Understanding SOC 2: Why It Matters for Your Startup in 2026

If you're a founder or security lead at a B2B SaaS company, you've likely heard "We need to see your SOC 2 report" during a sales conversation. But here's the confusing part: there are two types of SOC 2 reports, and choosing the wrong one could delay deals or waste resources.

SOC 2 Type 1 and SOC 2 Type 2 reports both attest to your company's commitment to security, but they serve different purposes and entail distinct timelines and costs. This guide breaks down everything you need to know to make the right choice for your business stage.

What Is SOC 2?

SOC 2 (System and Organization Controls 2) is an auditing framework developed by the AICPA that evaluates how companies handle customer data based on five Trust Service Criteria:

• Security (required for all audits)

• Availability

• Processing Integrity

• Confidentiality

• Privacy

When you complete a SOC 2 audit, you receive a report that customers can review to verify your security controls meet industry standards.

SOC 2 Type 1 vs Type 2: The Core Differences

SOC 2 Type 1: Point-in-Time Assessment

A SOC 2 Type 1 report evaluates whether your security controls are properly designed at a specific moment in time. Think of it as a snapshot.

What auditors check:

• Are your policies and procedures documented?

• Do your controls address relevant security risks?

• Are your systems configured correctly on the audit date?

Evidence period: Single day or brief window

What it proves: Your controls exist and are designed appropriately

SOC 2 Type 2: Operating Effectiveness Over Time

A SOC 2 Type 2 report goes further by testing whether your controls operate effectively over a sustained period, typically 3-12 months.

What auditors check:

• Are controls functioning as intended consistently?

• Do you have evidence of ongoing monitoring and enforcement?

• Have there been security incidents or control failures?

Evidence period: Minimum 3 months, typically 6-12 months

What it proves: Your controls work consistently in practice, not just on paper

SOC 2 Audit Timeline: How Long Does Each Type Take?

Type 1 Timeline

Total time: 3-6 months from start to finish

• Readiness phase: 2-3 months (implement controls, gather documentation)

• Audit execution: 3-6 weeks (auditor review and testing)

• Report issuance: 1-2 weeks

For startups with existing security practices, this timeline can be compressed to 8-12 weeks. Follow our SOC 2 project plan template to accelerate your Type 1 timeline."

Type 2 Timeline

Total time: 6-12 months from start to finish

• Readiness phase: 2-4 months (implement and document controls)

• Observation period: 3-12 months (controls must operate continuously)

• Audit execution: 6-8 weeks (auditor testing and validation)

• Report issuance: 2-3 weeks

The observation period is the key differentiator—you must demonstrate consistent control operation over time.

SOC 2 Audit Cost: What to Expect

Type 1 Cost Range

Typical investment: $15,000-$50,000

Cost breakdown:

• Auditor fees: $10,000-$30,000

• Compliance automation tools: $2,000-$10,000 annually

• Internal labor and remediation: $3,000-$10,000

Smaller startups with simpler infrastructures typically fall on the lower end, while companies with complex environments or multiple Trust Service Criteria pay more. See our complete breakdown of SOC 2 audit costs in 2025, including hidden expenses.

Type 2 Cost Range

Typical investment: $30,000-$100,000+

Cost breakdown:

• Auditor fees: $20,000-$60,000

• Compliance automation tools: $5,000-$20,000 annually

• Internal labor and ongoing monitoring: $5,000-$20,000

• Remediation and improvements: Variable

The extended observation period requires ongoing evidence collection and monitoring, which increases both auditor hours and internal effort.

Hidden Costs to Consider

Both audit types include additional expenses that many founders overlook:

• Penetration testing (often required): $5,000-$25,000

• Vendor security assessments: Time-intensive internal work

• Tool implementations: SSO, encryption, logging solutions

• Policy development and training: Internal or consultant hours

When Buyers Expect Type 1 vs Type 2 in 2026

Type 1 Is Acceptable For:

• Early-stage enterprise prospects exploring new vendors

• Mid-market deals with lower compliance requirements

• Initial security validation before larger commitments

• Proof of concept or pilot programs

Type 1 shows you're serious about security and can be a foot in the door for startups still building their compliance program.

Type 2 Is Required For:

• Enterprise contracts over $100K annually

• Highly regulated industries (healthcare, finance, government)

• Companies handling sensitive customer data at scale

• Renewals and expansions with existing enterprise customers

In 2026, most enterprise security questionnaires explicitly request SOC 2 Type 2. If you're targeting Fortune 500 companies or regulated industries, Type 2 is non-negotiable.

People Also Ask: Common SOC 2 Questions

Can I go directly to Type 2 without Type 1?

Yes. While many companies start with Type 1 for faster time-to-market, you can skip directly to Type 2 if you have sufficient time and resources. This approach makes sense if your sales pipeline is 9+ months out.

How often do I need to renew my SOC 2 report?

SOC 2 reports are typically valid for 12 months. Most companies undergo annual audits to maintain their current compliance status and meet ongoing customer requirements.

