Cybersecurity Leaders React To Big Beautiful Bill

Bill fuels R&D, simpler accounting, and production centers to advance security innovation 

The years following the COVID re-open has led to fewer IPOs and VC checks for American tech startups, even those that offer core benefits like cybersecurity. This anemic funding cycle coupled with tariff uncertainties has dampened business leaders' confidence in their forecasts. But help is coming in the form of financial lifelines from the One Big Beautiful Bill that businesses can tap for R&D and construction investments. 

Provisions Diversify Growth Avenues for Security Vendors 

These deductions give established cybersecurity businesses and startups alternative paths beyond venture and private equity funding or bond issues to drive growth.

✅  A R&D provision allows all businesses investing in R&D on U.S. shores to deduct those costs in the year incurred instead of over 5 years. This would provide an immediate deduction to a security company that spends on new research, which may entice employers to hire more researchers and invest in cutting edge product development they were previously hesitant to pursue due to costs and potential economic headwinds.  

✅  A gross receipt provision increases the threshold for manufacturers from $25 million to $80 million for 2025 and to $100 million in 2026, allowing more companies to use simpler accounting methods, benefits among which include deferring tax liability until the vendor receives payment. Qualified businesses also receive exemptions from certain inventory accounting and uniform capitalization (UNICAP) rules. A cybersecurity company that qualifies as a manufacturer, which hardware and sometimes software products could allow, can benefit.

✅  A provision depreciating qualified production property allows businesses to deduct 100% costs spent on "qualified production property" in the year it is placed into service. The definition covers nonresidential real estate in the U.S. (including U.S. territories) that is integral to production activity, which can include factories making routers and switches with security features, authentication tokens, intrusion detection systems, and trusted platform modules. Construction must begin after December 31, 2024 but before January 1, 2030 and the property must be in service before January 1, 2034.

Cybersecurity Leaders React   

Conversations with cybersecurity executives show optimism for the direction of these provisions and interest in the final form these provisions will take. The R&D deductions is the provision they expect to benefit the industry the most. All U.S. companies since 2022 have been forced to capitalize and amortize domestic R&D outlays over 5 years. The elimination of the multi-year deduction is a boon for cybersecurity vendors that typically invest 20-35% of revenue in R&D. The provision also incentivizes cybersecurity companies to keep R&D in America, which creates more tech jobs. 

"Restoring immediate R&D expensing could give cyber innovators the oxygen they need—cash today to fight tomorrow's cyber threats," said Bobby Wolfe, Co-Head of Cybersecurity Investment Banking, Houlihan Lokey. He sees the provision as well-timed for injecting liquidity into U.S. cybersecurity R&D as AI-driven threat actors are raising the innovation stakes. "Outcomes include accelerated product roadmaps, more cash-funded tuck-in acquisitions with the available cash, and margin tailwinds across the security software stack," he said. Sell-side models indicate that the deduction can increase FY25 free cash flow margins by 300-500 base points and cut GAAP effective tax rate by 2–3 points.

Rak Garg, Partner at Bain Capital Ventures, sees opportunities for early stage startups, which invest heavily in R&D, to benefit from the R&D and expanded gross receipts provisions. "AI creates additional R&D expenditure, as every startup races to build agentic solutions to protect companies and IP against technologically sophisticated adversaries." 

He shared that: "Immediate deductions free up short term cash flow to enable reinvestment into hiring and faster execution. Some of our companies are already pulling roadmaps forward." Additionally, security companies building physical authentication devices, secure routers and network boxes, and endpoint security hardware, could be incentivized to re-shore manufacturing and retrofit domestic production lines. 

Bob West, CEO of security strategy firm West Strategy Group, noted the long tail of tariff anxiety. "Even if the R&D provision worked in the best way, lingering tariff uncertainty dampens spending. The decisions to implement tariffs one week and rescind them the next week creates uncertainty and most companies will minimize spending until this cycle is minimized or eliminated."

"Being able to deduct all software development for the year should be a real boon," Bryson Bort, CEO and Founder of SCYTHE and founder of GRIMM, a cybersecurity consultancy. He explained that on the practical side, many costs have already occurred as the year is half over. Once the provision is finalized, it's up to accounting to determine which specific deductions companies can harvest.

"The reconciliation package will be crucial to ensuring the U.S. remains a leader in global innovation and technology development. We urge lawmakers…to create a permanent extension for restoring research and development (R&D) expensing," said Jason Oxman, President and CEO of the Information Technology Industry Council (ITI), whose members include Cisco, Palo Alto Networks, and Zscaler. 

Capital Infusion to Secure Critical Infrastructure

These reconciliation provisions give security companies financial lifelines to bring new cyber defenses to protect themselves and customers from cyber disruptions and theft. Defenders have the unenviable job of finding and securing every potential weakness. Their mission has evolved from keeping bad guys outside the castle walls to assume breach – including from malicious insiders – as the corporate network went hybrid and expanded exposure. While the AI boom is a force multiplier to detect and mitigate at scale, threat actors tap AI to scale malware coding and deep fakes. The attacks keep coming as bad actors seek better ways to infiltrate, disrupt, and steal from their targets. Funding security innovation is key to protecting our water, energy, financial, healthcare, technology, and other critical infrastructure systems.