Disclosing Cyber Risks to Investors: The Right Way to Build Trust

When a cyberattack struck a startup right before their next funding round, the founders made a fateful decision – they kept the breach quiet to secure the deal. 


But when investors eventually discovered the cover-up, they pulled all funding, and the company folded within months.


This cautionary tale reveals why smart disclosure is crucial when communicating cyber risks and incidents to investors. Here’s how to build trust by handling cybersecurity conversations the right way.

Why Investors Care About Cyber Risk Management

Cybersecurity is no longer just an IT issue – it’s a core business risk that can make or break companies.


Savvy investors know that cyber incidents can damage the very fundamentals that drew them to you, like valuation, revenue growth, intellectual property, and competitive advantage.


Imagine having your proprietary algorithms stolen right as you land a big contract, crippling that deal, or picture your customer database encrypted in a ransomware attack, destroying the trust you built over the years.


These nightmare scenarios keep investors up at night, and for good reason. Cyber events can:


  • Shake investor confidence in your leadership team’s ability to secure data assets
  • Lead to massive lawsuits, compliance fines and other unplanned liabilities that divert resources
  • Require extremely costly recovery efforts that consume budgets
  • Cripple customer loyalty and sales pipeline if trust is broken
  • Cause key personnel to leave amid fallout from a damaging breach
  • Reduce future funding options by scaring away investors worried about inadequacies


The threats only escalate from here. As digital transformation accelerates, so do opportunities for cyberattacks. With risks higher than ever, investors scrutinise how businesses manage their cyber exposure. Surveys show that 78% of investors have changed deal terms or walked away from deals entirely due to security concerns.


The message is clear: Cybersecurity now determines investment decisions and valuations.


Proactively communicating your cyber readiness shows tremendous maturity and builds trust, disclosing incidents the right way is key to reassure investors your business remains secure.

Best Practices for Disclosing Cyber Risks

Don’t ever try to hide cyber incidents from investors, hoping they won’t find out.

Transparency and preparation are key to building trust, include cybersecurity updates in your regular communications with investors, and establish it as an ongoing conversation rather than only discussing it when issues arise. If a significant cyberattack does occur, disclose details to investors quickly with an incident response plan mapped out. Outline what happened, how you’re assessing impact, and steps to contain it. 


Focus discussion on progress made to remediate the issues and enhance security to prevent repeats in the future. Provide timelines showing your roadmap to recovery.


Specifically, detailed cybersecurity measures implemented post-incident, like expanded employee training, upgraded malware prevention, or increased access controls.

Be transparent with investors about current policies, risk assessments, partner controls, and compliance efforts. Proactively share the gaps identified and your plan to address them.


Consider having your CISO or outside cybersecurity specialists join discussions with investors directly to address risks in more depth.

Document all cyber incidents thoroughly with chronological timelines and outcomes.


Continually update investors on recovery metrics and milestones achieved. The more context and progress you can share, the more investors will trust in your capabilities to manage cyber risk. Transparency turns mistakes into opportunities to improve.

Position Conversations Positively

Framing is critical when discussing cybersecurity with investors. Savvy leaders position it as an opportunity to excel rather than just a liability to manage.

Rather than focusing talks solely on potential downsides, note how improving security increases competitive advantage by differentiating your business. Help investors visualise your company as the trusted leader in your industry thanks to robust cybersecurity.


Discuss how cybersecurity supports revenue goals by building enduring customer trust and retention. Draw the line between protecting customer data, and keeping the sales pipeline strong quarter after quarter.


Share exciting ways you’re moving beyond just baseline compliance to truly lead on cyber safety. Demonstrate how you plan to become known for cyber, with innovative measures that set you apart.


Describe the excellent ongoing training initiatives in place to create a culture of security. Your people are your secret weapon, so showcase how you leverage them.


Spotlight forward-thinking cybersecurity defences you’ve implemented to get ahead of risks, like AI detection of anomalies, to reinforce how seriously you take staying secure.


And don’t just discuss processes – provide metrics showing reduced risk exposure over time thanks to maturity in your cybersecurity operations. Hard statistics reassure investors more than anything.


Smart framing highlights opportunity while demonstrating strategic leadership and initiative on cyber risks. And investors naturally gravitate toward forward-looking companies. Does this help capture how to position cybersecurity conversations with investors in an opportunistic light? Let me know if you want me to modify or expand this section in any way.

Key Measures Investors Look For

Specific cybersecurity best practices investors watch for include:


– Risk assessments: Details on assets, data mapping, threats monitored, gaps identified.

– Partner controls: Vendor risk management policies, third-party access controls.  

– Security hygiene: Multi-factor authentication, endpoint protection, access limitations.

– Incident response plan: Response and notification procedures, disaster recovery.  

– Employee training: Education for identifying phishing, and securing data and devices.

– Compliance: Adherence to regulations like HIPAA based on data types.

– Insurance: Coverage for potential breach costs and liabilities.

– Expertise: In-house cybersecurity staff or outside firms engaged.

Checklist: When to Disclose vs. Handle Internally

Let’s keep this short and simple. Assessing if an incident warrants investor disclosure depends on the following:


– Material impact: Will it significantly affect valuation, revenues or assets?

– Legal obligations: Do reporting laws or regulations require notification?

– Contractual duties: Are you obligated by funding agreements to disclose?

– Scope of access: Did the incident expose sensitive IP, customer data or other privileged information?

– Ongoing risks: Could the attack lead to additional breaches or damages down the road?


Minor incidents like routine phishing attempts generally don’t require disclosure. But when in doubt, increased transparency is advisable to preserve trust.

Turn Cyber Risks into an Advantage

Rather than hiding cybersecurity challenges, smart businesses get ahead of them. Treating investors as partners in managing risk creates confidence. It transforms a potential liability into a chance to showcase your leadership.


Just be sure to strike the right balance between transparency and strategic framing. Follow security best practices, then highlight the improvements made. Investors will respect the maturity in acknowledging risks while prioritising opportunities.


Strengthen your cybersecurity today with CyberAngels – the all-in-one digital defence platform designed for SMBs. Sign up now for a free trial to show investors how seriously you take protecting your business. With CyberAngels, you can:


  • Continuously monitor threats and assess risks
  • Control vendor access and manage partners securely
  • Automate policy enforcement and compliance
  • Provide visibility into your security posture anytime


Position your company for investment success with proactive cybersecurity. Start your free trial today.

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