Pricing a software business has always been an inexact science. But with the market as it is, putting a meaningful value on companies is even harder.

As economic headwinds persist, deal-making continues to be driven primarily by top-quality businesses, and investor caution means many will only bid on companies that tick all their boxes. That means competition for those assets is through the roof, prices are pushed ever higher and the pressure on value creation intensifies as a result.

Meanwhile, it’s the opposite story for those ‘imperfect’ companies that don’t tick all the boxes, which are struggling to get any interest at all, particularly from private equity. For cautious investors, any diversion from the ideal template – or boxes unticked – is a risk they aren’t prepared to take. This is skewing pricing and widening the gap between the best and the rest.

Searching for ‘perfectly imperfect’ businesses

To avoid this conundrum, investors should shift their focus away from identifying perfect businesses and instead seek out those that are imperfect – but in the right way.

That doesn't mean ignoring key criteria, whether that’s product, growth trajectory, or market. But that should be balanced with clarity around where it is possible to compromise and fill gaps through the right expertise and support.

This could be:

An imperfect management team

Even when a business has a great product and healthy growth, an incomplete management team can mean it gets overlooked. But what if management gaps were seen as an opportunity, rather than a risk?

If a business is successful without key leaders, imagine what it could achieve with them. Investors have large networks at their disposal, so can cherry-pick candidates to plug leadership gaps, ensuring a business is ready to accelerate growth post-deal.

When we first met SecureFlag, the business didn’t have a Chair, CFO, or CRO, which meant we were the only private equity bidder. But, because we were able to identify suitable leaders before we signed the deal, the business was ready to go immediately afterwards. And within months, the CRO had recruited seven or eight more people from his network, transforming the sales function to drive rapid growth.

An imperfect ownership structure

The founders of Relesys faced a different challenge when we first met them, as the business was listed on the Copenhagen Stock Exchange, which was holding it back due to quarterly sales targets, extensive reporting and the cost of listing. The need to delist the business meant there was less interest in the deal, but we could see immediately that the business had huge potential to grow through product development, AI, and sales transformation - all areas where we had experience. This synergy and willingness to handle the delisting meant the deal worked well for everybody, allowing plenty of room for growth on both sides.

Imperfect technology or sales engine

And with our most recent acquisition, Zendr , we won the competitive auction because we were confident we could overcome their challenges of replatforming the business and building out the sales team, due to our previous experience with PriceShape. We still paid the price necessary to win the auction, but the fact that we could address these challenges and bring expertise to bear meant we could push ourselves to match the other bidders.

Fair pricing + hard work

Creating value in the current market isn’t about finding a bargain or identifying mispricing; it’s about agreeing on a fair price for true value and bringing expertise to the table - rather than paying over the odds for ‘perfect’.

This suits founders, too, ensuring they achieve what they want financially, while getting help to reach their business objectives. They know that with the right investors, they will get to where they need to be more quickly than by trying to achieve perfection on their own. And that means everybody wins.

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