Do Startups Need to Be SOC 2 Compliant? 

SOC 2 for Startups: Is It Necessary?

For a startup, SOC 2 compliance isn’t legally mandatory, but it’s quickly becoming a dealbreaker to go forward with major sales deals. Especially if you handle sensitive customer data. It shows your commitment to data security and builds trust, which can be a significant advantage when courting enterprise clients or scaling up.

As an early-stage startup with minimal customer data, you need to prioritize SOC 2 compliance immediately. This is especially true as your customer base grows or you aim to partner with larger organizations. Having SOC 2 in place can set you apart and open doors to bigger opportunities.

When asked what are the critical risks of delaying SOC 2 implementation for start-ups, I.S. Partners’ Director for SOC Practice shared,

Book a consultation today with I.S. Partners to understand how SOC 2 compliance can fit into your growth strategy.

Do Startups Need a SOC 2 Type 1 or Type 2 Report?

As a startup, especially if you are gearing up for growth, a SOC 2 Type 2 report is often the better choice. It provides a detailed look at how your security controls perform over time, giving potential customers the assurance they need when evaluating you as a vendor. 

On the other hand, a Type 1 report focuses only on the design of your controls at a single point in time. A SOC 2 Type 1 report is considered a cost-effective choice. 

The reason for this being, Type 1 reports require less time to prepare for the audit since there’s no need to show evidence of ongoing business operations.

Also, since the audit process is simpler and quicker, the associated fees are typically lower than those for a Type 2 report.

More importantly, SOC 2 is especially relevant for SaaS companies. Auditors assess your ability to protect your data and clients by examining how you handle accessibility, confidentiality, and data privacy risks.

Here’s what you need to consider:

Type 1 as a Starting Point

If you’re in the early stages of building your security processes, a Type 1 report is a great way to assess your current setup. This is especially helpful before transitioning to a more comprehensive Type 2 audit.

Type 2 for Customer Trust

A Type 2 report shows that your security controls are well-designed and consistently effective. It can significantly boost customer confidence, especially if you’re handling sensitive data.

Choosing the right report depends on your current readiness and customer expectations, but aiming for a Type 2 audit is often the smarter long-term investment.

Do SOC 2 Reports for Startups Reduce Your Operational Cost?

Yes, getting SOC 2 compliant early on saves time, reduces problems, and helps your startup grow. Focusing on this from the start is cheaper, but constraints like budget and staffing often come in the way. 

The smart approach is for founders to plan for system security from the beginning. This can be achieved by using guidance from compliance frameworks to create secure systems, even without getting compliance certification (attestation) immediately.

Building it right the first time saves time compared to fixing the startup needs later. If this isn’t possible, a startup should aim for a strong security posture when it gets its first clients. As the company and client base grow, better security is expected. 

Here’s how SOC 2 compliance can reduce costs:

1. Fewer Data Breach Costs

Think about how much a data breach can cost—on average, it’s around $4.45 million globally. SOC 2 helps strengthen your security measures, reducing the chances of breaches and the expenses that come with them, like fines, legal fees, and customer loss.

2. Lower Cyber Insurance Premiums

If you’ve got strong security practices in place, insurers tend to reward you with lower premiums. SOC 2 shows that you’re serious about managing risks, which can translate to reduced insurance costs.

3. Simplified Vendor Assessments

No more wasting hours answering endless security questionnaires for potential clients. A SOC 2 report acts as a seal of approval, showing you’re already meeting the standards they care about.

4. Reduced Downtime Costs

SOC 2 pushes you to tighten up processes and controls, which means fewer disruptions to your operations. Less downtime equals less lost revenue and fewer headaches.

5. Winning and Keeping Clients

Many enterprise clients require SOC 2 compliance. Compliance keeps you in the running for bigger contracts and reassures existing customers that their data is in safe hands.

While getting SOC 2 compliant can cost anywhere from $20,000 to over $50,000, depending on your organization.

