to reward durability, especially when the founder can prove it clearly.

In summary

Our message to founders is simple. Valuations today are fair. They are not euphoric and not depressed. They reflect a mature environment. Great companies still achieve great outcomes. Founders who prepare with clarity, evidence, and a grounded narrative continue to be rewarded. The market did not weaken. It evolved.

If you are thinking about your own valuation or want to understand how your metrics would be viewed in today’s environment, contact the Solen team. We are always ready to have that conversation.