Last month’s legal dispute between Clio and Alexi was the shot heard 'round the Vancouver tech ecosystem. While the headlines focused on the courtroom drama, the real story for founders was happening quietly in the procurement office.
That lawsuit signaled the end of the "Move Fast and Break Things" era and the beginning of the "Prove It or Die" era.
As a technology consultant who sits on the buyer's side of the table, I see great local founders lose deals every week. They aren't losing because their tech is bad. They are losing because they don't speak "Enterprise Risk." While they are pitching velocity, buyers like me are worried about the exact data lineage issues that landed Clio and Alexi in court.
In 2026, if you cannot prove your data sovereignty, you get the "No" stamp.
Here is the hard truth your advisors did not tell you: Startups sell velocity, but enterprises buy stability.
You are optimizing for speed, features, and "user delight." I am optimizing for risk, compliance, and survival. Until you understand that difference, you will remain a "science experiment" that we play with, not a vendor we pay.
The end of "Shadow AI"
For the last few years, you have had it easy. "Shadow AI" and shadow SaaS meant any VP with a corporate credit card could bypass IT and start using your tool in minutes. It was the Wild West.
That amnesty period is over.
Boards now ask specifically about AI risk. CIOs and CISOs are under pressure to inventory every AI and SaaS tool touching their data, and procurement is being pulled upstream into that conversation. The perimeter is closing. We are shutting down rogue browser extensions, plug-ins, and OAuth connections that used to slide in under the radar.
If your product requires my employees to create a separate login instead of using our Enterprise SSO, you are no longer a "productivity booster." You are an insider-threat vector and a SaaS-attack-surface problem.
We are not looking for "cool." We are looking for Chain of Custody. If I cannot provision, monitor, and de-provision access to your tool centrally, you are a security incident waiting to happen.
The 3 Barriers in 2026
When your contract lands on my desk, I still do not look at your features. I look at your liabilities. Here are the three barriers where most AI and SaaS startups fail the inspection today.
Barrier 1: Data Sovereignty. You spin up on a hyperscaler and let traffic slosh across regions because it is cheaper and faster. Meanwhile, my regulators and internal policies care exactly where that data sits.
The Deal Breaker: If you cannot guarantee data residency or offer a clear, tested legal framework for cross-border transfer, the conversation is over.
The Reality: Geography is back. Cloud providers are racing to add in-region storage and sovereign options because more enterprises now require it at procurement time. Data is not a nebulous "cloud"; it is physical cargo, and when that cargo crosses a border, it is subject to inspection, seizure, and conflicting privacy regimes. I am not going to be the person who signed off on that risk.
Barrier 2: The Audit Trail for AI. Your model "magically" generates code, contracts, or a marketing strategy. That is great. But who authorized it? Who owns the output? Who reviewed the prompt and the data that trained it?
The Deal Breaker: I need a Chain of Command for AI outputs. If your bot hallucinates and creates a liability, I need to know exactly which human operator approved that action and which model, version, and dataset were involved.
The Reality: Most AI tools still look like black boxes. No logs, no versioning, no RBAC, no human-in-the-loop verification. When you ask me to trust that, you are asking me to outsource my brain—and my reputation—to a random number generator. We require an audit trail that will hold up in court and in front of a regulator.
Barrier 3: The Exit Strategy. You pitch me on how easy it is to onboard. I want to know how easy it is to leave.
The Deal Breaker: "What happens if we fire you?"
The Reality: Startups fail. AI startups fail faster. If my data is locked in your proprietary format, or your models, prompts, and configurations cannot be exported, you are creating tech debt before we have even signed the contract. I need portability: open formats, documented schemas, and a plan for how I can move my data and workflows to a competitor in 24 hours if your runway disappears.
What You Must Ship Now
I am explaining the rules of the game so you can actually win. Stop pitching how you will "revolutionize" my workflow. Start showing how you will protect my assets and reduce my audit findings.
Before you try to sell into the enterprise in 2026, get your logistics in order:
Ship real SOC 2 Type II (or equivalent, like ISO 27001), with AI-specific controls where applicable; enterprise buyers now treat this as table stakes.
Build Enterprise SSO (SAML/OIDC) with SCIM for automated provisioning. If I cannot control access through Okta or Entra ID, I will not buy it.
Offer configurable data residency and clear documentation of data flows. I should be able to lock data to a region and see, in writing, which subprocessors ever touch it.
Expose detailed logs: Prompts, training data sources, model versions, and human approvals should all be visible and exportable.
Document a credible exit plan: Export formats, migration guides, and a signed deletion certificate policy.
We want to buy your innovation. But we will not—cannot—buy your risk.
Shaun Tofsrud is a Senior Program Director, Canadian Armed Forces member, and MBA Candidate at SFU Beedie. He writes Tech Unwrapped, a newsletter helping CIOs navigate the logistics of enterprise risk.