By Martin Jermakyan CEO, RACS, LLC Jacob Northey, a Managing Partner at Lasalletech has outlined some convincing views on the traditional development and testing process segregation and the new imperative for their desegregation in his “Technology Testing Culture at Exchanges Threatens Markets” article. “If the quality of the markets is to improve,” he writes, then “a parallel approach to testing must happen, and technologists must view the testing process as a critical piece of the development process.” I wholeheartedly support this paradigm and think that it is applicable not only to trading applications offered by exchanges but also to any complex systems. The conceptualization of new projects pursuing complex systems and applications as seed (prototyping), early-stage (alpha) and advanced-stage (beta) is redundant and results in unreliable business processes and frequently leads to a deadlock. Unfortunately, however, it is practiced by most of the VCs and associated organizations as well as by large legacy operations. As a result, not only the projects take longer than they should to develop but also the quality of testing becomes highly questionable. First, those with testing qualifications or designation do not have the necessary expertise for recognizing application scenarios under which testing needs to be conducted or stress scenarios that applications must be subjected to. Second, which nimble operation can afford to develop an application for many months to find out only later that it fails to perform? Does it even fail because of a glitch or is the underlying model fundamentally flawed? Will an investor tolerate investing significant amount of money in prototyping an application, then perhaps even more in building an alpha-version, and then spending another significant chunk on beta-testing to only then find out that the application doesn’t deliver what it was meant to? How many serious and complex applications have gotten developed this way? Who is expected and how is that party to sustain the presumed bleeding from the projects that get developed this way? The “linear process” of development of large scale applications or complex systems is a questionable undertaking contrary to those with agile development methodologies. Perhaps VCs and associated organizations need to review their practices and project qualifications and categorizations. After all, their current practices do not lead to good results. PREQIN, a primary global information services company specializing in Private Equity and Hedge Funds, reports that as of December 31, 2013 the global VC industry 10-year IRR equals a meager 4.4%. Though I presume this indicator is net of management and performance fees I think it is still a far cry from being qualified as success. September 13, 2013
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