Why New Private Equity Firms Engage Cybersecurity Consultants

taliberti5
Oct 12
5 min read

Updated: Nov 17

Launching a private equity (PE) firm has arguably never been more challenging. The process of raising capital, sourcing deals, and building credibility with limited partners (LPs), while exciting, takes time, effort and sleepless nights.

But there’s one critical area many new private equity firms underestimate: cybersecurity.

Cybersecurity is not simply a back-office IT function. For private equity, it is a business risk that directly impacts reputation, investor trust, and deal success. Even before the first fund closes, new firms are handling sensitive financial data, wiring instructions, deal documents, and investor communications. This makes them attractive targets for cybercriminals and vulnerable to regulatory scrutiny.

Engaging a cybersecurity consultant early gives new PE firms the credibility, protection, and scalability they need to grow with confidence.

Why Cybersecurity Matters from Day One

1. Private Equity Firms Are Prime Targets

Even small, newly formed firms attract cybercriminals. Attackers know that private equity firms and funds manage large sums of money, facilitates complex transactions, and handles highly confidential information. The following threats are common:

Business Email Compromise (BEC): Fraudulent emails impersonating executives or investors to divert wire transfers.
Credential Theft: Stolen usernames and passwords, sometimes paired with MFA bypass attacks, to infiltrate firm systems.
Data Theft & Espionage: Stealing deal pipeline details or due diligence reports for insider advantage.
Social Engineering: Targeting assistants, CFOs, or analysts with convincing phishing campaigns.

For a new firm, even one successful incident can cause financial losses and permanent reputational harm.

2. Investor Expectations Are Rising

Limited partners are increasingly sophisticated in their approach to operational due diligence. They often ask about:

Cybersecurity policies and governance
Incident response planning
Vendor and cloud security
Regulatory compliance

An incomplete or vague answer raises concerns. By contrast, being able to demonstrate a structured cybersecurity program signals maturity, professionalism, and trustworthiness — even in the early days of a firm.

3. Regulatory Scrutiny Is Increasing

Regulators like the SEC are rolling out new disclosure rules, incident response requirements, and risk management obligations for financial firms. For PE firms, this means demonstrating controls not only for the firm itself but also for its portfolio companies. Noncompliance risks fines, reputational damage, and increased audit scrutiny.

4. Lean Teams Leave Gaps

Most new PE firms start lean, with partners, analysts, and support staff focused on capital raising and deal flow. Few, if any, hire full-time IT or security professionals in the beginning. While this makes sense for efficiency, it creates blind spots:

Unpatched laptops and phones
Weak email configurations
Cloud storage oversharing
Unsecured Wi-Fi while traveling

A cybersecurity consultant fills the gap, delivering enterprise-grade expertise without the overhead of a full-time team.

The Benefits of Engaging a Cybersecurity Consultant Early

Investor Confidence

LPs want assurance that their money and information are safe. Demonstrating cybersecurity maturity during fundraising builds confidence and helps differentiate your firm.

Right-Sized Security

Consultants design programs proportionate to your firm’s size and risk profile. Instead of over-spending on unnecessary tools, you get practical, staged solutions that address immediate needs and scale as you grow.

Scalable Foundations

Security programs need to evolve as your team, fund size, and portfolio expand. Consultants ensure that early decisions (e.g., choosing cloud platforms, authentication methods) don’t limit future growth or force expensive rework.

Proactive vs. Reactive

Responding to a breach after the fact is always more expensive than preventing one. Engaging a consultant early helps avoid costly and reputation-damaging incidents.

Where Consultants Deliver Immediate Value

Identity & Access Management

Secure logins with single sign-on (SSO), multi-factor authentication (MFA), and identity protection tools. Least-privilege access ensures users only get the access they need, reducing the damage potential of compromised accounts.

Device Security

Managing laptops, desktops, and mobile devices with encryption, patching, monitoring, and endpoint detection and response (EDR). This is especially critical when executives are traveling and working on unsecured networks.

Data Protection

Implementing encryption, secure file sharing, and monitoring to safeguard subscription documents, investor communications, and due diligence files.

Cloud & Collaboration Platforms

Hardening Microsoft 365, Google Workspace, or Box environments to prevent risky file sharing, protect administrator accounts, and integrate advanced threat protection.

Compliance Readiness

Aligning controls with SEC, FINRA, GDPR, and other standards. Consultants also prepare documentation so firms can respond quickly to investor or regulatory questions.

Incident Response Preparedness

Developing playbooks, communication plans, and vendor relationships so the firm can act decisively if an incident occurs. This preparation reassures LPs and reduces downtime.

A Real-World Scenario

Imagine a newly launched PE firm with three partners and two support staff. The team is focused on raising Fund I and managing early-stage deal flow. There’s no full-time IT or security staff; systems were implemented quickly, and policies are informal.

One Monday morning, an associate receives an email that looks legitimate: it appears to come from a well-known LP contact with a subject line like “Updated KYC & Fund Documents — Action Required.” The email body references specific deal names and asks the associate to log in to a link to review and approve updated investor documents. The link goes to a page that looks identical to the firm’s cloud storage login.

The associate, pressed for time and believing the email is from a trusted source, enters their username and password. The attacker captures those credentials and immediately uses them to access the firm’s document repository. Over the next few days, the attacker quietly steals sensitive due diligence reports, LP contact lists, and forthcoming deal documents. Meanwhile, the attacker crafts a targeted follow-up BEC attempt: a spoofed email to the CFO appearing to come from a portfolio CEO, asking for access to a shared drive containing valuation models.

By the time the breach is detected, after an external researcher contacts the firm about exposed documents, reputational damage has already begun. LPs receive an inquiry from a vendor who downloaded a sensitive memo; fundraising calls are postponed; portfolio companies grow wary about sharing sensitive information. The firm faces not only loss of trust but also potential regulatory scrutiny for failing to safeguard investor data.

Now consider the same firm having engaged a cybersecurity consultant early:

Phishing-resistant authentication: MFA and conditional access block credential reuse and suspicious logins.
Email protections & domain monitoring: Lookalike domain detection and robust filtering remove the malicious message before it reaches an inbox.
Least-privilege & data loss prevention (DLP): Sensitive repositories require elevated approvals and are monitored for bulk downloads.
User training & simulated phishing: Staff recognize subtle cues and report suspicious emails promptly.
Rapid incident playbook: If a credential is compromised, the response team isolates accounts, rotates credentials, notifies stakeholders, and performs forensics.

With those controls in place, the initial phishing attempt is either blocked or detected immediately. The credentials are never abused for prolonged exfiltration, and the firm avoids the cascade of lost trust and disrupted fundraising.

The Bottom Line

For new private equity firms, cybersecurity is about more than defense. It’s about:

Protecting sensitive investor and deal data.
Demonstrating professionalism to LPs and regulators.
Building scalable, cost-effective foundations for growth.
Avoiding expensive, reputation-damaging mistakes.

In private equity, trust and reputation are everything. A strong cybersecurity program isn’t just a safeguard, it’s a competitive advantage.

Continue with Part 2 – Cybersecurity in the Deal Lifecycle: How security impacts due diligence, valuations, and integration.

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