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We are a small shop that have developed a platform for developing applications that can run both in the cloud and on premise, A PAAS offering. You could compare it to Microsoft XRM or Salesforce - AppForce.

We are talking to a potential customer, who are considering rewriting their current application on our platform. This is all fine and we are discussing licensing models, but they also want an option to at a later time, be able to buy a non exclusive source code license where they want to be able to do what they want with it, excluding competing with us and reselling the source code.

How would this affect the value of our company, and what do you recommend for this situation?

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Your customer wants to ensure that they will be able to continue their business, even if you are no longer reachable. This is quite common, but its usually done using source code escrow. In source code escrow, a third party holds the source code and releases it if certain events happen. This service may be expensive, so usually after its agreed upon, nobody ends up actually going and and doing escrow part.

In my opinion, if a customer is offering you money, the correct response is to take it.

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That is no the only reason. They may want to make chnges to functionality as well. – TimJ♦ Dec 10 '10 at 21:13
The reason they have mentioned is that they want to ensure that if they want to sell their company later, the buyers would not se it as a risk that they have used our platform and that the new owners have the option to get the complete source code. But I also think an escrow agreement paired with the option to get a source code license if and only if we go out of business or end development should suffice. I'm concerned how a potential investor in our company would look at a contract that lets a customer have a copy of our complete IP. What do you think of this, and how do I argue this best? – Fredrik Tonn Dec 10 '10 at 22:01
OK, then +1 on the answer and probably an escrow service should be all you need. They should pay for the escrow and if they DO license the code then it should be an added cost, but one you'll probably have to negotiate now. – TimJ♦ Dec 11 '10 at 2:08
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Go for it. There's nothing taboo about selling source code, as long as the customer abides by the license agreement. We've been selling FogBugz with source code for ten years.

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How would you calculate the value of the source code, if having the source code would allow them to sell copies of their product and our development tool to their partners without our involvment? Our product is a development platform, and as such, the development tool that they would be using, and that their partners would use, is the same as the one we are selling as a licensed product. – Fredrik Tonn Dec 11 '10 at 18:00
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Easy to asnwer - yes. They are just ensuring they can protect their investment of building on your product.

The hard part is figuring out the price. Do you strike a price today? a formula for if/when they want it? Depending on your cash flow you might want them to buy it now for 3x or 6x the current price and get the money in the bank rather than waiting for the remote possibility that it will eventuate.

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