Why Cybercriminals Love Private Equity-Backed Startups (and How To Stop Them)

Private equity-backed startups and scaleups are increasingly finding themselves in the sights of cybercriminals. While these companies are often well aware of the importance of cyber security, they may not fully grasp just how attractive they are as targets. The infusion of significant investments, such as the $2.3 billion that private equity firms put into venture capital-backed European tech companies in the second quarter of 2024, makes them particularly enticing to bad actors seeking substantial payouts.

Founders are juggling numerous priorities, from scaling operations to satisfying investors, and while cyber security is on their radar, the sheer pace of growth can lead to gaps that cybercriminals are eager to exploit. The combination of substantial financial backing and developing security infrastructures means that even a minor oversight can have significant consequences. It's not just about protecting assets, it's about recognising that the very success of attracting investors also draws the attention of those with malicious intent.

By acknowledging the heightened risks and understanding the specific threats they face, private equity firms and private equity-backed companies can take proactive steps to fortify their defences from day one. This approach not only safeguards their own operations but also protects their investors and the broader ecosystem they are a part of.

The risks posed by ransomware

Ransomware has emerged as a formidable threat, particularly for private equity-backed companies, for two main reasons. First, their close relationships with lucrative investors make them enticing targets for attackers looking for substantial financial gains. Second, the cyber security infrastructure of new businesses is often underdeveloped, presenting vulnerabilities that are easier to exploit. This issue is exacerbated by the increasing professionalisation of ransomware operations, where attackers specialise in various aspects of cybercrime, making their tactics more effective and harder to detect.

A successful ransomware attack doesn't just result in the theft of sensitive or personal data, it also forces startups and scaleups into a precarious position. Paying the ransom doesn't guarantee that the attackers will restore access or refrain from leaking data. And making these payments can lead to legal complications, especially if the funds end up with individuals or organisations under international sanctions. Falling victim to an attack can also cause insurance premiums to skyrocket, further straining the company’s financial resources.

Private equity firms themselves are not shielded from these risks. The adage "a chain is only as strong as its weakest link" holds true in cyber security. A vulnerability in a new company’s defences can serve as a gateway for bad actors to infiltrate the systems of PE firms, potentially accessing sensitive data and substantial financial reserves. At the same time, weaknesses within PE firms can expose startups to additional threats, highlighting the need for robust security measures across the entire investment ecosystem.

Starting with the foundations

To combat these risks, private equity-backed startups and scaleups must proactively establish a solid foundation for their information security from the outset. While it might seem daunting amid the myriad tasks of launching a new business, delaying this critical step could have severe consequences. Developing an information security program is essential for building a mature cyber security strategy. This program outlines fundamental practices for protecting data and managing information, serving as a roadmap for ongoing security efforts.

For startups pressed for time or lacking in-house expertise, solutions are available to streamline this process. An Information Security Office as a Service (ISOS) provides access to seasoned security professionals and best-in-class support, guiding startups through the creation and implementation of a robust security program. Additionally, leveraging risk assessment and management services enables organisations to make informed decisions, effectively understand the threats they face, and prioritise their security investments accordingly.

People and the wider risks

One of the most significant vulnerabilities for any organisation is its people. Employees continue to be a prime target for threat actors attempting to obtain access into an organisation. Social engineering attacks take advantage of cognitive biases and emotional responses, leading individuals to unintentionally bypass security protocols, even if they are well-trained on security procedures. For startups, fostering a culture of security awareness is crucial. Providing detailed guidance on identifying and responding to potential threats, such as phishing emails - which are a primary method for obtaining initial access into an organisation before that access is sold or used by ransomware affiliates to perform ransomware operations - empowers employees to act as the first line of defence. By recognising and reporting suspicious activities, they can prevent security incidents before they occur.

The close relationships between PE-backed startups and their investors also introduce supply chain risks. Establishing a clear governance framework with defined roles and responsibilities is vital for managing these third-party relationships. Implementing a Third-Party Risk Management (TPRM) framework allows startups to maintain a centralised repository of all third parties, assess the inherent cyber risks they pose, and ensure compliance with relevant regulatory requirements such as SOC 2, ISO 27001/2, NIST CSF, PCI-DSS, CSA CCM, and GDPR. High-risk third parties can then be prioritised for remedial action, strengthening the overall security posture.

Prioritising cyber security from the start

Private equity-backed startups cannot afford to treat cyber security as an afterthought. Their close ties to wealthy investors and often immature security practices make them attractive targets for cybercriminals. By establishing a solid information security foundation, educating employees, and implementing robust third-party risk management frameworks, startups can significantly reduce their vulnerabilities. Proactive steps taken today not only protect the startup but also safeguard investors and the broader supply chain, ensuring long-term resilience and success in a digital landscape fraught with risks.

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Gavin Knapp is Cyber Threat Intelligence Principal Lead at Bridewell

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The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group