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Know Your Software

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"Consilience Ventures tiene la moneda para los emprendedores mediante la tokenización de un fondo de capital riesgo. Usamos Vaultinum para proteger a nuestros miembros dándoles la opción de almacenar de forma segura su contraseña y frase semilla para evitar perder millones de euros, como hemos visto en el pasado con las criptomonedas."

"Nos impresionó la calidad de los servicios de auditoría completa de Vaultinum. Nos proporcionaron un análisis experto de nuestro software y recomendaciones prácticas sobre cómo abordar los problemas destacados en el informe. Ha reforzado la confianza que tenemos en nuestro software y apoyará nuestro crecimiento en los próximos meses."

"El modelo de acuerdo de custodia en línea y rentable de Vaultinum nos ha permitido firmar contratos cruciales con bancos exigentes. Nos tranquilizó la capacidad de reacción y la experiencia de su equipo, así como el nivel de seguridad implementado para mantener a salvo nuestro código fuente y nuestros conocimientos técnicos. Nuestros clientes estaban tranquilos por la capacidad de Vaultinum de recuperar el código fuente en caso de fallo".

Publicamos nuevos artículos cada semana para mantenerle informado de las últimas noticias y novedades en el mundo de la propiedad intelectual y la protección de activos digitales.

Vaultinum es una tercera parte independiente de confianza especializada en la protección y auditoría de activos digitales

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If 2021 was a big year for European dealmaking, 2022 looks set to be even better. 

Currently the UK is western Europe’s M&A hotbed, accounting for more than 32% of deals in 2021 (1) and has seen a £1.1 billion increase in domestic M&As in quarter 1 alone, when compared with the same period in 2020 (2). This success looks set to continue well into 2022 with the Ansarada UK Dealmakers Survey showing that 90% of their respondents (senior executives from 50 UK-based firms across investment banking, private equity, and M&A) believe that the number of M&A deals in the UK will increase in the next 12 months, with 54% believing it will increase significantly. (3)

Taking this into consideration, M&As are clearly a focal point for accelerated organisational growth and development as we look to the year ahead. But how can investors take advantage of this promising landscape whilst ensuring that they don't fall victim to the ever-increasing threat to cyber security?

Traditionally, organisations and investors have conducted due diligence covering financial, legal, operations, and human resources. However, when it comes to conducting due diligence of software, this is not always met with the same systematic approach.  Often, this is due to the speed at which organisations are implementing new technology in their everyday operations and partly due to the rapid growth of tech-forward companies. With technology increasingly becoming a primary asset to businesses, new issues have arisen which are overlooked in traditional due diligence.

Recent statistics have highlighted that cyber-attacks are rising sharply in the UK. According to Sophos data, last year 51% of UK organisations were affected by ransomware attacks, with criminals successfully encrypting data in 73% of these attacks (4). Considering these figures, a comprehensive due diligence that assesses both software and source code during the pre-acquisition phase is integral to provide the acquirer with a full view of the potential data breach risks that could lead to serious financial and legal consequences. Furthermore, for those acquiring or merging with a pre-existing company, they run the risk of inheriting hidden data vulnerabilities which can significantly impact the primary company’s business operations, investor relations and reputation.

One of the most renowned cases of insufficient software due diligence resulting in catastrophic consequences is that of Marriott International after their merger with  Starwood Hotels & Resorts. Two years down the line, it was revealed that a huge data breach in Starwood’s reservation system had occurred pre-merger, in which 400 million guest records were exposed through a security flaw. This resulted in a $123 million GDPR fine by Britain’s Information Commissioner’s Office, as well as reputational damage for both Marriott and Starwood.

But if only the issues ended with hidden data vulnerabilities. For any M&A activity in which the target company’s software is a significant asset of the deal, investors must also consider the potential restrictions that open-source software (OSS) can bring. Today, software developers often rely on public code repositories available on websites like GitHub or Stack Exchange, as it appears to be free at the point of use. However, often these licences are offered subject to conditional restrictions. When using OSS to create derivative products or linking source code to OSS, the integrated product becomes subject to these conditional restrictions, which can include making all or part of the code public or paying a fee for its use. In other words, a company may not have full rights to their product or software.

If acquirers carry out a comprehensive due diligence during pre-acquistition, this can help to avoid liability for the target’s previous use of OSS, and any terms relating to its licencing. And bad news for the software supplier, if OSS is found embedded in their software, investors may walk away from the deal entirely, or at the very least adjust its value and/or terms.

But how to avoid these issues? The first step lies within ensuring that investors have carried out a comprehensive software due diligence during the pre-acquisition phase. Following the advances in AI technology, audits like these can be performed through automised tools which thoroughly analyse every line of code to identify any possible cyber vulnerabilities, intellectual property issues and maintainability risks. 

Vaultinum’s Know Your Software Tech Due Diligence

Vaultinum’s Know Your Software Tech Due Diligence offers an online solution for software due diligence that helps businesses and tech investors mitigate risk, gain crucial knowledge of a firm’s technology and increase the value of the software assets. 

