The patterns influencing company valuations have shifted more in the past two or three years than in the previous two or three decades. If you’re an Irish business owner thinking about raising investment or selling up – or if you’re just someone who likes to plan ahead – it’s worth understanding what’s changed and why old conventions don’t help us in today’s reality.
The SaaS rules that no longer apply
For 25 years now, one operating model has dominated nearly every conversation about valuations: Software as a Service (SaaS), or what many might think of as ‘tech businesses’ today. Browser-based software gained traction because it allowed you to build once and then keep selling through a monthly subscription fee. The economics were genuinely attractive, with cost of sales typically running at around 15%, gross margins of 85% or more, and the ability to scale globally without adding headcount in proportion to revenue.
Previously, a SaaS business with strong growth could raise funding or sell at 20× or 30× revenue. The investment logic that drove this was straightforward (if not quite grounded in reality), with the bet being on what the business had the potential to become rather than what it was earning today. For a long time, that bet paid off often enough that the multiples stuck.
In the 2010s, there was genuine excitement about (and real differentiation between) software platforms. It was worth sitting through demos, trialling products, going to events like Xerocon, and hunting for integrations that might be useful. But I feel that world is gone. My inbox is full of pitches for software that nobody has time to evaluate, and most of it isn’t different enough to matter.
AI and the loss of the moat
The 20× or 30× revenue logic was based on the critical assumption that good software is hard to replicate. Software valuations were inflated by scarcity – the scarcity of the technical skill needed to build something good and the time it took to do it. AI has collapsed both. It’s not that software businesses have no inherent value, just that the source of that value has changed – product alone no longer justifies a premium.
A client of ours runs a B2C platform where users pay for data visualisation tools. He’s a programmer, and this is something he built from the ground up. He estimates now that a competitor using AI could clone his entire platform (front and back end) in roughly 24 hours. And although it’s entirely possible no one ever will copy his product, any investor or acquirer looking at that business knows it could happen.
Once you know that the thing protecting your market position can be dismantled overnight, a 20× or 30× valuation is hard to justify. The moat is gone.
Where the tech market is heading
Tech is consolidating fast. Google, Microsoft, and a handful of other big players are the default infrastructure for how many businesses operate. Practices like ours have moved steadily towards the established players – not because of particular loyalty but because the reliability, support, and integration they offer simply isn’t matched by smaller providers. The market is voting with its feet.
The cost of building at platform level – the data centres, the computing power, the teams required to develop and maintain a large language model (LLM) – is now so significant that it effectively closes the door to new entrants. I believe we’re heading towards a world where a small number of platforms provide the engine, and everyone else pays to use it.
If the past 25 years were about building digital products, where is the next opportunity? Robotics is where a lot of the serious attention has shifted (not necessarily the humanoid versions that get press coverage, but smart and useful physical devices). The mechanical side of automation has existed for decades, but always lacked the intelligence to make it genuinely useful. AI has solved that problem, and it’s now freely available to anyone building on top of the major platforms.
Ireland spent two decades trying to build software companies, with results that were modest at best. The next opportunity might look more like engineering and manufacturing companies building physical products again. One founder I know who visited accelerators in California recently told me there is growing excitement and focus in robotics there.
Valuations in the Irish context
When Ireland positioned itself as the ideal home for multinationals, there was an expectation that their influence would somehow rub off on Irish companies and we’d end up with a bunch of homegrown Googles or Intels. But this never happened, for a variety of reasons, including that successive governments wildly underestimated how much it actually costs to successfully take a company into new markets.
We’re still overwhelmingly a country of microenterprises making modest profits. While the exact numbers change every year, an average 92% of all active enterprises are micro businesses and small businesses represent around 6%. So that’s nearly the entire business economy. Even our largest indigenous companies are small by international standards. There are Irish companies that have leveraged a relationship with big tech to scale internationally, but they are the exception.
As most Irish SMEs are smaller and more dependent on domestic or European markets, the relevant comparison isn’t a Silicon Valley SaaS multiple, but what a trade buyer or private equity firm would pay for a stable, profitable business of your size in your sector. Those valuations tend to be more modest, but they’re also more realistic, and a realistic valuation is actionable.
Whatever you’re building – software, services, or something physical – the question a buyer will ask is the same one you should be asking yourself now: what does this business have that a well-funded competitor couldn’t replicate within a year? If the answer is your customer relationships, your reputation in a niche, your contracts, your people, or the physical nature of what you do, you’re on solid ground. If the answer is mainly your product, it’s worth thinking carefully about what else you’re building around it.
If you would like support running your business more efficiently and effectively, we have a range of services that could help. We offer financial health checks, or you may need a more hands-on service such as outsourced CFO or outsourced management accounting. To know more about how we could help, get in touch.
Rory
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