Cybersecurity Due Diligence: What Investors Should Check Before Wiring Money

Cybersecurity risk affects investors in two ways. The first is the company itself: a startup with weak security can suffer a breach that damages customers, reputation and valuation. The second is the transaction: fraudsters target funding rounds and acquisitions, intercepting emails and sending fake wiring instructions so investment money goes to the wrong account.

Business email compromise, the fraud type behind many fake wiring instructions, causes billions of dollars in reported losses every year according to the FBI's Internet Crime Complaint Center. This guide covers what investors should check about a company's security, and how to protect the money you send.

1. Why Security Matters in Diligence

• Breaches destroy value. Incident costs, customer churn, legal claims and regulatory fines can all follow a serious breach.
• Enterprise customers demand it. Startups selling to larger companies must pass security reviews to win and keep contracts.
• Acquirers check it. Security weaknesses can reduce valuation or derail an exit.
• Regulators expect it. Privacy and cybersecurity rules continue to expand in many jurisdictions.

2. What to Check About the Company

1. Security certifications and audits, such as SOC 2 or ISO 27001, where appropriate for the company's stage and customers.
2. Recent penetration tests and how findings were fixed.
3. Incident history. Has the company had breaches or security incidents, and how were they handled and disclosed?
4. Access controls, including multi-factor authentication for all staff and restricted access to sensitive systems and data.
5. Data protection, including encryption, backups and data retention practices.
6. Third-party risk: which vendors and service providers have access to systems or data.
7. Incident response plan, and whether it has been tested.
8. Cyber insurance coverage and exclusions. See startup insurance and D&O.
9. Ownership. Who is responsible for security, and does the board receive regular updates?

For AI companies, also review data rights and model risks. See data rights and licensing risk in AI due diligence.

3. Protecting the Wire

• Verify wiring instructions by phone, using a phone number you already have, not one from the email containing the instructions.
• Treat any change in bank details as a red flag until independently confirmed.
• Watch for urgency. Pressure to send money immediately is a common fraud tactic.
• Check email addresses carefully for subtle misspellings or lookalike domains.
• Send a small test payment for large transfers and confirm receipt before sending the balance.
• Use secure portals for sharing closing documents and bank details where possible.
• Have a response plan. If you suspect fraud, contact your bank immediately; fast action improves the chance of recovering funds.

4. Right-Sizing Diligence by Stage

• Pre-seed and seed: basic hygiene such as multi-factor authentication, password management, secure development practices and a named owner for security.
• Series A and B: documented policies, regular testing and progress toward certifications if selling to enterprises.
• Growth stage: formal security programmes, dedicated security leadership, certifications and board-level reporting.

Frequently Asked Questions

Do early-stage startups need SOC 2?

Not always. It becomes important when selling to enterprise customers who require it. Earlier, strong basic security practices matter more.

How do fraudsters target funding rounds?

Often by compromising or spoofing email accounts and sending fake wiring instructions that redirect investment funds to their own accounts.

What is the single most important wire fraud protection?

Verifying bank details by phone through a trusted, independently known number before sending money.

Should security findings stop an investment?

Not necessarily. Many issues can be fixed, but they should be understood, priced and addressed in a clear remediation plan.

The Bottom Line

Cybersecurity diligence protects both the value of an investment and the money used to make it. Investors who check a company's security posture at the right depth for its stage, and who verify every wire independently, avoid two of the most damaging and preventable losses in private investing. For broader diligence, see how to vet a deal.

Global Capital Network connects investors with vetted opportunities through our events and investor network. Get in touch to learn more.

This article is general information, not legal or security advice.