Know Your Software Tech Due Diligence offers an online self-audit (Know Your Software Self-Assessment,) which analyses Intellectual Property, Cyber Security, Third-Party software management and Software development as well as an in-depth software source code scan (Know Your Software Code Audit) which provides a thorough risk analysis of the software asset, which is evaluated by IT experts. 

Automated tools such as the Know Your Software Code Audit enrich the traditional tech due diligence by making audits more objective and less susceptible to human error, ensuring that the acquirer’s reputation, business and liability remains protected and in the best possible position to make bold business decisions.

(2) www.ons.gov.uk/businessindustryandtrade

(3) www.ansarada.com/blog/UK-M-A-set-to-surge-in-2022

If 2021 was a big year for European dealmaking, 2022 looks set to be even better. Currently the UK is Europe’s M&A hotbed, accounting for more than 32% of deals in 2021 and seeing a £1.1 billion increase in domestic M&As in quarter 1 alone. Now as we look to the year ahead, M&As will clearly be a focal point for accelerated organisational growth and development making technology due diligence more important than ever.

Discover how investors can protect themselves by performing thorough technology due diligence

Vaultinum is pleased to announce our upcoming webinar 'Top Trends in 2022: What to Expect in Tech Mergers and Acquisitions' taking place on 25  January at 15:30 CET.

Few could have predicted what would unfold after the initial economic impact of the Covid19 pandemic, but the technology sector has proven its resilience where other industries have suffered. In fact, the year 2020 witnessed the greatest decline followed by the greatest recovery of M&A deals in the Tech sector and 2021 did not lose any of this momentum.

This year is looking to be just as active but with a heightened awareness of the risks related to widening regulations, compliance issues and cyber security, with each posing significant dealmaking challenges for tech acquirers.

Join Vaultinum for a 45-minute session where we reflect on what these key M&A Tech Trends mean for investors as they look to the year ahead and discuss the importance of topics such as:

• Early detection of due diligence landmines (OSS license compliance, cybersecurity..)

• Why continuous compliance is the key to reducing your overall risk

Vaultinum is pleased to announce our upcoming webinar 'Top Trends in 2022: What to Expect in Tech Mergers and Acquisitions' taking place on 25  January at 15:30 CET. Few could have predicted what would unfold after the initial economic impact of the Covid19 pandemic, but the technology sector has proven its resilience where other industries have suffered. 

Find out more about Vautlinum's upcoming webinar on M&A Tech Trends for 2022

Top Trends in 2022: What to Expect in Tech Mergers and Acquisitions

As we continue to shift further from a traditional brick and mortar economy and closer to virtual realities, companies are faced with new and emerging threats such as software failure, data breaches, privacy disputes, open-source software intellectual property issues, cyber-threats, sustainability, among a myriad other. In this new digital landscape, security and the protection of digital assets takes on a new meaning. Thus, it is more important than ever, whether you are an investor or potential buyer, to know that the company that you are interested in is operating in accordance with best practices and has laid proper foundations for solid growth. 

We have outlined in this article, the 4 main areas- Intellectual Property, Third-Party Software, Technology Performance and Cyber Security- and the key questions to ask when conducting technology due diligence.

The management of IP is a critical component to the growth and success of a company. Moreover, the importance of IP rights in the overall valuation of companies is gaining more global recognition. Intangible IP assets represented only some 17% of market value of S&P 500 companies in 1975, by 2015 had grown to 87% and in a 2019 analysis, industries that make intensive use of IP rights generate around 45% of GDP in the EU (€6,6T).

Key Questions to consider on Intellectual Property

Has the target company acted to protect the IP rights of their software source code by depositing it with a trusted third party or copyright office? 
Software, like works of art or literature, is protected by copyright law.  In order to assert this right, a deposit of the source code and any updates must be made with a trusted third party or copyright office.  A deposit creates proof of ownership of the source code at a point in time. 


 Are IP transfer agreements in place with all consultants and employees that have worked or are working on developing the software?
In some countries, IP transfer may be automatic in employer-employee relationships, but it is not always the case and it is certainly not the case in relation to consultants. This creates potential litigation risk and may, in turn, have financial and reputational impacts on the company.


 Does the company own all rights necessary to make, use, sell, or offer for sale its actual and proposed products?
The use of high risk third-party licenses (copyleft, copyrighted or proprietary) and not having an effective IP management process in place that identifies and manages these licenses and other IP rights creates potential issues that may restrict the freedom to commercialize the end-product.



DISCOVER VAULTINUM'S TECH DUE DILIGENCE SOLUTIONS

Companies rely more and more on third-party software to help run their operations and/or develop their software product. Third-party software can be open-source or commercially licensed, and in both cases there are typically licenses that condition their use. The misuse of, or becoming too dependent on, third-party software can hinder a company’s growth and even threaten its survival.

