tech escrow

Deposit Retrieval: Added Value for Your SaaS Startup Clients

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Deposit Retrieval Boosts SaaS Sales

 

Deposit Retrieval Boosts SaaS Sales

Source: Graphic Stock

Do you own a SaaS startup? if so, you know that business is booming for software-as-a-service (SaaS) providers. Along with sales to consumers and small businesses, enterprise organizations are investing heavily in off-site software, and Gartner Research forecasts that almost 50 percent of enterprises will use cloud-based services by the end of 2017.

And as  investment in SaaS increases, businesses are realizing the importance of protecting their investment in these services, particularly for mission-critical programs. If the service provider cannot fulfill its obligations for some reason, such as a natural disaster, bankruptcy or acquisition by another company, the customer may be out of luck unless they complete a deposit retrieval from their tech escrow agent. Offering a deposit retrieval option is a great value added feature to help SaaS startups market themselves as different from their competitors.

Takes Three to Escrow

Depositing material held in escrow can save time, money and headaches down the road. A backup plan in the form of a tech escrow agreement requires three parties: the software provider, the client (or clients) and the tech escrow agent.   The agreement essentially sets out the terms to give the client (also known as the licensee) access to source code and materials deposited by the software provider and held in the custody of the agent.

This allows the client to create object code and support the service in the event that a specific release event occurs. If such an event does take place, however, the licensee may use the material held in escrow only to support the licensed software service that they had already purchased. Deposit retrieval is similar to visiting a bank to withdraw money that your grandmother deposited. It can be used only for grandmother-approved purchases, such as paying for college or buying a home.

Tip: if you don’t know of a tech escrow agent, ask your corporate lawyer – they should be able to put you in touch with the right people.

An Incomplete Deposit Equals a Worthless Deposit Retrieval

if you’re going to offer a deposit retrieval option via a tech escrow agreement, take the time to help your clients realize the importance of a good deposit.

An escrow agreement is only as good as the material on deposit. Licensees (aka your clients) may get a rude awakening when they realize that decoding, compiling and transforming source code into executable object code is not for the fainthearted.  Even knowledgeable technical people with extensive programming skills run into trouble. This happens if the deposited material is missing critical information. If a deposit for tech escrow verification evaluation is incomplete, it can’t compile until the developer provides more information. This makes deposit retrieval of the delivered material useless. This also illustrates why simply signing up for tech escrow services is not enough. A business has not protected its cloud-based software license investment until it has verified the materials.

As a SaaS provider, you can gain critical credit with your clients by introducing them to a tech escrow service.

Five Steps to Ensuring the Goods are Good

If you’ve just launched your SaaS startup business, chances are you’ve had some practice with testing – including testing new business ideas. Guess what? Deposit retrieval testing is the key to tech escrow verification. A comprehensive verification of the materials provides peace of mind to your client through the knowledge that, in the event of a deposit release, they’ll be able to quickly and effectively retrieve the material to re-create the service needed and to maintain your software on their own.

Verification testing is a multi-step process. Tech escrow agents usually test deposit retrieval immediately after the contract signing, and periodically afterwards to address software updates while the agreement is in effect.

Step 1: Quality Testing

There is no point to withdrawing junk files, so one of the first things to test is the health of the material on deposit. Are the files readable? Are they free from viruses that could corrupt other parts of the IT infrastructure? Is the material encrypted? If so, does the escrow agent have the decryption key?

Step 2: Environment Reconstruction Directions and Parts List

Before deposit retrieval, it is important that your client know exactly what is on deposit. An itemized inventory should include how-to instructions for re-creating the environment in which the software was first developed, as well as a parts list describing the required components. 

Step 3: A Test Run via Compile Testing

To verify that the materials held in escrow will compile, extensive and repeated testing should be conducted. Using only the escrow deposit material provided in Step 2, compile testing verifies whether the software can actually be re-created and run on the client’s hardware.

Step 4: Functionality Testing aka as “But Does it Run Properly?”

Once it’s confirmed that the deposit materials run, it is time to see whether it runs properly. Functionality testing occurs by evaluating the performance of the compiled deposit retrieval software against  your SaaS-provided licensed software being used. Performance should match every time.

Step 5: The Final Exam… or… Exams

The last step of testing is actually a series of tests to evaluate the robustness of the deposit material when used to perform all the required services. Successfully passing these tests lets your SaaS client know that the material on deposit will work should it need to be released.

The Never-ending Tech Escrow Verification Story

Although these five steps encompass the entire verification testing process, tech escrow verification is never really concluded. A tech escrow agreement usually requires the software provider (reminder – that’s you) to deposit updated source code and materials with the escrow agent regularly. The customer is then responsible for verifying  subsequent deposits and their quality.

Verification testing and deposit retrieval isn’t just about challenging you and your software. It also tests your client’s ability to maintain the software using the original source code and supporting materials. And verifying SaaS goes beyond testing the technology; it simply makes good business sense both for your clients who use your mission-critical Saas, and for you as a growing SaaS startup.

