Boncosky SaaS Law Blog

I'm Bill Boncosky and I joined Alerding Castor Hewitt, LLP January 1st.  I'm thrilled to be here and excited to work with a group of talented and driven attorneys who are passionate about their clients and their clients' businesses.

I spent the last 6+ years as the General Counsel at ExactTarget, an Indianapolis-based email service provider (ESP) delivering its software product as a subscription-based service via a software as a service (SaaS) model.  At ExactTarget, I became personally familiar with and convinced of the power of the SaaS as both a method of delivering software to clients and a business model.

As the GC, I gained first-hand knowledge of legal issues specific to the SaaS model including SaaS litigation, licensing, intellectual property rights, limiting risk via a sound customer subscription agreement, appropriate insurance coverage, and a host of other issues.  I am very excited to be able to share this knowledge with other SaaS companies and provide SaaS legal consulting with my colleagues here at Alerding Castor Hewitt.

We all know the beauty of the SaaS business model: great cash flow from up front payments, recurring revenue from clients that renew, ratable revenue recognition that results in smooth rather than lumpy revenue models, etc.  But what if during your licensing agreement negotiations the client is pushing back and threatens some or all of these SaaS model advantages?

This is when its great to work with attorneys that have extensive SaaS legal consulting backgrounds; attorneys that not only understand ASP law or cloud computing law but can help achieve business goals during licensing agreement negotiations. 

If a client does not want to pay up front, provide and incentive for them to do so.  Give them 60 day payment terms and a 2% discount for paying for a 1 year subscription / license up front.  That's better than receiving payment over a 13 month term, no?  And if you are a start-up struggling to manage cash flow, a small discount for an up front payment is a small price to pay.

If this is a consistent issue, consider incentivizing your sales force for up front payments.  Give them a bigger / better commission for clients that pay up front within 30 days.

For SaaS companies, the customer agreement is critical.  Why?  A SaaS relationship is not a 1-time purchase of software to be installed.  The SaaS customer agreement is a document which will govern (what you hope will be) a long-term relationship with your client.  It must cover the software license aspect of the relationship, the ongoing maintenance, upgrading and use of the software and - often overlooked - the professional services to be provided by the SaaS company to the client.  The standard software license agreement is simply not sufficient.  And please do all you can to talk your REALLY BIG client from insisting that you use a form purchase agreement.

I recommend a "Subscription Agreement" for the use of the software.  This makes it clear what you are providing to the client - not a license to use software but access to a service during the subscription period.  The SaaS client must also consider the relationship professional services play and the nature of the SaaS service being provided.  Each will require customization of your SaaS customer agreement.

SaaS legal consulting requires a novel approach to client agreements.  Knowledge of ASP law, SaaS litigation issues, cloud computing law, etc. is just a start.  Make sure you discuss the unique nature of your SaaS service with a experienced SaaS law counsel so that you put the best agreement possible in front of your clients.