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Software Market Snapshot Q1 2025: Metrics, Multiples, and M&A Trends Operators Must KnowPost

Author

Ben Murray
May 03, 2025

In partnership with

Greetings! Ben here. Happy Saturday. Special edition today.

As operators, it’s important to understand the current capital and M&A conditions.

GLC Advisors just published their Q1 2025 Software Capital Markets report.

Here’s a breakdown of the key metrics and trends from the last four quarters.

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📉 Valuations: Multiples Are Down YoY, Stabilizing Over Recent Quarters

Public SaaS company valuations are still below historic highs but appear to be leveling off after hitting a low in mid-2024.

Median EV/Revenue multiple:

- Q1 2024 = 4.5x

- Q2 2024 = 3.9x

- Q3 2024 = 4.3x

- Q4 2024 = 4.6x

- Q1 2025 = 4.5x

Top verticals in Q1’25:

- Supply Chain: 7.6x

- General Business Software: 7.0x

- Security: 6.7x

Lower-multiple categories:

- Sales & Marketing: 3.0x

- Comms & Collaboration: 2.1x

➡️ Trend: Valuations bottomed in Q2’24 and have hovered in a narrow band since Q3’24. Stabilization—not rebound—is the story.

🤝 M&A: Volume Trending Down, Add-ons Still Dominant

Deal activity has trended down over the past four quarters, both in number of deals and total value.

M&A Deal Volume:

- Q2 2024 = 298

- Q3 2024 = 289

- Q4 2024 = 268

- Q1 2025 = 285\

Q1 YoY comparison:

- Q1 2024 = 298

- Q1 2025 = 285 (a 4.4% decline)

Buyer composition in Q1 2025:

- 53% of deals = Private Equity

- 48% of PE activity = Add-ons

- 17% = Platform investments

➡️ Trend: M&A activity has declined each quarter since Q2’24, with a slight bump in Q1’25. Add-ons remain the preferred strategy for PE firms.

📊 Growth Metrics: The Great Deceleration Continues

Growth rates have been slipping each quarter since early 2023, and that trend has continued into Q1 2025.

Median LTM Revenue Growth:

- Q2 2024 = 12.3%

- Q3 2024 = 10.7%

- Q4 2024 = 10.2%

- Q1 2025 = 10.3%

YoY:

- Q1 2024 = 13.6%

- Q1 2025 = 10.3%

- Peak growth in 2022 was over 20%

➡️ Trend: Growth has moderated and now appears to be leveling in the low double digits. This reflects a “new normal” in SaaS.

📈 Metrics Still Matter: Rule of 40 and NRR Remain Strong Valuation Drivers

Despite macro headwinds, the market continues to consistently reward SaaS companies that demonstrate strong operational metrics.

Rule of 40:

- > 40% = 14.1x EV/Revenue

- < 20% = 2.4x

Net Revenue Retention:

- > 125% = 14.1x

- < 100% = 3.1x

BTW, I’m holding a revenue retention bootcamp on May 28th if you are not sure how to correctly calculate your retention. Only 35 spots left. Sign up here.

➡️ Trend: These correlations have held steady quarter after quarter. Valuation premiums based on Rule of 40 and NRR remain resilient even as overall multiples compress.

💰 VC and Growth Capital: Dollar Volume Holding, Deal Count Falling

Capital remains available, but the number of transactions continues to drop sharply each quarter, indicating increased selectivity.

Capital Invested:

- Q2 2024 = $36.8B

- Q3 2024 = $21.4B

- Q4 2024 = $47.3B (driven by AI)

- Q1 2025 = $25.5B

- LTM Total = $130.9B (up from $128.3B in 2024)

Deal Count:

- Q1 2024 = 2,866

- Q1 2025 = 1,553 (down 46% YoY)

- Q4 2024 saw over $20B invested in just three AI companies (OpenAI, Databricks, xAI)

➡️ Trend: The check sizes remain large (especially for AI), but the deal funnel is tightening dramatically. Q1’25 continues the downward trajectory in volume.

📉 IPOs: Limited Activity, Mixed Performance

The IPO window remains cracked open, but activity is sparse and outcomes are inconsistent.

- IPOs announced or completed in Q1 2025: 13

- Performance examples:

- CRWV: –7.3% from offer price

- ALMU: +37.3% from offer price

➡️ Trend: IPO activity remains well below historical norms. There’s cautious reopening — but only for standout, later-stage companies.

💡 Final Takeaways for SaaS Operators

Across the last four quarters, the market has been in a slow grind — valuations are compressing, growth is normalizing, and deal activity is softening. But companies with strong NRR, profitability, and product-market fit still stand out.

📌 What to focus on:

- Push NRR above 120% to secure valuation premiums

- Align with Rule of 40 to showcase efficient growth

- Be “exit ready” for add-on M&A — have clean retention, churn, and margin metrics

- Benchmark your performance at least quarterly — don’t wait for the knock on the door

Ben Murray

The SaaS CFO