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Venture-capital financing model This can be used with any of the above contract forms. In this model, the sponsor gives a round of financing for a certain amount of work, and the contracted company must produce results in order to get more funding. The sponsor can cut their losses at any time if they are not getting the results they need. They can presumably alter the terms of the contract after each work period. The result of a work period need not be working software; it could be a paper study, or a requirements document, or anything the sponsor selects. The venture-capital finance model works well with agile providers, since the agile provider is used to delivering useful, working software early and regularly. I find it an odd irony that the venture capital financiers running start-ups that I have encountered don’t take advantage of their own model to the extent agile teams do. The venture financiers let the evaluation markers occur too far apart in time. If they attached funding to monthly releases, that would oblige the start-up team to think through what it really can accomplish each month. The monthly progress would give the financiers a better sense of the start-up company’s real progress.

Venture-capital financing model This can be used with any of the above contract forms. In this model, the sponsor gives a round of financing for a certain amount of work, and the contracted company must produce results in order to get more funding. The sponsor can cut their losses at any time if they are not getting the results they need. They can presumably alter the terms of the contract after each work period. The result of a work period need not be working software; it could be a paper study, or a requirements document, or anything the sponsor selects. The venture-capital finance model works well with agile providers, since the agile provider is used to delivering useful, working software early and regularly. I find it an odd irony that the venture capital financiers running start-ups that I have encountered don’t take advantage of their own model to the extent agile teams do. The venture financiers let the evaluation markers occur too far apart in time. If they attached funding to monthly releases, that would oblige the start-up team to think through what it really can accomplish each month. The monthly progress would give the financiers a better sense of the start-up company’s real progress.

Bob Martin’s idea Bob Martin of Object Mentor posted an interesting variant to get around this problem: a base fee per story point, plus a lower-than-usual (close-to or below cost) fee per hour. This biases the contracted company’s to deliver early, but gives them some protection in case work proceeds slower than expected. Bob Martin described it this way:”[A]gree to pay a certain amount for each point completed, plus a certain amount for each hour worked. For example, let’s say you’ve got a project of 1000 points. Let’s also say that a team of four has established an estimated velocity of 50 points per week. This looks like about an 80 man-week job. At $100/hour this would be a $320,000 job. So lets reduce the hourly rate to $30/hour, and ask the customer for $224 per point. This sets up a very interesting dynamic. If the job really does take 80 man-weeks, then it will cost the same. If it takes 100 man-weeks then it will cost $344,000. If it takes 70 man-weeks it will cost $308,000. Notice that this is a small difference for a significant amount of time. Notice also that you, as developer feel strong motivation to be done early, since that increases your true hourly rate.” I have not seen that model in action myself, but several people have written in recommending it.