Part 1
A company I was advising had a bitter sweet situation. This is what he wrote
As the founder of a bootstrapped SAAS company that uses React, NodeJS, and runs on AWS, I recently received interest from a Fortune 500 company to buy a monthly subscription of my product. However, the CTO mentioned that my company would need to comply with various requirements, such as insurance, SOX compliance, GDPR, and more. I’m not sure why the CTO is asking for these compliance measures when other SAAS startups don’t seem to have to go through this process. I’m curious about the legal requirements that the CTO needs to meet, and I wonder if they ask for these same compliance measures from other SAAS companies like Office 365 or Oracle.
Software Compliance is a major pain
Software compliance can be a major pain point for bootstrapped founders of SAAS products. Compliance requirements can be complex, time-consuming, and costly, which can be particularly challenging for startups with limited resources. Failure to meet compliance standards can result in significant legal, financial, and reputational risks. Moreover, compliance requirements are constantly evolving, requiring ongoing efforts to stay up-to-date. As a result, compliance can be a major obstacle for bootstrapped SAAS companies seeking to grow their customer base and compete with larger, established players in the industry.
List of the most common compliance requirements
| Compliance Requirement | Importance (Low/Medium/High) | Estimated Time to Achieve | Estimated Cost to Achieve |
|---|---|---|---|
| Data Privacy and Security (e.g. GDPR) | High | 2-4 weeks | $5,000-$10,000 |
| PCI-DSS Compliance | Medium | 4-6 weeks | $10,000-$15,000 |
| SOC 2 Compliance | High | 8-12 weeks | $25,000-$50,000 |
| Business Continuity and Disaster Recovery (BCDR) Planning | Medium | 2-4 weeks | $5,000-$10,000 |
| Insurance Requirements | Medium | 1-2 weeks | $2,000-$5,000 |
| Audit Compliance (e.g. SOX) | High | 4-6 weeks | $10,000-$20,000 |
Note that these estimates are rough and can vary depending on the scope of the compliance requirement, the industry, and the specific needs of the company.
Compliance Requirements based on Location
If the SAAS company is located in the US but has a development center in India, there may be additional compliance requirements to consider. For example, the company may need to comply with data protection laws in both the US and India, such as the General Data Protection Regulation (GDPR) in the EU and the Indian Data Protection Bill. The company may also need to comply with export control laws, such as the US Export Administration Regulations (EAR) and the Indian Export-Import (EXIM) Policy.
Documents that you would have to provide the CTO or the legal department of the larger company
Some common documents that they may request include:
- Proof of insurance coverage, including general liability insurance, errors and omissions insurance, and cyber liability insurance.
- Completed security and compliance questionnaires or assessments, such as the Standardized Information Gathering (SIG) questionnaire or the Security, Trust, and Assurance Registry (STAR) assessment.
- Copies of compliance certifications, such as SOC 2 Type 2, ISO 27001, or PCI-DSS.
- Privacy policies and terms of service agreements that comply with relevant data protection laws, such as GDPR or the California Consumer Privacy Act (CCPA).
- Completed vendor risk assessments, which may include questions about the company’s financial stability, disaster recovery plans, and cybersecurity practices.
- Attestations of compliance with applicable laws and regulations, such as the Sarbanes-Oxley Act (SOX) or the Health Insurance Portability and Accountability Act (HIPAA).
- Evidence of adherence to specific technical standards, such as the Open Web Application Security Project (OWASP) or the National Institute of Standards and Technology (NIST) cybersecurity framework.
