Cyber Due Diligence: A Must Have Value Creation Lever

In the fast-evolving landscape of private capital, one truth is becoming increasingly clear: cyber security is no longer a back-office concern—it’s a Limited Partner (LP’s) priority.

Ask yourself a question: Would you deploy capital into a company that cannot protect their staff or operations from cyber attack?

There is no doubt, Limited Partners (LP's) are increasingly asking themselves this question and answering NO.

LP's are now prioritising cyber security as a key factor in their capital allocation decisions. In today’s cyber risk-aware investment climate, LPs expect General Partners (GPs) to conduct thorough cyber due diligence before deploying capital. LP’s are increasingly prioritising cyber security as a key factor in their capital allocation decisions. In today’s risk-aware investment climate, LPs expect General Partners (GPs) to conduct thorough cyber due diligence before deploying capital. This expectation stems from a growing recognition that cyber threats can materially impact portfolio performance, valuation, and exit outcomes. LPs want assurance that their investments are protected from avoidable risks and that the fund’s risk management practices are aligned to deal with modern threats. Demonstrating a proactive approach to cyber due diligence not only builds LP confidence but also signals operational maturity and robust value protection.

For private capital investors, cyber risks can directly impact:

- Valuation: Hidden risks can lead to unexpected costs, reducing the true value of an asset.

- Deal Terms: Discovering cyber risks early can provide leverage to manage exposure by renegotiating of terms or requiring remediation before closing.

- Legal and Regulatory Compliance: Acquiring or investing in a company with poor data governance can result in fines and legal liabilities under laws like GDPR, CCPA, or HIPAA.

- Reputation: A cyber incident post-investment can damage the investor’s brand and erode trust with LPs and stakeholders.

While much of the conversation around cyber due diligence focuses on risk mitigation, it is much more than that, it’s a lever for value creation. Think about how:

- Operational Resilience: Identifying and addressing cyber weaknesses early helps ensure that staff and business operations are protected from cyber threats.

- Enhanced Governance: Strengthening cybersecurity frameworks across portfolio companies improves overall governance and investor confidence.

- Exit Readiness: Companies with strong cyber hygiene command higher valuations and face fewer hurdles during IPOs or secondary sales.

- Strategic Advantage: Firms that embed cybersecurity into their investment thesis can differentiate themselves in a competitive market.

Cyber due diligence is no longer a “nice to have”—it’s a strategic necessity. Leading private capital firms are now embedding cybersecurity assessments into their standard diligence playbooks, engaging cyber experts early in the deal process, and continuously monitoring portfolio companies post deal.

In a world where digital threats are constant and costly, cyber due diligence is the key to protecting investments, unlocking hidden value, and building cyber resilient, future-ready portfolios companies