So you think your startup is worth $10 million... EuroPython 2016 - PowerPoint PPT Presentation

Speaker Introduction Marc-André Lemburg – Python since 1994 – Studied Mathematics – eGenix.com GmbH – Senior Software Architect – Consultant / Trainer – Python Core Developer – EuroPython Society – Python Software Foundation – Based in Düsseldorf, Germany (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 2:41

Disclaimer • These ideas were used in an actual valuation – We do not claim completeness – We do not claim scientific accuracy • The results do make sense based on our experience in running projects (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 5:41

Value of an IT startup • Business value – Market share = users / market size – Cost efficiency (HR, processes) – Innovation factors – Risks (affecting operations) – ... • IT value – Quality of developers / managers – Application design quality (structure, flexibility) – Code quality (structure, metrics, tests) – Risks (affecting technical capabilities) – ... (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 6:41

Business risks • Affecting the business operation – Loosing important employees – Financial / investment risks – Market changes – Competing against open source / freebies – Infringements (patent/trademark/regulations) – Downtime – Data security breaches – ... (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 8:41

IT risks • Affecting technical capabilities – Problems in third party tools / extensions /services (dependencies) – Scalability problems (increase in load or storage requirements) – Flexibility problems (slow innovation) – Maintenance problems (fixing bugs takes too long) – Hardware issues (failing servers, disks, connectivity) – Environmental issues (fire, earthquake, storm) – ... (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 9:41

Value of an IT startup • Business value – Market share = users / market size – Cost efficiency (HR, processes) – Innovation factors – Risks (affecting operations) – ... • IT value – Quality of developers / managers – Application design quality (structure, flexibility) – Code quality (structure, metrics, tests) – Risks (affecting technical capabilities) – ... (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 10:41

IT valuation project approach • Analyze IT approach, team, system and data • Initial development valuation based on: – COCOMO model – Effort model • Apply “Added Value” factors (including risk) • Compare with reimplementation estimate → Make or buy (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 11:41

IT valuation analysis factors • Soft factors – Quality of developers – Architecture quality – Data model quality – Algorithmic quality – Extensibility – Risks • Factors (partially) based on metrics – Code quality • Known inaccuracies – Estimation risk buffer (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 13:41

IT valuation analysis factors • Soft factors – Quality of developers Discuss – Architecture quality with – Data model quality Team – Algorithmic quality – Extensibility Experience – Risks • Factors (partially) based on metrics Check Code – Code quality • Known inaccuracies Experience – Estimation risk buffer (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 14:41

IT valuation analysis factors • Soft factors – Quality of developers – Architecture quality – Data model quality – Algorithmic quality – Extensibility – Risks • Factors (partially) based on metrics Check Code – Code quality • Known inaccuracies – Estimation risk buffer (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 15:41

Raw code metrics • Source data analysis – Lines of code (LOC), Source lines (SLOC), Logical lines (LLOC) – Blank lines = better readability – LOC per module – Functions/methods/classes per module → Affect maintainability • Python tool: Radon – https://pypi.python.org/pypi/radon (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 16:41

Raw code metrics • Inline documentation – Comment lines (in relations to LOC) – Doc strings (in relation to LOC) → Affect readability and maintainability • Python tool: Radon – https://pypi.python.org/pypi/radon (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 17:41

Code metrics • Cyclomatic Complexity (CC) – more decision nodes = higher complexity – higher values = worse • Maintainability Index (MI) – combination of complexity, density, SLOCs and comment lines – higher values = better • Python tool: Radon – https://pypi.python.org/pypi/radon (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 18:41

Test coverage • Check unit test code coverage of code base – should show high values – note: 100% coverage is often misleading • Check for end-to-end tests – should provide good coverage as well • Check for randomized tests – to avoid biased test cases / missing test cases • Python tool: coverage.py – https://coverage.readthedocs.io/ (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 19:41

Intermediate COCOMO Model • COCOMO model is an industry standard for code valuation based on LOC – C/C++ – Java • Models: – Organic projects - small teams, senior/regular people, agile process – Semi-detached projects – medium sized teams, mixed skill set, semi-rigid requirements – Embedded projects – tight requirements, low level architectures, usually hardware based (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 21:41

Intermediate COCOMO Model • Formulas: – Effort Applied E = a * kLOC b * EAF (in person months) – Dev Time D = c * E d (in months) – People required P = E / D (in persons) • Parameter selection (organic project category): – a=2.40, b=1.05, c=2.50, d=0.38 • Adjustment factor EAF (lower = more efficient) – Normal: 0.9 – 1.4 (Java, C) – Python: 0.5 https://en.wikipedia.org/wiki/COCOMO (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 22:41

Intermediate COCOMO Model Value • Value = Developer costs * Development time – Take into account different costs for senior and regular developers – Use market rates / apply startup discounts – Add employer labor costs (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 23:41

Effort model • Time it took the company to build its system – Broken down by senior and regular developers used in the process • Value = Developer costs * Development time – Take into account different costs for senior and regular developers – Use market rates / apply startup discounts – Add employer labor costs (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 24:41

Added value • Apply +/- Factor % in the following categories: – Quality of developers – Architecture quality – Data model quality – Algorithmic quality – Code quality – Extensibility – Risks – Estimation risk buffer (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 27:41

Code valuation • Pragmatic approach: Average from applied models – COCOMO model – Effort model • Apply added value factor • Final estimate (c) 2016 eGenix.com GmbH, info@egenix.com EuroPython 2016 28:41

So you think your startup is worth $10 million... EuroPython 2016 - PowerPoint PPT Presentation

So you think your startup is worth $10 million... EuroPython 2016 Bilbao, Basque Country, Spain Marc-Andr Lemburg (c) 2016 eGenix.com Software, Skills and Services GmbH, info@egenix.com Speaker Introduction Marc-Andr Lemburg Python

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