Value of SOC 2 Compliance for Startups

SOC 2 compliance simplifies how startups engage with potential clients by showcasing a commitment to data security and integrity. This trust-building factor can make client conversations smoother and more effective, helping to close deals faster.

1. SOC 2 for Startups Builds Trust With Clients

Approximately 60% of B2B companies are more willing to work with startups that have a SOC 2. Hence, it is pivotal in establishing credibility and trust for startups with clients and investors. 

As startups seek growth and business expansion, it becomes crucial to demonstrate their commitment to robust security protocols to potential partners, who are often apprehensive about the risks of engaging third-party services. 

2. Attracts Investors

Around 70% of venture capitalists prefer investing in SOC 2-compliant startups. When investors consider backing a startup, having a SOC 2 report is significant. 

The SOC 2 audit process, done by a firm that knows a lot about information security, results in a report showing the startup meets information security standards. 

3. Establishes Strong Policies and Procedures

As part of being SOC 2 compliant, startups need detailed rules and processes for how data is kept safe, who can access it, and how it is managed. 

For startups that handle sensitive data, SOC 2 requires strong rules and technologies (like encryption) to govern how data is collected, used, kept, and discarded. 

This makes it clear that being SOC 2 compliant is a big help for startups in creating and using strong rules and procedures. It also sets the groundwork for international standards like GDPR and ISO 27001.

4. Lowers the Risk Profile of Your Startup

As a startup, you must concentrate on company-wide risk management to comply with SOC 2 and pinpoint potential weaknesses.

This process of checking risks helps everyone in the startup become aware of the risks and how to fix them. Making risk-checking a regular part of the startup’s work can lower the risk for the whole company. 

5. Compliance Is the Foundation of a ‘Security-First’ Culture

Startups that focus on SOC 2 compliance from the start can build a security-first culture where security is given top priority. This means that every choice made in every department takes safety and trust into account. 

For example, when the coding teams think about security as they create, they make safer products right from the beginning and avoid trouble later.

6. Kickstart Your Growth

When startups adopt a proactive approach to risk management to achieve regulatory compliance, they also prevent costly and time-consuming fixes in the future and prepare for scaling operations. 

The audit process also improves communication and operations between departments, paving the way for efficient expansion.

7. Maintaining SOC 2 Compliance for Startups

Maintaining SOC 2 security compliance within the right SOC 2 scope requires ongoing efforts to ensure the operating effectiveness of security controls. To maintain a SOC 2 Type 2 Report, startups must demonstrate continuous monitoring/validation and provide evidence that security controls are consistently implemented. 

When you regularly assess and validate security controls, startups can ensure their operations’ sustained security and trustworthiness.

8. Gaining Competitive Advantage with SOC 2

In a crowded marketplace, distinguishing your startup from competitors is essential. SOC 2 compliance can be the differentiator you need. 

While many larger companies may be doing the bare minimum, achieving SOC 2 compliance shows that you go above and beyond regarding security. It’s an important signal to your customers that you’re committed to protecting their data.

9. A Powerful Marketing Tool

SOC 2 compliance is a powerful way for startups to build client trust and credibility. Showcasing your compliance status on your website, sales materials, or customer communications sends a clear message: you take data security seriously.

Beyond just mentioning SOC 2—explain how specific SOC 2 controls protect customer data and reduce potential security risks. You create a compelling narrative when you tie compliance into your messaging about transparency and accountability. 

Moreover, if you’re looking for something even more marketing-friendly, a SOC 3 report might be the way to go. Unlike SOC 2, which is detailed and often shared under NDA, SOC 3 is a public-facing summary of the audit. 

It’s easy to share on your website or in conversations with prospects, giving them a quick, clear picture of your commitment to security without overwhelming details.

How Startups Should Approach SOC 2

Preparing for a SOC 2 audit is a key milestone for startups aiming to show their dedication to data security and compliance. Unlike established organizations with mature processes, startups often face a more labor-intensive journey, requiring detailed scrutiny of their operations and controls to meet SOC 2 standards. 

