Cybersecurity and Startups: Legal Precautions Every Founder Must Take

Introduction

In today’s hyperconnected environment, cybersecurity is a business risk—not just a tech issue. For startups operating with limited resources and agile models, a data breach or cyberattack can be catastrophic—both financially and reputationally.

With the introduction of the Digital Personal Data Protection Act, 2023 (DPDP Act) and growing investor scrutiny around data protection, it is essential that founders understand their legal obligations and implement security protocols from day one.

This article outlines key cybersecurity precautions and legal requirements every Indian startup must take to build trust and ensure compliance.

1. Why Cybersecurity Matters for Startups

Startups are often:

• Handling user data, including financial, health, or behavioural information

• Relying on cloud infrastructure, often managed by third parties

• Focused on speed and innovation—leaving gaps in security and legal safeguards

• Targeted by cybercriminals who view them as low-hanging fruit

One breach could mean lawsuits, investor pullout, or permanent shutdown.

2. What Does the Law Require?

Startups must comply with:

Regulation	Key Requirement
IT Act, 2000 (Section 43A)	Implementation of reasonable security practices and procedures
IT Rules, 2011	Privacy policy, grievance officer, and consent requirements
DPDP Act, 2023	Valid consent, data minimisation, breach notifications, user rights
Sectoral Regulations	RBI, SEBI, IRDAI compliance if operating in fintech, health, etc.

3. Legal Precautions Every Founder Must Take

a. Draft a Compliant Privacy Policy

• Clearly state what data is collected, for what purpose, and with whose access

• Must comply with IT Rules and DPDP Act

• Update regularly and make it easily accessible

b. Implement Vendor and Third-Party Contracts

• Enter into Data Processing Agreements (DPAs) with cloud providers, IT vendors, etc.

• Include clauses on data confidentiality, security standards, breach notification, and indemnity

c. Create an Internal Cybersecurity Policy

• Define protocols for data access, storage, and sharing

• Include employee roles, password management, device usage, and periodic training

• Prepare an incident response plan with legal steps for data breaches

d. Obtain Informed Consent

• Consent must be clear, informed, specific, and affirmative

• Enable easy withdrawal and update mechanisms

• Maintain logs of consent for legal defensibility

e. Prepare for a Cybersecurity Audit

• Conduct regular internal security assessments

• Use tools like VAPT (Vulnerability Assessment and Penetration Testing)

• Document policies and access logs to demonstrate compliance

f. Appoint a Grievance Officer

• A requirement under both the IT Rules and DPDP Act

• Responsible for addressing user complaints and data-related queries

  
  

4. Common Legal Mistakes Made by Startups

• Copy-pasting privacy policies from foreign websites

• Ignoring vendor security risks

• Collecting more user data than necessary (“overcollection”)

• No system for consent tracking or withdrawal

• No incident response or breach communication strategy

• Assuming investors don’t care about data security—(they do)

  
  

5. Investor and Market Expectations

Investors today conduct legal and cybersecurity due diligence before funding. Key red flags that can stall or derail funding rounds include:

• No privacy policy or user terms

• No proof of DPDP Act compliance

• Absence of NDAs or IP ownership clauses in employment contracts

• No encryption or documented security practices

  
  

6. How Apar Law Supports Startups

We help startups:

• Draft privacy policies, DPDP-compliant notices, and consent architecture

• Vet third-party vendor contracts and cloud infrastructure risk

• Build cyber and data protection policies from scratch

• Assist with breach response, grievance redressal, and compliance representation

• Conduct legal due diligence for funding rounds

  
  

Conclusion

Cybersecurity is now a core legal obligation for startups—not just a technical add-on. Building privacy-first infrastructure and implementing legal best practices from the outset will not only ensure compliance but also enhance your credibility with users, investors, and partners.

Launching a startup or scaling up your tech venture? Apar Law provides specialised legal counsel for cybersecurity, privacy, and compliance to help you grow with confidence. Reach out to us to schedule a discovery call.