Good day. Though tech-savvy, startups aren’t immune to costly data breaches, ransomware and other cyberattacks. And these hacks aren’t just a headache for a startup’s founders: Their investors are often on the hook for emergency funds to cover immediate damage control.

Beyond that, as shareholders in the company, investors may also face legal battles over data-privacy regulations or lawsuits brought by a startup’s customers. A serious hack can also damage a startup’s reputation, stalling follow-on funding rounds and dampening its valuation.

Despite these risks, too many investors have little or no oversight over how their portfolio companies manage cybersecurity, according to Starr Drum, a privacy and cybersecurity lawyer at national law firm Polsinelli who works with startups and investors alike.

WSJ Pro recently spoke with Drum about the role investors should take in protecting their startups from hackers. Edited excerpts below:

WSJ Pro: To what extent should investors be concerned about cybersecurity at their portfolio companies?

Drum: While venture-capital and private-equity firms aren’t typically involved in [the] day-to-day oversight of their portfolio companies’ cybersecurity and privacy compliance, it’s an important consideration at all stages of each company’s lifecycle, as gaps in this space can have a material impact on the value of an investment. Firms that understand the risks in this space will often take proactive measures to understand the scope of each portfolio company’s risk and provide resources and guidance to help manage those risks.

WSJ Pro: What risks do these gaps pose for investors?

Drum: There is, of course, significant expense involved in defending lawsuits and regulatory investigations tied to privacy and cybersecurity gaps, and those are compounded by expenses associated with remediation of those gaps. Even without litigation, these issues are scrutinized in diligence and can impact the value of a transaction. Less quantifiable is the reputational damage that these gaps can create.

WSJ Pro: Are cybersecurity issues having an impact on dealmaking?

Drum: While I have seen some uptick in potential deal activity tied to companies with various types of AI-based solutions, I’ve seen some of these deals die when diligence exposes potential gaps in the privacy or security protections surrounding the data leveraged to train those solutions.

WSJ Pro: What can investors do to better manage these risks?

Drum: If there’s been recent privacy and cybersecurity diligence on an investment, the issues flagged during that process should be reviewed and prioritized.

And now on to the news...

Turbocharging AI drug development. Isomorphic Labs raised $600 million in its first external funding round to boost its artificial-intelligence drug design pipeline across multiple therapeutic areas, The Wall Street Journal reports. The four-year-old subsidiary of Google parent Alphabet said Monday that Thrive Capital led the funding round with participation from Google Ventures. The London-based AI company will receive follow-on capital from existing investor Alphabet.

• Isomorphic Labs developed the AI platform AlphaFold, which can accurately predict a protein’s structure in minutes–an important component of drug discovery.

A group of technology companies is investing in a new form of carbon capture that aims to cut emissions from household waste in an effort to reduce landfill usage and to lower the amount of greenhouse gas emissions that are emitted into the atmosphere, WSJ Pro reports. Frontier, an umbrella group of tech companies including payments firm Stripe, internet giant Google and Instagram parent Meta is investing just under $32 million in a carbon-capture-and-storage project in Norway in the hope of removing 100,000 metric tons of carbon from the atmosphere between 2029 and 2030.

ReliaQuest, a once-bootstrapped startup that uses artificial intelligence to automate cybersecurity detection and response, on Monday announced more than $500 million in funding, WSJ Pro reports. The round, led by investing firms EQT, KKR and FTV Capital, lifts ReliaQuest’s market valuation to $3.4 billion. Other investors include Ten Eleven Ventures and Finback Investment Partners. Launched in 2007, and based in Tampa, Fla., ReliaQuest operated for nearly a decade before seeking investor funding. 

People

Consumer insights platform Suzy appointed Brian Erickson as chief financial officer. He most recently served as CFO of Transfix.

Temporal Technologies, a Bellevue, Wash.-based developer platform, scored $146 million in Series C funding led by Tiger Global Management at a more than $1.7 billion post-money valuation.

Chef Robotics, a San Francisco-based startup developing AI-enabled robotic systems for meal assembly, secured $43.1 million in new Series A financing, including $20.6 million in equity led by Avataar Ventures.

Gable, a Seattle-based data management platform, raised $20 million in Series A funding led by Crane Venture Partners.

Ribbon, a Toronto-based AI-powered hiring platform, launched with $8 million in funding led by Radical Ventures.

Sohar Health, a New York-based startup that automates insurance eligibility verification, was seeded with a $3.8 million investment led by Kindred Capital.

• AMD closes $4.9 billion ZT Systems deal, targeting its piece of the ‘AI factory’

• Apple and Musk clash over satellite expansion plans

• EQT consortium makes bid for Fortnox, valuing it at $5.5 billion

• French competition watchdog fines Apple $162.4 million over app tracking transparency

• Huawei posts profit drop but revenue signals solid comeback

• Taiwan stocks’ shine dims amid U.S. tariff concerns, fading AI buzz

• A Peter Thiel protégé is leading Trump’s AI strategy against China

• The hottest AI models, what they do, and how to use them (TechCrunch)
   
• Tech companies are telling immigrant employees on visas not to leave the U.S. (Washington Post)
   
• I quit Meta, launched my first startup, and sold it. It was a tough experience — here are 3 things that held me back. (Business Insider)

This newsletter was compiled by Matthew Strozier and Zachary Cole.

WSJ Pro Venture Capital is a premium service of The Wall Street Journal. We cover venture capital and the global startup ecosystem. Share your tips, comments and questions: vcnews@wsj.com

The Team: Matthew Strozier, Yuliya Chernova, Brian Gormley, Angus Loten and Marc Vartabedian.

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