To make sure the audit goes smoothly, there are several essential steps and best practices startups should follow:

1. Update Administrative Security Policies. Make sure your policies are up-to-date and easy to understand. They should clearly outline your security processes and best practices for employees.
2. Implement Technical Security Controls. Align your security measures with the AICPA Trust Services Criteria (TSC). This includes firewalls, encryption, and access control protocols to safeguard your systems.
3. Gather Evidence of Security Practices. Collect all relevant documentation and security evidence, such as cloud security records, access control logs, encryption policies, backups, and vendor agreements.
4. Establish Clear Data and Security Policies. Ensure your company has documented policies for data handling, incident response, system access, disaster recovery, and security training.
5. Designate Control Owners. Assign specific team members to oversee and take responsibility for key security controls. This ensures accountability and reduces the risk of security gaps.
6. Conduct an Internal Audit. Before the official audit, consider performing an internal audit. This will help you identify any potential gaps and make any necessary improvements ahead of time.

Case Study: Startup Achieves SOC 2 Compliance, Guided by I.S. Partners Auditors

To I.S. Partners, security means protecting all confidential data without sacrificing a client’s performance. I.S. Partners’ Senior Auditor John Zuk and SOC Manager Joe Ciancimino sat down with MK’s Marketing team to teach us about the importance of security and compliance.

As an up-and-coming FinTech, MK Decision (MK) entered the industry, ready to strengthen local economies with our technology. 

When studying the obstacles community financial institutions face with online financial services, it was abundantly clear that cybersecurity was one of the biggest barriers preventing these financial institutions (FI) from going digital. Community FIs are hesitant about switching their processes from paper due to the risk of security breaches. 

According to Varonis, “the average cost of a financial services data breach is $5.85 million” (2021 Data Risk Report Financial Services). While keeping processes on paper might seem like a good idea, FIs still pose a major security risk for improper file storage and employee access permissions. 

In a 2019 report, Varonis found that “17% of all sensitive files are accessible to all employees” (2019 Varonis Global Data Risk Report, 2019). Paper-based FIs could fall short of compliance standards while continuing to lose their clientele to competing FIs with online financial services.

To solve this problem, MK built our digital account opening and loan origination platform to ensure security for our customers and end-users. 

By incorporating regular audits as a business practice, MK is helping FIs secure their data, guarantee compliance, and compete in the marketplace against megabanks. Recently, MK completed a SOC 2 Type 1 compliance audit with the help of I.S. Partners.

Working with clients within the FinTech industry and making them understand the importance of SOC 2 has allowed us to tackle the challenge of helping clients identify and mitigate risks related to financial technologies.

Through compliance with the SOC 2 Type 1 attestation standards, MK reinforces to customers and the industry at large the seriousness of cybersecurity and compliance. With the help of I.S. Partners, MK is strengthening its internal processes and ensuring that its customers’ data is always protected. 

Prove Your Commitment to Security as a Startup With SOC 2 Compliance

Data security isn’t just a buzzword—it’s a necessity. But while everyone talks about it, how many truly prioritize it? SOC 2 compliance goes beyond being a badge for your marketing materials; it’s a powerful declaration of your dedication to trust, risk mitigation, and leadership in the competitive SaaS landscape.

If SOC 2 compliance isn’t on your radar, you’re already playing catch-up.

At I.S. Partners, we understand the challenges startups face on the road to SOC 2 compliance. Whether you’re just starting out or stuck at the final hurdle, our team provides expert support, tailored strategies, and deep industry insights to make the process smooth and effective.

Our experience spans industries like healthcare, FinTech, and beyond. We’ve helped businesses unlock the full potential of compliance.

Don’t let your competition gain the upper hand by leveraging security as their selling point. Instead, turn SOC 2 compliance into your competitive advantage.

Let’s chat today and get you on the path to success.