There are many “strategies” when it comes to drafting an advisory board for startups. Frequently, startups select a few tried-and-true “players” like the Connected Socialite, the Industry Expert, or the Professor. But increasingly, investors and serial entrepreneurs are including board advisors with privacy expertise. As data is becoming more valuable and privacy regulations more numerous and chaotic, these advisors are helping many early-stage companies avoid traps and capitalize on big opportunities.
Managing Legal Expenses
Good legal counsel is essential for making sure your company doesn’t get into hot water. It’s also an easy way to rack up a huge bill if you’re not prioritizing or sequencing their work. Good privacy professionals are up-to-date on the latest privacy regulations, government enforcement actions, and lawsuits. By leveraging this knowledge, they can help determine when it’s appropriate to address matters internally and how to scope attorney involvement. We all know that every dollar counts, particularly in the early stages of a company. Privacy advisors can help you keep those dollars focused on building product and sales as much as prudent and possible.
Protecting Your Investment
As I’ve discussed in prior posts, regulatory enforcements relating to data privacy are increasing in severity and frequency. When your business hinges on individuals’ personal data, whether to train machine learning models or simply as part of day-to-day operations, missteps can have very severe consequences. By including an advisor who is aware of the pitfalls and hurdles in the privacy space, you help protect your intellectual property, reputation, bank account, and your company as a whole. After all, you don’t want to spend months or years building and training your machine learning models, only to have to delete all of them, along with your training data.
Data breaches have become alarmingly common. For many businesses, breaches rise to the level of existential threats; once-profitable businesses simply close up shop. Even when a breached business remains a going concern, reputational and financial harm can be material. Customers lose trust, hurting new sales and existing accounts. Impacted companies and individuals or regulators may even take action that results in financial damages or penalties.
Effective data protection spans multiple areas of a business – marketing, development, HR, and internal IT; ideally you bring on an advisor whose experience and expertise spans these areas so that they understand what privacy principles look like as executed, not just in theory. Privacy advisors who have actually experienced scaling early-stage companies are the rarest and most valuable, as they can help you understand when, not just how, to act.
Sales Differentiator + Customer Trust-building
By including a privacy professional on your advisory board, you are demonstrating to your current or potential customers that you treat their information with care. As customers increasingly prefer or require privacy-enhanced products and services, taking steps to align your business practices with consumer demand can have positive reputational results. For example, some products have built their marketing and success on the back of privacy-differentiated strategies. Instead of viewing privacy as a compliance cost, they have converted their privacy program into a strategic asset.
If you’re planning to go public in the not-too-distant future, it’s essential that you begin setting the stage for the reporting and internal controls that will be required. Making the leap from private to public can be intense for many companies, requiring a significant amount of time, money, and change. Do what you can earlier on in the process by building appropriate processes, procedures, and controls into your systems and culture before you have to. This will not only shorten the time to reach the market and exit liquidity, but it will also demonstrate that your company has high-quality management and oversight. As Governance factors increasingly into ESG investment criteria, board members who can help you implement data protection and privacy controls can make a serious difference in your IPO subscription rate or long-term cost of capital.
If you’re hoping for a successful exit through private equity or business combination, it’s essential to consider how to strategically position your company. This is not limited strictly to performance metrics or composition of the leadership team; acquirers will also be looking at the strength of your tech assets and any related liabilities. While the type of the deal structure may alter how assets and liabilities are diligenced, companies navigating an acquisition can position themselves for maximum deal value by addressing these issues before their first LOI.
Valuing specific assets or entire companies can be a complicated process. While third-party valuation services are required in many situations, your board should be helping you develop and maintain your own internal valuation models. Since data and other technology assets have become the largest source of value for many companies, it is therefore critical to have an advisor who can help you create, protect, and communicate the value of these assets.
When it comes time to negotiate representations and warranties and enter your wire instructions, you’ll thank yourself for making the choice early.
Jillian serves as a strategic advisor to startups. Her experience founding and exiting startups combined with her industry knowledge as a CPA and a Certified Information Privacy Professional (CIPP/US) has helped companies looking to manage their risk while encouraging growth.