Key Questions to consider on Thirty-Party Software

Have they entered into escrow agreements that enable them to access the software source code that they rely on for their operations, for example in case of supplier failure or bankruptcy (or failure of servers if it runs in SaaS mode)? 
Dependencies on third-party software means that the company is exposed to the risk of such software becoming obsolete, not maintained, not supported or even decommissioned.  An escrow agreement is essential to continue operations and comply with client obligations. 


 Is the company able to identify all the open-source software that is used within the end-product?
Integrating open-source software into the end-product may limit the company’s ability to commercialize and enjoy the full use of the product due to non-compliance with licensing terms or infringement of IP rights. 


 Do they have a process in place to check for regular updates to open-source software that they use?
Updates may resolve vulnerabilities so that the software continues to function in accordance with expectations and limits the risk to end-users.Failing to update may also restrict a company’s use of their software product depending on the license.


While software is fast becoming the backbone to many businesses, a shockingly large number of software projects still fail to meet company expectations in terms of performance, scalability, maintainability, cost, or delivery schedule.  There are several factors at play and each one has varying levels of impact on the successful delivery, performance and reputation of the software product.

Key Questions to consider on Technology Performance:

Was there proper knowledge transfer carried out by developers who participated in the initial stages of the product development?  
Knowledge transfer management needs to occur during the entire software development and use life-cycle.  Not having access to the initial stages of development can have negative effects on the maintainability and scalability of the end-product.


 Is the technology infrastructure currently ready to scale without any further development in case of rapid growth of the client base?
Not having a technology infrastructure ready to scale in the event of rapid growth may generate critical system failures or functionality issues leading to financial loss and reputational damage.


Are there any organizational aspects of the development team that may have a direct impact on its overall capability to deliver successfully?
A well-organized, smooth-functioning development team is critical to the success of the product.  A few key elements to bear in mind are the location and distribution of the team (not being dispersed across too many times zones or offices) and regular reporting to management (to ensure strategies are aligned).

The global cost of cybercrime in 2020 reached $945 billion, and is expected to grow by 15% annually, reaching $10.5 trillion per year by 2025. Every day new technical and security breaches are discovered.  Every business change can create unintended vulnerabilities.  Every new employee, consultant or contractor is a new risk that needs to be managed. A hacker only needs to be successful once, while a company’s security measures must be successful 100% of the time -  in an ever-changing threat landscape.  Thus, the importance of having a solid cyber risk management program cannot be underestimated.  

Key Questions to consider on Cyber Security:

 Is client data stored at, accessed by, or transmitted   through, an offshore environment (in a country different to that in which   they receive client data)?
Data privacy regulations and mandatory breach disclosure laws vary widely across the globe, making it of prime importance for businesses,  articularly multinationals, to conduct the requisite legal due diligence across markets to ensure their compliance. Moreover, international communication isn't necessarily safe and poses greater risk.


 Does the company utilize encryption to protect data?     
Encryption makes data unusable and illegible to any party who does not possess the decryption key. Encryption is a way to ensure that even if a data breach occurs and data is subsequently stolen or copied, the potential of it being usable is much lower.  Breaking encryption is very difficult, which makes it one of the best security measures to protect data.


Are there complete records, which are kept and maintained, regarding all company  devices including computers, tablets, mobiles, laptops, etc.? 
Proper documentation allows an organization to keep track of all company devices.  It is an important risk mitigation measure as it helps to prevent loss and allows for a rapid response in the event of an incident, such as remotely disabling lost or stolen devices.  A device that is unaccounted for presents a security risk as it can potentially be hacked, opening the door to an attack on the organization’s systems and networks. 



DOWNLOAD OUR TECH DUE DILIGENCE CHECKLIST

Tech due diligence is no doubt one of the essential aspects of any modern business transaction and knowing which elements to consider before taking the next step is crucial. However, it requires expertise, experience, and insights that are best obtained from an independent third-party. 

Unlike traditional approaches to tech due diligence, Vaultinum offers an online software due diligence tool, Know Your Software.  Through an in-depth source code scan, reviewed by an IT expert, the solution analyses Intellectual Property, Cyber Security, Scalability and Third-Party risks.  The results are shared in a detailed report, which includes scoring, recommendations and fixes. 

With 40 years’ experience in IT and Legal, each step of Vaultinum’s Know Your Software solution was designed in collaboration with leading experts in the fields of Cybersecurity, Intellectual Property, Software development and Compliance, to provide users with a comprehensive, trusted, risk analysis. 

Enter your investments with confidence, with the assurance of Vaultinum’s technology due diligence solutions that have been custom-built for today’s digital world.

It is more important than ever, whether you are an investor or potential buyer, to know that the company that you are interested in is operating in accordance with best practices and has laid proper foundations for solid growth. In this post, we have outlined the 4 main areas- Intellectual Property, Third-Party Software, Technology Performance and Cyber Security- and the key questions within each to ask when conducting technology due diligence.

Ready to invest? You don't want to miss these key questions when performing your technology due diligence.

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Responding to the Rise in M&A Activities

Top Trends in 2022: What to Expect in Tech Mergers and Acquisitions

Tech Due Diligence Checklist