GDPR and CCPA Before Your Fundraise: What Diligence Will Find

Five years ago, data privacy was a footnote in most fundraise diligence processes. Today it is a standard section of every serious diligence checklist — and for data companies, consumer-facing businesses, and any company that licenses or sells data, it is often a primary diligence focus.

This is a practical guide to what gets reviewed, what creates problems, and what to address before you go to market.

Why this now

GDPR has been in force since 2018. CCPA went into effect in 2020 and was strengthened by CPRA in 2023. Enforcement has increased significantly across both regimes — European data protection authorities have issued fines in the billions of euros, and California enforcement of CCPA/CPRA is accelerating. Investors have watched companies acquire privacy liabilities alongside the businesses they acquire and have gotten systematically more careful about it.

Beyond regulatory risk, data practices are increasingly a competitive asset — or liability. Companies with disciplined data practices, clear documentation of what data they hold and why, and contractual clarity around data licensing and use are significantly easier to diligence. Companies with chaotic data practices create uncertainty that either kills deals or reduces valuation.

What investors and acquirers actually look for

A privacy policy that matches actual data practices. This sounds basic but the gap between what the privacy policy says and what the company actually does with data is one of the most common diligence findings. If your privacy policy says you don't share user data with third parties and your ad stack involves five third-party pixels that collect and share user behavior data, that's a problem.

A data inventory. Can you tell a buyer what personal data you collect, from whom, for what purpose, under what legal basis, stored where, for how long, and with whom it is shared? This is the foundation of GDPR compliance and the starting point for any serious privacy diligence. Most early-stage companies have never done this exercise.

The gap between what the privacy policy says and what the company actually does with data is one of the most common diligence findings.

Consent and lawful basis documentation. Under GDPR, every processing activity requires a documented lawful basis — consent, legitimate interest, contractual necessity, or one of the other recognized bases. Under CCPA/CPRA, the requirements around opt-out rights for data sales and sharing have become more demanding. Have you documented your lawful bases? Are your consent mechanisms compliant?

Data processing agreements. If you share personal data with third-party vendors — your CRM, your email platform, your analytics tools — you are required under GDPR to have Data Processing Agreements in place. Investors will ask for these. Many companies don't have them with all their vendors.

Data licensing and IP ownership. For companies that license data to third parties — or whose data strategy involves selling or sharing data as a business model — the specific terms of those arrangements will receive close scrutiny. What did users consent to? What are the contractual limitations on downstream use? What happens to licensed data in an acquisition?

The AI dimension

For companies building with AI — using large language models, training custom models, or incorporating third-party AI tools — the data privacy questions have multiplied. What data was used to train your models? Did you have the rights to use it? What are the data retention policies of the AI tools in your stack? These are active areas of regulatory development and active areas of diligence scrutiny.

What to do before you go to market

Start with an honest self-assessment. Read your privacy policy. Does it describe what you actually do? Then do a basic data inventory — even a spreadsheet that maps data types to purposes to storage to sharing. Most privacy problems become visible in this exercise.

Address the DPA gaps. Get Data Processing Agreements in place with your major vendors. Most of the large platforms (Google, Salesforce, HubSpot, AWS) have standard DPAs available. It takes a few hours of administrative work per vendor and significantly improves your posture.

Document your lawful bases. For each processing activity, write down the lawful basis you're relying on and why. This documentation is what you produce in diligence. Having it ready signals that you've thought about this seriously.

Get legal advice on the issues you can't resolve yourself. Data privacy law is complex and jurisdiction-specific. An advisor can help you understand the landscape and identify the issues — but the legal analysis and remediation should involve qualified privacy counsel. The goal of pre-raise preparation is to arrive at that legal conversation prepared, not to replace it.

Data privacy issues don't have to kill deals. But undisclosed, unaddressed privacy problems surfacing during a live raise or acquisition process create exactly the kind of uncertainty that gives buyers leverage and investors cold feet. Understand your posture before they do.