Valuation of software SMEs: traditional and modern frameworks

Abstract

This study addresses the task of valuing software SMEs in a digital economy dominated by intangible assets, where traditional valuation models designed for tangible assets are inadequate. The study aims to bridge the gap between these traditional models and the unique nature of software assets, focusing on mainstream products like desktop applications, mobile apps, and web platforms, particularly in SMEs with high scalability potential. Through qualitative research, including semi-structured interviews with venture capitalists, financial directors, and analysts specializing in software valuation, the study explores the shortcomings of traditional valuation models like the cost, income-based, and market-based approaches when applied to software assets. It highlights the significance of intangible assets such as intellectual property, network effects, and brand equity in software valuation and points to modern valuation approaches that integrate both financial metrics and qualitative criteria. The thesis concludes that despite advancements in valuation models for software SMEs, ongoing research is required to develop more comprehensive and adaptable systems that reflect the unique characteristics of the software industry, its rapid technological advancements, and market dynamics.