Software and SaaS Valuation: Economic Value and AI Impact

Introduction : Software, a core intangible asset driving value creation

In today’s digital economy, software has become a primary engine of competitiveness and differentiation. Whether delivered as a SaaS solution, embedded in a proprietary algorithm, deployed as a technology platform, or used internally to structure and automate industrial processes, software is a strategic intangible asset whose economic value extends well beyond its development cost.

Under the International Valuation Standards issued by the International Valuation Standards Council (IVS 210 – Intangible Assets), an intangible asset is considered identifiable when it is capable of generating future economic benefits and can be distinguished from other assets of the business.

Under Swiss law, software is primarily protected by copyright. Article 2(3) of the Swiss Federal Act on Copyright and Related Rights (CopA) explicitly recognises computer programs as protected works, without requiring any filing or registration formalities.

French law follows a similar logic. Article L112-2 of the French Intellectual Property Code expressly includes software among protected works. However, legal protection does not, in itself, determine economic value. As Professor Aswath Damodaran emphasises, “the value of an asset is a function of the cash flows it generates, the risk attached to those cash flows, and their expected growth.”

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Framework and rationale for software valuation

Why value software?

Software valuation aims to determine, at a given date and within a defined context, the economic value of an intangible asset whose substance is technological but whose implications are primarily financial. Software value rests on its ability to generate identifiable future economic benefits, consistent with IVS 210. The challenge is that software value should not be confused with development cost, technological sophistication, or code volume.

Companies concerned by software valuation

Software valuation is not limited to technology startups. It concerns a much broader range of economic actors whenever a software program constitutes a strategic, differentiating, or revenue-generating asset: technology startups and SaaS companies, industrial companies, established groups, academic institutions and research centres, and investors in due diligence processes.

Economic and technical specificities

Software valuation has features that distinguish it from other intangible assets. Software economic value depends less on legal exclusivity and more on technical quality, execution performance, architecture, and its integration into a user ecosystem. A further key factor is dependence on human capital. Moreover, software typically has a shorter lifecycle than traditional industrial assets.

Economic rationale for valuation

From a financial perspective, software value corresponds to the present value of the cash flows attributable to it. The purpose of valuation is not to produce a theoretical maximum value, but to derive an economically grounded estimate that is coherent with the use case and capable of withstanding scrutiny.

Valuation report structure and methodological approach

Software valuation cannot be reduced to a financial model. It relies on a structured rationale combining legal analysis, technical understanding, market assessment, and economic modelling. The credibility of the report depends less on modelling sophistication than on overall coherence, traceability of assumptions, and the alignment between the chosen method and the asset profile.

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Company and software overview

A report typically begins with a concise presentation of the company holding the software and of the software asset itself. The software overview should describe functionality, high-level architecture, development stage, history, and key technical characteristics. The goal is to ensure clarity on what is being valued. Ambiguity around scope is a frequent source of fragility in software valuations.

Market overview

Market analysis contextualises the asset within its competitive environment. It addresses total addressable market, growth dynamics, maturity, and barriers to entry. Software value depends as much on product quality as on the depth and structure of the market it serves.

Legal analysis and ownership of rights

A rigorous valuation requires confirmation that the company effectively holds the rights to exploit the software. Under Swiss law, protection is governed by the Swiss Federal Act on Copyright and Related Rights (CopA). Under French law, protection is governed by the Intellectual Property Code. In both jurisdictions, protection arises upon creation (subject to originality) and does not require any filing. Any uncertainty in the chain of rights represents a legal risk factor that should be reflected in the qualitative assessment.

Qualitative assessment of the software

This section is the analytical core. Intrinsic analysis starts with architecture: code structure, modularity, separation of layers, maintainability, and integration capability. Technical debt must be assessed carefully. Cybersecurity and regulatory compliance are also critical. Extrinsic analysis considers positioning within the economic environment, user adoption, customer base stability, and revenue recurrence.

Valuation approaches

Software valuation relies on established intangible valuation methods adapted to the asset’s technological and economic characteristics. Under IVS 210, three primary approaches structure market practice: the cost approach, the market approach, and the income approach. In certain cases, a real options approach may also be relevant. No method should be applied mechanically.

Software valuation methodologies

Cost approach: estimates value based on the investment required to create or recreate the software. Market approach: relies on comparable transactions involving similar software or technologies. Income approach: typically forms the core method for software that is exploitable or near-term exploitable, implemented as a DCF or a relief-from-royalty method. Real options approach: explicitly models technological uncertainty and managerial flexibility. Negotiation approach: in certain contexts, valuation aims to set an economically sustainable remuneration level under a licence or partnership agreement.

How to value a SaaS software solution?

Valuing software under a SaaS model has specific features compared to traditional licensing. The income approach is generally central, relying on forecasting cash flows generated by subscriptions, incorporating key drivers such as customer retention (churn), revenue growth, customer acquisition cost (CAC), recurring gross margin, and upsell/cross-sell potential. Scalability must also be assessed.

How to set a software royalty rate?

Determining a software royalty rate cannot rely on a single sector benchmark. The rate should reflect the software’s true share in overall value creation, the degree of technological differentiation, substitutability, the level of exclusivity granted, and risk allocation between the parties. The objective is to reach a commercially viable and economically balanced outcome.

Software valuation discounts in 2026: the impact of artificial intelligence

The year 2026 marks a notable shift in technology asset valuation. The widespread adoption of AI tools has materially lowered technical barriers to entry. This drives downward pressure on certain valuations, particularly where software does not benefit from exclusive access to proprietary data, a structured user ecosystem, controlled distribution, or a durable and hard-to-replicate competitive advantage. Value is increasingly concentrated in strategic integration, data quality, commercial execution capability, and the robustness of the business model.

Software sector royalty rate table (2024–2025)

CEO’s message

Software valuation is now a strategic priority for innovative companies, academic institutions, and investors. Contrary to a common misconception, the value of software cannot be reduced to development cost or code complexity. It is driven by the ability to generate future economic cash flows, the strength of legal structuring, and its integration into a viable business model. In 2026 we observe valuation discounts in certain tech segments — not because value has disappeared, but because the drivers of value creation have changed. Simply owning software is no longer sufficient. Value increasingly resides in strategic integration, data quality, commercial execution capability, and the sustainability of the business model.

Conclusion – Rethinking software value in the age of artificial intelligence

Software valuation can no longer be approached through a purely technical or historical lens. Traditional valuation approaches remain fully relevant. However, their application must be adapted to a context where differentiation is more demanding and business models face greater competitive pressure. A rigorous valuation makes distinctions explicit. It is a structuring instrument for negotiations and a tool to secure financial decision-making.

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Author

Aristide Ruot, Ph.D.
Founder & Managing Director