A Series B company doubled its engineering team in nine months. Hiring was fast, onboarding was chaotic, and somewhere in the shuffle, policy ownership dissolved. SOX questions landed unanswered. A vendor questionnaire sat unsigned for two weeks. The CTO was fielding calls from compliance, security, and data protection officers who didn't know who owned what. That confusion cost an enterprise deal. Governance breaks first because it depends on clarity, ownership, and consistency.
Why this matters
Governance enables scalable operations by establishing clear decision boundaries, reducing incident severity through documented escalation procedures, and enabling faster enterprise sales through timely security questionnaire responses.
What investors evaluate
- Living Policy Framework: Active, regularly reviewed policies rather than outdated documents
- Risk Governance: Quarterly board-level visibility into technology risks including security posture, compliance status, resilience, key-person dependencies, vendor concentration, and technical debt
- Distributed Accountability: Multiple policy owners rather than single bottlenecks
- Change Management: Classified changes with appropriate approval workflows and audit trails
- Cyber-Insurance: Third-party validation of security controls
- Operational Compliance: Automated access reviews, real-time policy enforcement, and documented processes
Stage-specific expectations
- Seed/Early Series A: Basic risk register, MFA, written incident plans
- Series B: Written policies with owners, board risk reporting, change audits, SOC 2 timeline
- Pre-Acquisition: Detailed governance documentation, recent board reports, verified access controls
Red flags
- Policies existing but unenforced and outdated
- No clear policy owners or review cycles
- Change management entirely ad hoc
- No visibility into compliance status at board level
- Onboarding and access procedures not documented
- Incident response unclear or untested
Four or more issues typically trigger price adjustments or escrow arrangements during acquisitions.
Recommended actions
- Implement quarterly board risk reviews
- Assign policy owners with review cycles
- Classify changes by risk level
- Obtain cyber-insurance
- Conduct scheduled access reviews
- Maintain a governance dashboard
Your turn
What governance gap bit you during scaling? A surprise compliance requirement? A security audit that exposed undocumented processes? Share the story.
Originally published on the Tech Due Diligence Playbook newsletter on LinkedIn.