What Startups Need To Know About SOC 2 Certifications

Published in

Leta Capital

5 min readJun 22, 2023

Startups with SOC 2 certifications stand a better chance at landing enterprise deals than those that don’t have them. If your startup handles sensitive customer information, SOC 2 is a must. Let’s dive deeper into this topic.

What is a SOC 2 Type 2?

A SOC 2 Type 2 Report (a Service Organization Control) is an external audit conducted on how a cloud-based service provider is handling sensitive information. It examines the adequacy and effectiveness of the company’s controls.

Generally, for cloud and data storage companies, obtaining an unbiased evaluation of their security measures is crucial for building trust. This evaluation encompasses five trust service principles (TSPs): security, availability, processing integrity, confidentiality, and privacy. During the assessment process, independent inspectors are hosted by the cloud-based vendor. They are provided with control documentation and given permission to sample and test the vendor’s systems.

While SOC 2 is a widely recognized framework for assessing security and risks, companies may also consider alternatives such as ISO/IEC 27001 or HITRUST.

Why is SOC 2 Type 2 Important?

SOC 2 Type 2 reports play a crucial role in both ensuring security and enhancing profitability. These reports provide tangible evidence that an organization is effectively implementing the declared security controls to safeguard sensitive data. In the absence of comprehensive oversight of cloud operations, evaluating the security of information entrusted to third-party vendors becomes challenging. The availability of a SOC 2 Type 2 report brings a sense of reassurance and peace of mind foth for a startup and for its entreprise partner.

What is the Difference Between SOC 2 Type 1 and Type 2?

For every Trust Service Principle (TSP) that you choose to evaluate there exists a set of AICPA (American Institute of Certified Public Accountants) requirements that you design controls to address.

A SOC 2 Type 1 report outlines the internal control policies that are currently implemented at a specific point in time and assesses their suitability. However, the scope of a SOC 2 Type 2 report is broader, as it involves testing those systems and controls over a period of time, usually spanning six months.

SOC 2 auditors evaluate a company’s ability to protect its own data and its clients’ data, examining protocols related to accessibility, confidentiality, or privacy gaps.

Enterprise clients are particularly interested in SOC 2 compliance because it establishes credibility, showing that a company has invested heavily in its security program. Since prospects often ask for a SOC 2 report during the vendor evaluation process, SOC 2 is typically the report most startups go for.

What is the ideal timing for conducting a SOC 2 Type 2 audit?

As per AICPA guidelines, organizations should contemplate obtaining a SOC 2 Type 2 report in the following scenarios:

When their customers require a comprehensive understanding of their processes and controls.
When stakeholders seek to establish confidence and trust in the security measures implemented by the company.

While certification is not always obligatory for conducting business, it can become a prerequisite for securing contracts with enterprise-level entities. Although many companies choose to undergo assessment only when a customer explicitly demands it, those aiming for enterprise sales can benefit from conducting an audit early on.

Planning Your SOC 2 Type 2 Audit

A SOC 2 Type 2 Report consists of various stages. It begins with scoping the categories to be assessed, conducting a gap analysis, performing the assessment itself, and ultimately, preparing the report. However, there isn’t a standardized checklist to follow, as each business has its unique requirements.

Given the comprehensive nature of the process, it is advisable to start planning several months in advance. This timeline allows for designing and implementing internal controls, determining which services will be covered in the report, documenting controls in internal procedure guides, conducting a readiness assessment, and acquiring a thorough understanding of relevant federal and local regulations to ensure compliance.

How Much Does a SOC 2 Type 2 Audit Cost?

Undertaking a SOC 2 Type 2 assessment is a time-consuming endeavor that can involve a financial investment ranging from $10,000 to $50,000. When considering the preparation required, the commitment of both time and money becomes substantial. Additionally, there are potential hidden costs associated with SOC 2 assessments, such as conducting a readiness assessment, addressing security gaps through the adoption of new tools and solutions, and providing training to employees on new policies.

Since SOC 2 Type 2 assessments need to be repeated annually, these costs recur over time.

How Long is a SOC 2 Type 2 Report Valid for?

A SOC 2 Type 2 assessment remains valid for a duration of 12 months from the date of issue. This relatively short validation period implies that companies with intricate IT requirements may undergo evaluation for almost a year, only to realize that they must promptly initiate the recertification process.

Given the annual recertification necessity, it is essential for your organization to continuously gather relevant documents, backup data, establish compliance and training protocols, and prioritize security.

Here is a list of documents and evidence you can start collecting in advance to save time:

Service-level agreements
MSA, NDA, and DPA samples
Vendor agreements (particularly for cloud data hosting software)
Photos of physical servers
Photos of key cards and other physical security measures
Previous third-party risk assessments or audits
Recent vulnerability scanning reports
At-rest and in-flight encryption
Backup logs
All administrative security policies

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