With great power – or, in a startup’s case, funding – comes great responsibility. No matter what series funding round you just secured, you now have new financial management concerns. Your investors have questions and need answers. Most founders know that the funding environment has turned tepid in the last few years. The boom of 2021 has fizzled to a flicker in 2024, with recent research from Carta noting the following for Q2 2024:
- Seed deals remained stable
- Series A stage rebounded slightly with a 16% increase
- Series B slowed down down with 22% fewer deals
- Series C slowed down with 27% fewer deals
Unsurprisingly, investors remain leery as they watch the wave of startup bankruptcies over the last year. According to research, startup failures increased by 60% in the last year, leading to a funding slowdown that creates a vicious cycle.
For startups, investing in any non-revenue generating activities can feel like a luxury. However, in this competitive environment, founders can build investor trust by showing how their cybersecurity posture extends their cash runways and improves the accuracy of their financial projections.
Three Ways to Extend Runway and Control Cash Burn.
As a startup, projecting cash runway and controlling cash burn as accurately as possible is critical to preventing bankruptcy.
1. Identify Capital Expenditures (CapEx) and Operating Expenses (OpEx)
Many startups struggle to appropriately and accurately identify all expenses.
Capital expenditures are often easier to identify since they’re typically large, upfront investments, like equipment or devices. A cash runway formula often looks at them through two lenses:
- Accrual accounting: focusing on depreciation/amortization and not big up-front payment
- Flow burn rate: focusing on the initial cash leaving the bank account
Operational expenses are the costs associated with daily business tasks. These expenses may be hard to estimate because they are not fixed costs like capital expenditures.
When identifying CapEx and OpEx, organizations should ask:
- What fixed assets do we have?
- What are the hiring trends?
- How many Software-as-a-Service (SaaS) subscriptions are we paying for annually?
2. Shorten the Sales Cycle.
Shortening the sales cycle enables you to generate revenue faster without increasing prices. While this seems obvious, customer procurement processes can be time-consuming. When outlining the sales process to identify areas of improvement, you may want to consider the following:
- What are common buyer questions that could be answered by the website?
- What questions are buyers asking that take time to answer?
- When does the sales team need to reach out to other internal stakeholders?
- Are there commonalities across buyer procurement processes that could be eased with internal processes?
3. Optimize Cost Base with Internal Improvements
After clearly identifying costs and finding ways to improve revenue, you can move to cost-based optimization. For many startups, initial manual processes make sense. At the seed and early Series A funding stages, investing in automation seems like a luxury. However, as the organization scales, these processes become a cost center.
When optimizing the cost base, organizations should ask questions like:
- Where can we automate manual processes?
- Where can we consolidate SaaS subscriptions or reduce seats?
- How can we optimize our internal compliance processes?
4 Ways to Extend Cash Runway by Investing in Cybersecurity.
Every startup faces a tipping point where cybersecurity becomes a critical element of success. Understanding how cybersecurity improves growth objectives can make investment decisions easier.
1. Mitigate Data Breach Risk to Improve Financial Forecasting.
As investors remain wary, startups need to give them confidence that the financial forecasting is as accurate as possible. According to the 2024 Cost of a Data Breach Report, the average total cost of a data breach was $4.88 million. By investing in cybersecurity services and technologies, you reduce the likelihood of the unexpected costs a data breach creates and improve your overall forecasting.
To reduce burn rate further, you should consider whether you have processes in place that mitigate risks like:
- Phishing: Preventing users from accessing known malicious websites or risky categories of web content with web filtering and customized block/allow lists
- Distributed Denial of Service (DDoS) attacks: Mitigating business interruption and service availability for customers with bot management and automated response capabilities
- Lost or stolen devices: Remotely deleting sensitive data to prevent data leaks
2. Leverage Third-Party Attestations to Shorten the Sales Cycle.
Business customers need to document your security program as part of their due diligence and procurement processes. Increasingly, third-party customer risk management processes require vendors to complete a security questionnaire to prove they have implemented the appropriate security controls.
