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

Author

Ben Murray
May 03, 2025

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

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➡️ 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