Building appropriate technology infrastructure and security controls for VC operations
Technology infrastructure and cybersecurity have become increasingly important for venture capital fund operations. VC funds handle sensitive information—deal flow, portfolio company data, LP details, and significant capital movements—that presents attractive targets for threat actors. Building appropriate controls while maintaining operational efficiency requires balancing security investments against practical needs and resources.
Modern VC fund operations rely on several technology systems that together form the operational backbone.
Effective cybersecurity programs address multiple risk vectors through layered controls. For smaller VC operations, focusing on fundamental controls provides meaningful protection without enterprise-scale investments.
Identity and access management forms the foundation. Multi-factor authentication should be mandatory for all systems containing sensitive data. Password policies, though often viewed as mundane, meaningfully reduce credential-based attack success. Systematic access reviews ensure departing employees lose access promptly and current access reflects actual needs.
Email security deserves particular attention given that phishing and business email compromise remain primary attack vectors. Advanced email filtering, user awareness training, and verification procedures for sensitive requests—particularly wire transfers—provide important protections.
Endpoint security encompasses the devices used by team members. Managed antivirus, disk encryption, and mobile device management for phones accessing work systems create baseline protections. Device loss procedures should exist before devices are lost.
Wire fraud targeting fund capital movements represents one of the most significant cybersecurity risks for VC operations. Attackers compromise email accounts or create convincing fake communications to redirect legitimate payments to attacker-controlled accounts.
Prevention requires procedural controls alongside technical measures:
Insurance coverage for wire fraud losses varies significantly by policy. Understanding exactly what cyber and crime policies cover before an incident occurs allows for informed risk decisions.
VC operations depend on numerous vendors—fund administrators, legal counsel, accounting firms, portfolio management software providers—who access or process sensitive fund data. Each vendor relationship creates potential exposure that should be managed through appropriate due diligence and contractual protections.
Evaluating vendor security practices before engagement, including review of SOC reports where available, helps assess risk. Contract terms should address data handling, breach notification, and liability allocation. Periodic review of key vendor relationships ensures continued alignment with security expectations.
Institutional LPs increasingly include cybersecurity in operational due diligence. DDQs commonly request information about security programs, policies, incident history, and insurance coverage. Having documented policies and the ability to articulate security practices supports fundraising and ongoing LP relations.
Regulatory attention to investment adviser cybersecurity has increased. While specific requirements vary and continue to evolve, demonstrating reasonable security measures aligned with industry practices provides important protection against regulatory criticism following incidents.
Despite best efforts, security incidents occur. Having incident response procedures before they are needed enables faster, more effective response. Key elements include:
Technology decisions should align with operational needs and growth expectations. Overbuilding infrastructure creates unnecessary costs and complexity, while underinvestment may constrain operations or create security gaps. Regular assessment of technology needs against current capabilities helps maintain appropriate infrastructure.
Technology and cybersecurity require ongoing attention rather than one-time implementation. Regular assessment of threats, controls, and capabilities helps maintain appropriate protection as both the threat landscape and fund operations evolve.