What happens if my controls fail during a Type 2 audit?

Control failures don't automatically disqualify you. Auditors document exceptions and your remediation efforts. However, significant failures may result in qualified opinions that concern buyers.

Do I need both Type 1 and Type 2?

Not simultaneously. Type 1 serves as a stepping stone. Once you achieve Type 2, you won't maintain separate Type 1 reports—Type 2 supersedes them.

Your SOC 2 Compliance Roadmap: From Zero to Type 2

Stage 1: Foundation (Months 0-3)

Goal: Build security fundamentals

• Implement essential security controls (MFA, encryption, access management)

• Document security policies and procedures. Use our guide to crafting SOC 2 policies and procedures with ready-to-use templates.

• Select a compliance automation platform

• Identify gaps through a readiness assessment

Stage 2: Type 1 Achievement (Months 3-6)

Goal: Prove your controls are designed correctly

• Remediate identified gaps from the readiness phase

• Gather point-in-time evidence for all controls

• Complete Type 1 audit with your chosen auditor

• Begin using the report in mid-market sales cycles

Stage 3: Observation Period (Months 6-12)

Goal: Demonstrate consistent control operation

• Maintain continuous evidence collection

• Conduct quarterly internal reviews

• Monitor and document security incidents or exceptions

• Prepare for Type 2 audit testing

Stage 4: Type 2 Achievement (Months 12-15)

Goal: Unlock enterprise opportunities

• Complete Type 2 audit covering 6-12 month observation

• Update sales materials and RFP responses

• Leverage report for enterprise deal acceleration

• Plan for annual renewal cycle

When to Start with Type 1

Type 1 makes strategic sense when:

• You need a compliance win within 3-6 months to close pending deals

• Your infrastructure is still maturing and not ready for extended observation

• You're testing the market for enterprise demand before major compliance investment

• Internal resources are limited, and you need a phased approach

Practical example: A Series A SaaS company facing its first enterprise RFP can achieve Type 1 in 4-5 months, win the initial deal, then work toward Type 2 during the first year of service delivery.

When Enterprise Deals Demand Type 2

You should prioritize Type 2 when:

• Your sales pipeline includes contracts over $100K ARR

• Target customers operate in regulated industries (healthcare, financial services)

• Security questionnaires explicitly require operating effectiveness evidence

• You're ready to invest in long-term enterprise scalability

Practical example: A Series B company targeting healthcare systems should plan for Type 2 from the start, as HIPAA-regulated buyers rarely accept point-in-time assessments.

Choosing the Right Auditor

Whether pursuing Type 1 or Type 2, auditor selection impacts timeline, cost, and customer perception. Discover who conducts SOC 2 audits and how to evaluate qualified firms for your needs

Key selection criteria:

• Industry experience with companies of your size and sector

• Brand recognition among your target customers (Big 4 vs specialized firms)

• Service quality and responsiveness during the process

• Pricing transparency with clear scope definitions

Get quotes from at least three firms and ask for client references in your industry.

Common Pitfalls to Avoid

Starting Too Late

The biggest mistake is beginning SOC 2 preparation when a deal is already in legal review. Start your compliance journey 6-12 months before you expect enterprise requirements.

Underestimating Internal Effort

Even with consultants and tools, SOC 2 requires significant time from internal stakeholders. Engineering, IT, HR, and legal teams all play roles in evidence collection.

Neglecting Ongoing Maintenance

Achieving SOC 2 is just the beginning. Continuous compliance requires sustained effort, monitoring, and annual re-audits. Budget accordingly.

Choosing Type Based Solely on Cost

While Type 1 is cheaper initially, if your buyers require Type 2 within 6 months, you'll pay for two audits instead of one. Align your choice with actual customer requirements.

Making Your Decision: Type 1 or Type 2?

Ask yourself these questions:

1. What do my current and target customers require? Review actual RFPs and security questionnaires.

2. What's my timeline to revenue impact? Can I wait 12 months, or do I need wins in 6?

3. How mature are my security controls? Are they ready for extended observation?

   Download our SOC 2 readiness checklist to assess your current compliance gaps before starting.

4. What's my total compliance budget? Can I afford to do this twice, or should I go straight to Type 2?

5. What industries am I targeting? Regulated sectors almost always require Type 2.

For most early-stage startups, Type 1 provides the fastest path to initial enterprise credibility, while Type 2 becomes essential for scaling into large enterprise accounts.

The Bottom Line

SOC 2 Type 1 and Type 2 aren't competing options—they're sequential stages in your compliance maturity journey. Type 1 validates your security design and opens doors to mid-market opportunities. Type 2 proves operational excellence and unlocks enterprise revenue at scale.

The right choice depends on where you are today and where your business is headed. Start with an honest assessment of your customer requirements, internal readiness, and growth timeline.

Ready to start your SOC 2 journey? DSALTA helps startups navigate compliance from initial assessment through annual audits, leveraging automation, expert guidance, and proven frameworks to accelerate timelines and reduce costs.