Why Security Matters for a Successful Exit

By TechZone360 Special Guest
Tom Smith, VP, IDaaS Bus Dev & Strategy, CloudEntr by Gemalto
September 03, 2014

You wouldn’t think that the levels of security you put into your company, product and procedures would matter when it comes to filing for an IPO or seeking a buyout. The sordid fact, however, is that we live in an age where online vulnerabilities proliferate like mice, and the levels of security in your app correlate with your valuation as a company. 

A few simple steps could ensure that you bulletproof your biggest asset—your organization—before investors or, worse yet, the public market exposes your holes.

No detail left behind

If you want to go IPO—which informally requires you to act like a public company for one year before you file—everything from your IP to your clients’ data must be compliant with regulations that apply to companies on the public markets. From SOX to shareholder reports, you have to transparently prove the value of every aspect of your organization. As a revenue machine (ideally), your public company must prove the ROI of your human capital, IP and the business itself. That means your company both owns and protects these assets. If you have had high employee turnover and your IP is open-source, you might have some further preparation on your plate.

If you’re going for a buyout, your acquirers will expect you to be able to answer for every aspect of your current and past operations, including your security infrastructure. They won’t just want to know your business plan and profitability, they want to know every intimate detail: who you've hired, who you've fired, who had access to what and when, and more—even back to those “office in the garage” days. They'll want to talk to customers, see what deals you had in the pipeline, who had access to your customer information, who had the Salesforce password and so on. This is particularly true in today’s era of SaaS-based solutions, where partners and APIs are a normal part of infrastructure. Does every partner or service in your network have admin access to your solution, or, better, is access provably limited?

You must cover every finite detail, because every misstep along the way is a strike against you and a lowering of your overall valuation. You can have a unique business model, be profitable, have great growth projections, own your IP, but even with all of that if you can't prove that it hasn't walked out the door, that access to sensitive information has been limited, that your product itself isn't vulnerable due to its API and partners, then your valuation will suffer. To ensure that your multi-million dollar value doesn't dip below seven digits, there are several steps you can take.

Track access to company resources from day one

The only thing constant with small companies is that you change every day. People come and go, apps come and go, contractors come and go. From day one, putting something in place that allows you to manage that stuff becomes critical. Three years down the road, you're going to forget and you need something that provides you visibility to who had access to what and when they had access. All of this could have a dramatic effect on valuation. If you don't have those controls in place in a way that makes sense, you have to go through and pay that debt and re-engineer those controls before being acquired. Companies will view that as a liability and subtract that from your valuation. Any question mark you put before them detracts from your valuation and it's very costly to try and go back and fabricate this information. The smoke's out of the genie bottle at that point.

But what does this mean specifically? 

Your code, your IP, your customer base, your business model, your plans for future expansion - these are the attributes that contribute to your business's overall value and an acquiring company will want you to be able to show that you have protected these assets over time and that they haven't walked out the door with a former employee or an independent contractor. Keeping track of this involves focusing on a few key areas.

Keep an eye on the cloud

A given in today's world is managing cash as a small company. Startups today heavily leverage cloud, pay-as-you-go subscriptions, and everything you do is online. That means that managing access is step one. As you're thinking about convenience and being agile, you need to be asking yourself if you've done it in a way that is scalable, visible and manageable.

In terms of handling access to the cloud, you'll want to look into an Identity Access Management (IAM) solution that gives you control over access to the necessary cloud applications. When an independent contractor comes on board for a three month stint, you don't want to have to share the passwords to cloud services and remember to change them when they leave. You also most certainly don't want to share administrative access. Being able to grant access to the necessary applications and revoke it when needed is imperative to proving that you have kept the treasure - your IP, business plans and customer information - safe and intact for your acquirer.

Reign in Shadow IT and BYOD

Just as your company turns to SaaS solutions to save time and money, individual employees will turn to the services they already know and trust to handle their problems. When they need to quickly share a file, they'll turn to their personal Dropbox account and when they want to easily link that internal demo video, they'll quickly upload it to YouTube.

Like much of security, ease-of-use is the enemy of good security practice. The way to manage this is to provide the proper, easy-to-use IT infrastructure in the first place. Don't make it necessary for your employees to turn to their own services and devices. Instead, provide internally managed applications to which you control access and security controls. Again, an Identity Access Management solution will help you keep control over access to these applications.

Create an audit trail

Managing all of this access is the first part, while keeping detailed records is the second. You'll want to have proof that you were managing access and credentials to sensitive business data and files and that you were able to revoke that access to keep the same sensitive data secure.

You have your ship in order, now sell it!

Once you’ve completed the steps above, you’ll have the granular information that the bankers and your investors need, whether they’re public shareholders or the acquiring corporation. Once you show that you’re secure, you signal to them that you are, in fact, a solid—some would say safe—investment ideally on your way to that golden exit.

Tom Smith is VP, IDaaS Bus Dev & Strategy, CloudEntr, Gemalto’s Single Sign-On solution. After graduating Iowa State University in 1979 with a BS in computer science, he contributed at companies like Rational Software, Dazel Corporation, @Hand Corporation and Altuit, Inc. before founding Countermind LLC, which makes mobile intelligence business apps for mobile devices. He is also the CEO of IronStratus, formerly Conformity, which is a simple and secure business login to the cloud. Follow CloudEntr on Twitter @CloudEntr

Edited by Maurice Nagle

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