The Due Diligence Call You Didn't Expect
The term sheet looks good. The partner is excited. Then you get an email from their operations team: "Before we close, we need to complete security due diligence. Please provide your SOC 2 report, penetration test results, and security policies."
You don't have a SOC 2. Your last "pentest" was your CTO poking around with Burp Suite. Your security policy is a Google Doc someone started and never finished.
Security due diligence wasn't optional for most fundraises five years ago. Today, it's increasingly standard—and it can make or break your timeline, valuation, or deal entirely.
Why Investors Care About Security
Portfolio Risk
A breach at one portfolio company creates headlines that mention the fund. Reputational risk flows upstream. Investors increasingly view security as part of operational diligence, not a separate technical audit.
Enterprise Sales Readiness
If your growth plan involves selling to enterprises, you'll need SOC 2, security questionnaires, and vendor risk processes. Investors want to know these won't become blockers to revenue.
Exit Preparation
In M&A, the acquirer's due diligence will be even more rigorous. Investors want to know that security won't become a reason to reprice a deal or kill it entirely at the finish line.
Security used to be a Series B+ concern. Now it's increasingly evaluated at Series A—and sophisticated seed investors are asking too. The bar has moved earlier.
The Security Due Diligence Checklist
Here's what investors and their diligence teams typically request. You don't need everything perfect—but you need to know where you stand and have a credible plan for gaps.
Documentation They'll Request
Security Policies
- Information Security Policy
- Acceptable Use Policy
- Incident Response Plan
- Data Classification Policy
- Vendor Management Policy
Evidence & Reports
- SOC 2 report (or roadmap)
- Penetration test results (within 12 months)
- Vulnerability scan results
- Security training records
- Incident history
Technical Evidence
- Architecture Diagram — How does data flow? Where are security controls? What's in your cloud environment?
- Access Control Matrix — Who can access what? How is access granted and revoked?
- Encryption Status — Is data encrypted at rest and in transit? What algorithms?
- Backup & Recovery — How often? Tested when? RTO/RPO defined?
- Logging & Monitoring — What's logged? How long retained? Any alerting?
Governance Questions
- Security Ownership — Who's responsible for security? Is there board oversight?
- Security Budget — What are you spending? What's the roadmap?
- Insurance — Do you have cyber liability coverage? What limits?
- Compliance Status — SOC 2, HIPAA, GDPR—what's required and where are you?
Red Flags Investors Look For
Immediate Concerns (May Kill Deal)
- No security policies documented — Suggests security isn't taken seriously
- Recent breach with poor response — Indicates operational immaturity
- Customer data accessible to everyone — Fundamental access control failure
- No MFA on critical systems — Low-hanging fruit not addressed
- No encryption on sensitive data — Basic security hygiene missing
Yellow Flags (Need Remediation Plan)
- No SOC 2 but no enterprise sales yet — Show roadmap to SOC 2 with timeline
- Security "owned" by IT generalist — Present plan to add security focus
- No penetration testing history — Commitment to annual testing going forward
- Vendor security not assessed — Process to evaluate key vendors
- Gaps in compliance with no plan — Prioritized remediation roadmap
Green Flags (Differentiators)
- Clean SOC 2 Type II report with no exceptions
- Quantified risk assessment with board reporting
- Security roadmap aligned with business milestones
- Proactive penetration testing with remediation evidence
- Insurance coverage appropriate to risk
Investors don't expect perfection—especially at early stages. They expect honesty about gaps and a credible plan to address them. Trying to hide issues always backfires in diligence.
Preparing for Due Diligence: 30-Day Sprint
Week 1: Documentation Audit
Gather all existing security docs. Identify what's missing. Create a gap list. Don't write policies yet—just inventory.
Week 2: Quick Wins
Enable MFA everywhere. Review access permissions. Run a vulnerability scan. Fix the obvious issues.
Week 3: Policy Foundation
Draft core policies: Information Security, Acceptable Use, Incident Response. These can be concise—2-5 pages each.
Week 4: Narrative Preparation
Create your security story: Where you are, what you've built, where you're going. Prepare to discuss gaps honestly.
Turning Security into Competitive Advantage
Most startups treat security as something to survive in diligence. Smart founders treat it as a differentiator that accelerates the deal.
The Security Story Framework
1. Where We Started
Acknowledge early-stage reality: "As a seed-stage company, we prioritized product-market fit while maintaining security fundamentals."
2. What We've Built
Concrete controls: "We've implemented MFA, encryption, access controls, and incident response processes."
3. Where We're Going
Roadmap: "Post-funding, we'll achieve SOC 2 within 6 months and add dedicated security headcount."
4. Why It Matters
Business impact: "Security enables our enterprise pipeline—40% of prospects require SOC 2."
Common Due Diligence Mistakes
Mistake 1: Hiding Issues
Investors will find problems. Their diligence teams are good at this. When you hide an issue and it surfaces later, you lose trust—which is harder to rebuild than remediating a gap.
Mistake 2: Over-Promising the Roadmap
"We'll have SOC 2 in 3 months" sounds great until you're still working on it at month 9. Be realistic about timelines. Investors prefer honest estimates to optimistic ones that slip.
Mistake 3: Treating It as a Checkbox
Throwing together policies the week before diligence starts is obvious. Investors can tell the difference between documentation that's lived in and documents created for the fundraise.
Mistake 4: Not Knowing Your Own Gaps
The worst answer in diligence is "I don't know." Even "We have a gap here, and here's our plan" is better than uncertainty. Know your security posture before investors ask.
What to Do If You Have Gaps
Every early-stage company has security gaps. Here's how to address them credibly:
- No SOC 2 — Show roadmap with timeline. Demonstrate foundational controls.
- No pentest — Schedule one before close or commit to within 60 days post-close.
- Missing policies — Draft core policies before diligence. Show they're implemented, not just written.
- Past incident — Be transparent. Show what you learned and changed. Hide nothing.
- No dedicated security — Show how security is owned today. Include security hire in use of funds.
Investors invest in teams that can execute. Showing you understand your gaps and have a plan demonstrates exactly that execution capability.
Next Steps
Security due diligence doesn't have to derail your fundraise. With honest self-assessment, foundational controls, and a credible roadmap, you can turn security from a diligence hurdle into a demonstration of operational maturity.
The earlier you start, the stronger your position. Don't wait until the term sheet to think about security—build it into your operations from the beginning.
Preparing for a fundraise? vCISO Lite helps you build investor-ready security documentation, track compliance progress, and generate the reports due diligence teams request— without the enterprise price tag.