Here’s a table that lists the Minimum Viable way to complete each compliance requirement, any software or open source tools that can help achieve it, and a brief outline of the inputs required to obtain certification:
| Compliance Requirement | Minimum Viable Way to Complete | Software/Open Source/Non-Profit to Help | Inputs Required for Certification |
|---|---|---|---|
| Insurance Coverage | Contact an insurance broker to obtain a quote for General Liability and Errors & Omissions (E&O) insurance | None | Completed application for insurance coverage |
| SOC 2 Type 2 | Implement security controls and processes that align with SOC 2 requirements, conduct a self-audit, and engage a third-party auditor to conduct a SOC 2 Type 2 audit | Cloud Security Alliance (CSA) STAR, NIST Cybersecurity Framework | Completed SOC 2 Type 2 audit report |
| GDPR | Conduct a data inventory, update privacy policies and notices, and establish data subject access request (DSAR) and data breach notification processes | TrustArc, OneTrust, openGDPR | Completed GDPR compliance assessment |
| Vendor Risk Assessment | Complete a vendor security questionnaire provided by the customer or a third-party vendor risk management platform | BitSight, SecurityScorecard, RiskRecon | Completed vendor security questionnaire |
| Sarbanes-Oxley (SOX) | Implement controls and processes to ensure the accuracy and integrity of financial reporting, and engage a third-party auditor to conduct a SOX audit | None | Completed SOX audit report |
| ISO 27001 | Implement security controls and processes that align with ISO 27001 requirements, conduct a self-audit, and engage a third-party auditor to conduct an ISO 27001 certification audit | NIST Cybersecurity Framework, CIS Controls | Completed ISO 27001 certification audit report |
| Payment Card Industry Data Security Standard (PCI-DSS) | Implement security controls and processes that align with PCI-DSS requirements, conduct a self-assessment or engage a Qualified Security Assessor (QSA) to conduct a PCI-DSS assessment | PCI Security Standards Council, Trustwave, Coalfire | Completed PCI-DSS self-assessment or QSA report |
Note that the specific inputs required for certification may vary depending on the certification program or standard being followed, and it is important to consult the relevant certification body or auditor for specific guidance.
Insurance Coverage
Here is a sample completed application for insurance coverage:
Company Information: Company Name: ABC SAAS Inc.
Address: 123 Main Street, Suite 100, Anytown, USA Phone: 555-123-4567
Website: www.abcsaas.com
Type of Business: Software as a Service (SAAS) provider
Years in Business: 3 years Number of Employees: 10
Risk Information:
- Type of Insurance Coverage Requested: Cyber Liability Insurance
- Requested Coverage Limit: $1,000,000
- Requested Deductible: $10,000
- Primary Business Activity: Developing and providing a SAAS platform for project management Revenue for the past 12 months: $500,000
Estimated Revenue for the next 12 months: $750,000
- Has the company experienced any data breaches in the past 5 years? No
- Does the company have a formal security program in place? Yes
- Does the company encrypt sensitive data? Yes
Contact Information: Primary Contact Name: John Doe Title: CEO Phone: 555-123-4567 Email: john@abcsaas.com
After submitting this application, the insurance company will review the information provided and may request additional documentation or ask further questions before deciding whether to offer coverage and at what price.
The additional documentation that an insurance company may ask for can vary depending on the type of coverage being requested and the specific underwriting requirements of the insurer. However, some examples of additional documentation that may be requested for cyber liability insurance include:
- Risk Assessment: An insurance company may ask for a risk assessment or cybersecurity audit report to evaluate the effectiveness of the applicant’s security program and identify potential vulnerabilities.
- Incident Response Plan: An insurance company may ask for a copy of the applicant’s incident response plan to ensure that they have a plan in place to respond to a data breach or cyber attack.
- Privacy Policy: An insurance company may ask for a copy of the applicant’s privacy policy to evaluate how personal information is collected, stored, and used.
- Business Continuity Plan: An insurance company may ask for a copy of the applicant’s business continuity plan to ensure that they have a plan in place to continue operations in the event of a disruption or outage.
- Employee Training Materials: An insurance company may ask for copies of training materials or policies that demonstrate how employees are trained to protect sensitive data and prevent cyber attacks.
- IT Security Controls: An insurance company may ask for documentation or evidence that the applicant has implemented various IT security controls, such as firewalls, antivirus software, or intrusion detection systems.
Ultimately, the specific documentation requested will depend on the insurer’s underwriting guidelines and the unique characteristics of the applicant’s business.