Welcome back to the SaaS bear market

The good news for startups is that growth rewards are returning

How are the software companies performing today? It's going to be a busy week for earnings, so we'll have a lot of third-quarter data to analyze to answer this question very soon, but it looks like public market investors have already made up their minds.

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Investors have sold off cloud stocks to the point that they are in bear market territory from 2023 peaks. As a result, the value of software revenues is now in the pits, which has caused revenue multiples to reverse from where they were earlier this year.

However, the news is not all bad. New data indicates that startups are recapturing their growth rewards with a vengeance. Late-stage startups that have traded growth for cash may have trouble accumulating value, but early-stage startups that are growing quickly may have something to point to when they go out to raise money and ask for a better valuation.

From correction to bear market

The Exchange carefully tracks the value of the Bessemer Cloud Index ($WCLD) because it is a useful barometer for the cloud software industry in general. The index peaked at 34,93 this year before falling to just 26,93 today – that's a drop of nearly 23%.

A price swing of this magnitude is quite large. To earn the nickname “correction," an index must register a decline of 10% from recent highs. At 20%, you enter bear market territory, and that's where SaaS companies are today.