Engaging in a third-party audit acts as an objective, independent review of your security posture. Depending on your business vertical, you may have specific compliance requirements. Some examples of security and privacy regulations and standards include:
- ISO 27001/27002: Generally accepted international standard for implementing an Information Security Management System (ISMS)
- Health Insurance Portability and Accountability Act (HIPAA): US requirements for handling the security and privacy of electronic Protected Health Information (ePHI)
- Payment Card Industry Data Security Standard (PCI DSS): Controls for protecting cardholder data and payment card data when processing payments
- Cybersecurity Maturity Model Certification (CMMC): Requirements mapped to NIST 800-171 for proving security when contracting across the Defense Industrial Base (DIB) or with the US Department of Defense (DoD)
- Service Organization Controls (SOC) 2: Audit reports evaluating the controls for managing security, availability, processing integrity, confidentiality, or privacy
Additionally, companies increasingly incorporate “trust portals” to their websites that give potential buyers high-level insights into their security and privacy practices. Depending on the organization’s sophistication and maturity, these pages can include:
- Certificates granted by governing bodies
- Publicly available reports
- Lists of compliance validations
- Stated commitments that outline initiatives
3. Outsource to Manage OpEx.
Cybersecurity monitoring and management require skilled staff that come with commensurate salaries. These salaries add to your OpEx labor costs. The average security operation center (SOC) analyst’s base salary ranges from $73,000 to $123,000 per year. The average network operations center (NOC) engineer base salary ranges from $48,000 to $92,000 per year.
Maintaining all operations internally can require people for each position. While you need specialists commanding higher salaries during an emergency, you hopefully don’t need them every day. Using a service provider who has a team of experts who can augment your internal team and provide additional expertise enables you to manage OpEx efficiently without compromising security.
4. Consolidate Technologies and Services to Reduce Overall Spend
CapEx and OpEx optimization is critical to reducing burn rate, especially when you integrate multiple vendors as part of an overarching operational and cybersecurity management strategy. Many startups purchase technologies on a need-to-have basis to fill immediate operational or compliance gaps. However, as the organization adds to its technology stack, it often creates unnecessary overlaps between vendors.
When seeking to optimize your cost base, you should consider bundled services that enable you to achieve the coverage you need while reducing the number of subscriptions or on-premises tools you have. For example, to protect your digital infrastructure and improve your cybersecurity, you may have separate tools like:
Consolidating these capabilities can reduce overall spend since you can:
- Reduce the time spent monitoring multiple vendor platforms
- Manage subscriptions more efficiently
- Eliminate expensive overlapping capabilities across multiple vendors
Vercara UltraSecure: Bundled Services for Smarter Investments.
With UltraSecure, small and mid-sized businesses get cost-effective, secure, and reliable DNS, managed DDoS protection, WAF, and recursive DNS security capabilities to match their enterprise partners. Vercara’s award-winning service augments current IT and security staffing with a 24x7x365 team of experts staffing a network operation center (NOC) and security operations center (SOC) to protect the organization’s online presence from malicious attacks.
UltraSecure combines four critical services for everything necessary to safeguard and ensure uninterrupted access to business assets. Our bullet-proof authoritative DNS ensures accurate, safe, and reliable connections, while our game-changing protective DNS safeguards employees no matter where they are. Layered on top of these, our UltraDDoS protection is a turnkey, best-in-class DDoS protection for applications, regardless of attack size, length, or complexity. To improve web application security, our WAF with integrated bot management is a flexible, intelligent solution that mitigates risks arising from increasingly digital business operations. As the organization scales its business, UltraSecure can scale with it, offering add-on capabilities like upgrading WAF/DDoS protection bandwidth or other protective applications.
To learn how you can use UltraSecure to extend your cash runway, contact us today.
