Software escrow agreements can play a major role in developing a business environment in which South African SMMEs can flourish. This is because an escrow arrangement governing the source code developed and maintained by the SMME essentially nullifies tender evaluation and scoring processes dealing with company size and financial backing. With these criteria nullified, small software and systems developers run out onto the same playing field as much larger companies with their bigger reserves and healthier cash flows.
So says Escrow Europe (South Africa) managing director, Andrew Stekhoven. Escrow Europe is the leading provider of active escrow services worldwide securing, verifying, updating and retaining deposits of software source code and associated documentation on behalf of users of licensed software products.
As part of its commitment to SMME development, Escrow Europe is offering local SMMEs the opportunity to place their products in escrow at very favourable rates. Details of the offer can be viewed at http://www.escroweurope.com/sa/salescopy.htm.
Stekhoven explains how escrow transforms an SMME into a Goliath killer: "Often, smaller ICT suppliers are precluded from tendering for major projects despite their expertise and intellectual property. This is simply because the contracting organisation believes it is less risky to deal with large, established firms than smaller concerns which may have the best-fit solution but do not have the resources to guarantee ongoing support, etc.
"In theory, it is more risky to deal with smaller organisations - the intellectual property often resides with just one or two people; what happens if they leave the company or are unable to fulfil their work obligations because of illness or death? The smaller company also doesn`t have the financial resources to ride out turbulent economies and business cycles.
"However, software escrow is an effective method of minimising the risk of conducting business with smaller companies; in effect putting them on the same playing field as their larger competitors.
"A case in point is Terminal 4 at Schiphol Airport, the Netherlands` main air-gateway and one of the world`s busiest transport nodes. Each terminal at Schiphol operates as an independent profit centre, and Terminal 4 is infinitely more profitable than the others. This is partly because the terminal authorities were able to implement a powerful but low-cost access control system, developed and maintained by a team of only two ICT engineers, essentially SMME ICT vendors.
"A comparable system from one of the larger software houses would have cost significantly more to implement and maintain. Thanks to an active escrow agreement, which provides terminal managers with a guarantee of business continuity, it was possible to entrust this mission-critical application to a lower-cost supplier.
"The risk of relying on just two men for a mission-critical system was effectively taken out of the equation by the active software escrow agreement."
Stekhoven asserts that SMMEs can buy themselves a huge amount of credibility and client satisfaction, as well as help grow their businesses, utilising active escrow. Those SMME ICT suppliers who think escrow is not for them, should consider just two questions, he says.
* How many deals have I lost because my potential clients were concerned about my sustainability or my size?
* How many more sales could I have made had I deposited my IP in an escrow agreement?
"The most important issue for your business is to sell more software product to your existing and potential clients. It can be of great financial value to you that your clients are assured you have taken extensive measures to safeguard their interests," he says.
"By ensuring that no matter what happens to your business (for example, a merger, acquisition, etc), you have protected their future, you can legitimately go to your client and say `I have added significant value for your business at my expense`. Now that`s a very strong sales argument."
For more than 15 years, Escrow Europe has been the leading provider of active escrow services, worldwide, and is a trusted third-party that secures, verifies, updates and retains deposits of software source code and associated documentation on behalf of ICT suppliers and developers.
Benefits for an SMME of an active escrow agreement include:
* Sell more product, more quickly: In a positive and structured way you are able to meet a growing need among clients and, by excluding unnecessary discussion, shortening the sales cycle substantially. Having an active escrow arrangement in place for your clients gives you a tangible advantage over competitors of any size. Our active escrow arrangement effectively eliminates business continuity risk for your clients and encourages the client to use your licensed products in preference to those of even the largest software suppliers/developers.
* Single deposit advantage: Escrow Europe makes it easy if you have multiple licensees based on one deposit into escrow of your source code (per product). You make a single deposit on behalf of all your licensees and Escrow Europe takes care of the administration/prompting for updates as well as the logistics involved with deposit release, should this be applicable.
* Patent, trade secret and copyright preservation: Our active escrow arrangements provide you with documentation when securing a patent claim, significant assistance in an infringement suit and robust proof to support an intellectual property copyright claim.
* Disaster recovery: Permanent loss of critical IP information (code, executables, data, technical documentation etc) is not an option. Having your most valued asset in escrow with a neutral third party provides you with an alternative to disaster in the event of an emergency. As the escrow agent, Escrow Europe will maintain a copy of your intellectual property stored off-site in a professional vaulting facility and available for restoration.
* Collateral provision: Putting up your technology as collateral may secure your company much needed funds and, in fact, many lending institutions, such as venture capitalists, angel investors and banks are requiring technology escrow for asset backed loans where the borrower is using its technology as collateral.
* Reduced dependency on key employees who tend to `hoard` instead of `share` information. Thirty-day escrow deposit cycles can ensure proper delivery according to functional specification and agreed deliverables (including documentation) when independent technical verification is performed on each deposit as a matter of course.
* Electronic deposit delivery: We have several options for depositors wanting to send their deposits to Escrow Europe electronically.
* Quality deposits: Our verification services provide assurance to you and your clients that all source code deposits meet a superior technical standard.
* Peace of mind: On request, Escrow Europe can provide extended verification services. Compilation is included in the analysis and testing of the deposit which verifies that the deposit is readable, correct and complete in all respects. This testing provides peace of mind to all parties that the escrow deposit will be useable, if released.
* Professional drafting of agreements: All Escrow Europe agreements are modifiable. If requested, we will assist you in addressing your specific requirements. As we list more than 15 000 clients as beneficiaries, we have a broad knowledge of requirements in this area.
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