After all, if an organization is willing to invest the time and ongoing cost of implementing a new SaaS program through the training of staff and the migration of previous work onto the new platform, it makes good business sense to protect that investment. And in today’s increasingly crowded SaaS marketplace, going above and beyond to offer outstanding customer service should include tech escrow arrangements and well-tested deposit retrieval procedures.

What do you think? Is tech escrow and deposit retrieval really a good sales tool for SaaS startups? Let us know in the comments!

 

Cloud Computing Services: About Tech Escrow Agreements

Release Events
Cloud Computing Services

Source: Graphic Stock

Businesses of all shapes and sizes are investing more time and money than ever before in cloud computing services. Protecting assets against events such as a software-as-a-service (SaaS) provider’s bankruptcy is becoming a priority for reducing business risk.

If you’re like most business owners, you want to make sure that your tech assets, like the mission-critical applications or software on which your business depends, are safe and accessible should your cloud computing services provider be unwilling or unable to support and support the programs. One way to do this is with a tech escrow agreement.

What is Tech Escrow?

Tech escrow is when a neutral third-party holds data, source code, and any supporting tech materials in escrow for a developer and one or more clients. Include the  terms of the release of this material in a document known as a tech escrow agreement.

List Release Events in a Tech Escrow Agreement

A release event is when something happens that  interferes with the delivery of the contracted tech service. List possible events as part of a tech escrow agreement.  All parties should sign this agreement when the licensing contract is drawn up.

If one of the listed events takes place, the licensee can take the necessary steps to ask for a release of the deposited materials. A tech escrow agreement is put into play only if one or more of the release events described in the agreement occur.  Therefore, it is important that each potential event is clearly described.

The Most Critical Item

The release event list is arguably the most important part of the tech escrow agreement. It should include a thorough, detailed definition of each potential release event. Where applicable, each release event should also name a time frame for notifying  all parties. For example, if an event occurs and the client (licensee) notes a disruption in service, the cloud computing services provider may have 60 days from notification to fix the issue before the release of deposited materials.

Beyond Bankruptcy

Start-up cloud computing services that pop up and then disappear seemingly overnight are all too common, and a good reason to sign a tech escrow agreement. This pattern may suggest that bankruptcy is the most common reason for the discontinuation of a tech service, but there are other types of events can trigger a release of items held in escrow.

While custom release events may be added to a standard tech escrow agreement to capture a unique relationship or customized application between parties, there are also several standard events commonly included in most agreements.

Operational Issues with Cloud Computing Services

Are you concerned that an application might stop operating or won’t be properly maintained?  If so, ask for the inclusion of an operational or maintenance issue release event in the tech escrow agreement. License agreements between a developer and a client should contain detailed specifications and definitions of how a tech service will run and be maintained.

If the specifications are not being met and this situation is identified as a release event in the tech escrow agreement, a deposit withdrawal can be triggered.  Provide written notification of the issue to the cloud computing services firm or licensor,  including details of the failure. This gives your tech service provider the opportunity to fix the problem within the specified time period. If they don’t, you may ask for a deposit withdrawal.

Insolvency and Liquidation

In some cases, tech services can’t be provided because of a third party, such as a creditor. If a cloud computing services business is liquidated to pay off creditors, it may be unable to continue to offer its services.

Insolvency, general assignment for the benefit of creditors, or the appointment of a receiver are all examples of common release events in tech escrow agreements.

End-of-Life Announcement 

Businesses sometimes end operations for reasons unrelated to financial problems, acquisitions or mergers. The owners might choose to retire or to pursue other business opportunities. In some tragic cases, key people pass away, and the business cannot continue without them. These situations should also be detailed in your tech escrow agreement.

Mergers, Acquisitions, and Strategic Partnerships

When a business becomes involved with another business through a strategic partnership or a merger/acquisition scenario, often some programs and services will continue and others will be cut.

If duplication of programs occur,  one program may replace another. In this case, clients of the cloud computing services with the program being cut may exercise a deposit release,  or acquire the option to sign an agreement for the new program.

When a Release Event Occurs

Should a release event occur, as the beneficiary or licensee you may request a deposit withdrawal from your tech escrow agent. Once your agent carries out a full internal review and verifies the materials list or inventory completed at the time of deposit, deposited materials (ie. source code) are retrieved and delivered.

To reduce the likelihood of communication problems in the event of a deposit release, it is critical that both the developer/licensor and the client/licensee understand and agree to the release events as laid out in the tech escrow agreement. The agreement should also include clear instructions about the steps to tell both parties that a request to release the deposit is in progress.

Gartner Research recently reported that by 2016, investment in cloud-based technology will account for the majority of IT spending. If your business is heavily invested in mission-critical SaaS, talk to your lawyer about creating a tech escrow agreement for each of your cloud computing services.