When a startup is handling software development for an enterprise, what should be recommended to ensure investment protection?

To ensure investment protection when a startup is developing software for an enterprise, a source code escrow agreement is particularly important. This type of agreement involves depositing the software's source code with a trusted third-party escrow agent. The primary benefit of this arrangement is that it provides security for the enterprise in the event that the vendor is unable or unwilling to support the software in the future, whether due to bankruptcy, business failure, or other unforeseen circumstances.

With a source code escrow agreement, the enterprise can access the source code if certain predefined conditions are met, such as the vendor being unable to maintain the software or ceasing operations. This access allows the enterprise to continue using, maintaining, or modifying the software without being entirely dependent on the vendor. Therefore, it gives the enterprise a way to protect its investment in the software development process.

In contrast, while conducting due diligence on the software vendor is important, it primarily helps evaluate the vendor’s capabilities and risks before engagement, rather than protecting the investment once the software development has begun. A quarterly audit of vendor facilities can serve as a risk management tool, but it does not provide direct investment protection. Similarly, a high penalty clause in the contract may deter non-compliance, but it does not mitigate the risk of losing