It’s just about increasing TAM
The greatest story Coming out of the stock market boom after March was an explosive growth in technology stocks. Software companies in particular have seen their wealth recover. According to a basket of SaaS and cloud stocks put together by a Silicon Valley venture capital firm, ratings of public software companies have more than doubled since their lows in March.
Such profits are good news for startups of all sizes. For later upstarts, appreciation of software stocks helps create an inviting public market for exits. Strong public valuations can help direct private dollars to related startups and maintain capital flow.
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It is a surprisingly good time to be alive for software-oriented start-ups, especially those that follow recurring revenue models like SaaS.
Indeed, after COVID-19 arrived in the United States, layoffs and an increasing relocation of software sales were key, which turned worrying indicators out of the startup country. Since then, the data has turned.
As TechCrunch reported in June, layoffs have declined and software migration has recovered to the point that business and enterprise SaaS companies are on the rise.
But instead of just recovering to a level before COVID, the software inventory has continued to increase. Indeed, the Bessemer Cloud Index (EMCLOUD), which tracks SaaS companies, has reached a number of highs in recent weeks.
The rally has a certain logic. After discussions with venture capitalists in recent weeks, notes by Alastair Mitchell from EQT Ventures, Jai Das from Sapphire and Shomik Ghosh from Boldstart Ventures paint the picture of a possibly accelerated digital transformation for some software companies, which was driven by COVID-19 and COVID-19 and later the implications.
The trend may result in the entire addressable market (TAM) for software itself being larger than previously thought. A larger TAM could mean more future sales and cash flow for some software companies. This argument explains part of today’s enthusiasm for the market for public tech stocks, and especially for software company stocks.
We won’t be able to explain every point that Nasdaq won. However, the TAM argument is understandable if we want to suppress a good deal of the optimism that helps drive private and public technical assessments.