A practical playbook for evaluating software companies — Rule of 40, unit economics, moats, and the four-pillar framework we use to separate durable monopolies from narrative traps.
Software businesses can scale with near-zero marginal cost of reproduction, high gross margins, and recurring revenue. The question is not whether software is attractive — it is which companies clear institutional underwriting standards.
The same lens we use across research memos and portfolio monitoring — not a consulting checklist.
Is product usage compounding through APIs and agentic interfaces — or stuck in legacy UI seats?
Composite quality score across growth, profitability, efficiency, R&D intensity, and balance sheet strength.
Does the product accumulate proprietary data that makes switching costly and models smarter over time?
What multiple is justified by Rule of 40, retention, and margin structure — not narrative alone?
Revenue growth % + free-cash-flow margin % should clear 40 for high-quality software businesses. Adjust the inputs to see where a company lands.
Excellent — clears the institutional hurdle
Formula: 30% growth + 15% FCF margin = 45
A simple screen before you dig into a memo or diligence packet.
Built for CEO · Founder · President evaluating software as an asset class — especially teams with $250,000+ / Year annual tech budgets who need a shared underwriting language.