7 reasons to ask your portfolio companies about their data compliance

Read Time 2 mins | Written by: Intlabs team

In the old days, data compliance was an issue for big business. It was for the lawyers and the accountants to figure out. Today, data compliance is a liability for every single business unless it is being proactively monitored and managed.

Being a venture capitalist

As a venture capitalist, understanding the data compliance practices (or lack thereof) of your portfolio companies is not just good business. It’s necessary. Keeping tabs means you need to understand how your portfolio companies treat their data – employee data, lead data, customer data, partner data – and how they proactively comply with regional and international data laws.

Issues that start small can grow to become fundamental and value-crushing liabilities down the line. Don’t believe us? Here are 7 things to consider:

  1. Legal and financial consequences: Non-compliance with data protection laws can lead to severe penalties, fines, and sanctions. This hurts the company's reputation, its financial performance, and your return on investment.
  2. Trust and credibility: A company that adheres to data protection laws signals to customers, partners, and stakeholders that it respects privacy and takes data security seriously. This can help build trust and credibility, which are vital for the long-term success of any business.
  3. Competitive advantage: As consumers become more aware of data privacy issues, companies that demonstrate a commitment to data protection can differentiate themselves in the market and attract more customers.
  4. Risk management: Ensuring that a company complies with data laws helps you identify and mitigate potential risks (think: legal liabilities and data breaches) that could have significant negative consequences for the business.
  5. International compliance: Many countries have implemented strict data protection laws, such as the EU's General Data Protection Regulation (GDPR). Ensuring compliance with these laws can facilitate smoother international business operations and prevent barriers to entry into foreign markets.
  6. Ethical responsibility: You have a moral and ethical obligation to ensure that the companies you choose to invest in are responsible and transparent in their handling of personal data.
  7. Future-proofing the investment: As data laws continue to evolve, investing in companies that prioritize compliance will mean you’ve chosen businesses that are better prepared for future regulatory changes, reducing the need for costly adjustments down the road.

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