Welcome to the Data Depths, a newsletter covering news, insights, and strategies related to managing Data as an Asset™ and understanding how a company's data contributes to Enterprise Value. View previous posts here.

Sent this by a friend? Sign up here for free!

Why PE and VC Firms Should Prioritize Data Valuation Before Closing a Deal

In the world of private equity (PE) and venture capital (VC), rigorous due diligence is a non-negotiable part of any acquisition or investment. Financials are scrutinized, operations assessed, and legal risks evaluated. But one critical asset often remains undervalued or even overlooked: data.

Data is increasingly becoming the backbone of business success, driving revenue, customer insights, and competitive advantage. Yet, failing to properly assess the value and risks associated with a target company’s data assets can lead to disastrous outcomes—including fraud, inflated valuations, and regulatory liabilities.

The Frank Scandal: A Cautionary Tale

A recent, high-profile example of what can go wrong when data valuation is ignored is the Frank scandal. J.P. Morgan acquired the student loan startup for $175 million, believing they were buying access to a massive, engaged user base. The problem? The data was fake.

Frank’s founder, Charlie Javice, allegedly fabricated millions of customer accounts to inflate the company’s value. When J.P. Morgan finally audited the data post-acquisition, they discovered the deception—but by then, the money had already changed hands.

This case underscores a hard truth: data misrepresentation can be just as harmful as financial fraud. If J.P. Morgan had conducted a robust data valuation before closing, they could have identified discrepancies in user engagement and avoided a costly mistake.

Why PE and VC Firms Need Data Valuation

Beyond fraud prevention, conducting a data valuation before an acquisition or investment provides several strategic advantages:

1. Avoid Overpaying for Inflated or Low-Quality Data

Just as investors wouldn’t buy a company without verifying its revenue, they shouldn’t buy a company without verifying its data assets. Many businesses tout proprietary datasets, AI capabilities, or large user bases as key differentiators. However:

• How clean and structured is the data?

• How frequently is it updated?

• Is it unique, or could competitors replicate it?

• Is it legally collected and compliant with regulations like GDPR and CCPA?

A proper valuation assesses whether the company’s data is truly a competitive moat or simply a marketing spin.

2. Enhance Exit Valuations and Multiples

PE firms and VCs aim to maximize return on investment (ROI) when exiting a portfolio company. A company with well-documented, monetizable data assets will command higher valuations.

• Data-driven companies like Snowflake and Palantir achieved premium IPO valuations because of their structured, high-value datasets.

• BlackRock’s $12 billion acquisition of HPS Investment Partners was driven by the strategic value of its private market data.

By integrating data valuation into due diligence, firms can position assets for higher multiples when it’s time to exit.

3. Identify New Revenue Streams Through Data Monetization

A company’s data is not just an internal asset—it can be a source of direct revenue through licensing, partnerships, or AI training datasets. However, many businesses fail to recognize or commercialize this potential.

A data valuation helps investors uncover:

• Whether the data can be monetized separately.

• Opportunities for cross-portfolio data synergies.

• Competitive risks if data-sharing agreements exist with third parties.

PE firms that actively manage portfolio company data assets can unlock new, high-margin revenue streams.

4. Regulatory and Compliance Risk Mitigation

Regulatory scrutiny around data privacy is intensifying. Data breaches, improper collection methods, or non-compliance with regulations like GDPR, HIPAA, or CCPA can lead to hefty fines and reputational damage.

A due diligence process that includes data valuation and regulatory audits can:

• Prevent post-acquisition lawsuits.

• Reduce the risk of acquiring a company with legal liabilities.

• Ensure data-driven revenue streams are sustainable.

For example, Google’s $2.1 billion acquisition of Fitbit was primarily driven by its health data, but regulators closely examined how that data would be used. Investors need to anticipate these risks before closing a deal.

The Bottom Line: Data Valuation Is Non-Negotiable

Ignoring data valuation is no longer an option for PE and VC firms. As the Frank scandal demonstrated, even sophisticated investors can be misled by inflated or fraudulent data claims. Meanwhile, firms that leverage robust data valuation strategies will unlock hidden value, mitigate risk, and maximize returns.

At Gulp Data, we specialize in data valuation services that help investors conduct smarter, data-driven deals. If you're conducting due diligence on an acquisition or investment, don’t overlook one of the most valuable (and potentially riskiest) assets: data.

At Gulp Data, we help companies unlock AI-driven business value through data asset valuation. We’ve helped over 1000 businesses, including Fortune 100 companies, implement successful data monetization strategies, leveraging our expertise in AI, data governance, and financial modeling.

 Stay in touch with us:

• ➡️ Newsletter signup

• ➡️ Schedule with a Gulp executive 

• ➡️ Buy Data 

• ➡️ Get a Data Valuation