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June 26, 2020

Why Private Equity Needs Cybersecurity Expertise

Cybersecurity and privacy are increasingly central topics of conversation for boards, management teams, and investors; however, navigating how cybersecurity and data privacy management applies to your firm and portfolio companies is not always straightforward.

Understanding this landscape and the potential risks is an essential, but often overlooked, step in de-risking your holdings and increasing future business success.

Here are three ways a cybersecurity expert can add value to your private equity or venture capital group:

1. In-house Security Leadership

Technology continues to be more critical to how private equity firms run and manage their business, with the vast majority becoming more focused on maintaining relationships with contractors, cloud, and other IT service providers. This focus is needed to create agile firms that can quickly deliver what customers require and support operational objectives, and the responsibility falls mainly on CTOs.

While more CTOs are having to take on cybersecurity, data protection, and regulatory compliance, this has not always been a core component of their role. Having a relationship with a trusted cybersecurity expert can help navigate success in those areas is critical as regulators, and the public at large, places increased scrutiny on those matters.

2. Improved Due Diligence

Speaking of leadership, a cybersecurity expert could also help improve your IT due diligence efforts. They can take a look at technology and risk in a different lense because they understand the nuances of “dark thinking” (i.e., “What can go wrong?”) and are familiar with ways technology services can be abused or misused.

An expert in this field will also have a deep understanding of the regulatory and compliance landscape for a given industry vertical and help translate what it means for your business. Adding in the ability to perform due diligence on cybersecurity and data privacy matters in addition to standard IT due diligence can help identify and mitigate technology risks that can often go unnoticed and weaken your overall holdings.

3. Unique Market Perspective

In addition to having in-house security leadership and improved due diligence, a cybersecurity expert can also provide a unique market perspective. If your private equity group invests in technology companies (as most are), an expert can help identify and understand the buyer personas and what drives cybersecurity spending at companies.

Cybersecurity, as a field of practice, prides itself on being a bit different from the norm. It can be a challenge to draw parallels between another IT product or service that does not play in the cybersecurity space. As such, the cybersecurity product space has become excessively noisy and over-the-top from a marketing perspective, and it can be challenging to understand what is “real.” Having an expert who has been on the buy-side and who has had to “live with” technology decisions can help you make a more informed choice and investment.

In short, a cybersecurity expert at your private equity group can help you:

  • Help build data privacy and security resiliency into the IT practices of your private equity group and portfolio companies
  • De-risk and strengthen your holdings by focusing on privacy and security risks in your portfolio companies
  • Provide unique insight into whether an IT product/service product is viable, marketable, and if it solves a needed problem better than others

Contact Us to discuss how we can help your private equity or venture capital firm.