Why should every startup consider Software Escrow?

06/14/2017 | By Hira Saeed

This post originally appeared on blog.up.co

This is a guest blog post by Hira Saeed, Community Leader, Startup Weekend Karachi who writes about startups, AI, Chatbots and Big data.

The economy is experiencing a boom owing to the rise of startups across the country. With this rapid growth, safeguarding your business assets to ensure constant stability is vital. When you are starting out, you need to put into consideration the measures that are going to protect your business and its assets in the years ahead. One such way is by enlisting the services of a software escrow agent. A software escrow or a source code escrow is a service that helps to protect the parties vital to a software license. The service is integral to business owners who are looking to secure the continuity of the software’s maintenance over a period of time.

How Does Source Code Escrow Work?

At the last stages of software licensing, a neutral third party, the escrow agent is normally introduced to the equation. The primary purpose of the escrow agent is to store and safeguard the source code, documentation and all the relevant data pertaining to the software license. The escrow agent holds on to these things up until the point that a situation stipulated in the agreement is initiated.

Typically, as the licensee, you are presented with two options to protect against any unexpected business continuity problems, such as bankruptcy, the software vendor may experience. The first option is a source code license which requires the developer to give you the source code with the inclusion of all the up to date version releases. This option is not feasible to the developer as the source code is the software developer’s crown jewels and they will not want to prematurely give those to its licensee. The second option is to setup a software escrow by assigning your preferred third party escrow agent under a comprehensive escrow agreement.

The continuity and maintaining the software aspect of the business is an important part of the software lifecycle. Enlisting the services of software escrow basically means that a licensee can continue to depend on the software even if the software vendor disappears.  

When Should You Consider Source Code Escrow?

  • When the software licensed is mission critical
  • When the software vendor is likely to go out of business
  • When circumstances like bankruptcy arise and result to lack of maintenance or support of the software
  • When the software vendor breaches the terms of agreement on the software license. A violation of the agreement should essentially result in the vendor negating their obligations to maintain and support the software
  • If the software used is a vital component of the operations of your business
  • If the software has a significant impact on the business revenue
  • If the software was bought from the vendor at a high price
  • If the software was custom made for your business and getting a replacement is a tedious process

As your business changes, the software should also be updated to ensure that it keeps up with the needs of the business. When the software vendor is no longer offering maintenance or support, you are likely to experience software crashes, incompatibility with other software and multiple error reports. When this happens, having access to the source code, the list of developers, deployment documents, build instructions and virtual machines through an escrow agent will be extremely valuable.

What does the process entail?

  • Picking out an escrow agent

When picking out a software escrow agent, you should do copious amounts of research to ensure that you select the best in the industry. The fame and size of the company should not be the only considerations. Look at the financial stability of escrow agent, what the other clients are saying and the background as well.  Where is your material going to be stored? What is the agency’s technical and legal expertise? How long have they been in business? Asking yourself these questions will help you select a good software escrow agent.

  • Transferring the source code and other documents

Once you and the software vendor get a software escrow agent, the vendor transfers copies of the source code. The agent should be able to provide secure submissions like the Escrow Synchronization, manual online and offline submissions and automated submission scripts via stfp.

  • Source code held in place awaiting any eventualities

The release conditions are usually defined in the escrow agreement. They are mutually agreed by the licensor and licensee in writing and presented to the escrow agent.

  • Software escrow update

Presently, agents should be able to automate the updates to the corresponding software version releases. The updates to the software should essentially go hand in hand with the escrow updates.

  • Release condition triggered

If any one of the conditions listed in the escrow agreement occurs, the agent is prompted to release the source code and documents to the licensee. In the event that a software license is terminated before any release condition is triggered, the materials are returned to the licensor, or they can also be destroyed in line with the licensor’s instructions.


It is beneficial for a start-up to ensure that all aspects of the business are safeguarded. Using a reputable software agent helps to cover any loopholes that the software aspect of the business might have. This will help to ensure that the evolution of the business over a long period of time.