The Spyware on Your Cap Table: When Big Law and Big Money Back Controversial Tech
Imagine this for a moment. You’re a founder, and you’ve just secured a major funding round. Your legal counsel, a partner at a top-tier global law firm, has been instrumental. They’re brilliant, connected, and have guided you through the labyrinth of venture capital. Now, imagine you discover that this same lawyer personally invested millions of their own money into a fund that owns one of the world’s most infamous spyware companies—a company whose products have been used to target journalists, activists, and political dissidents.
This isn’t a hypothetical startup dilemma. It’s the real-life story of Gerhard Schmidt, a senior lawyer at the prestigious firm Weil, Gotshal & Manges, and his connection to NSO Group, the Israeli firm behind the notorious Pegasus spyware. A bombshell report from the Financial Times peeled back the layers on a situation that sits at the uncomfortable intersection of high finance, elite law, and the shadowy world of cyber-surveillance. It’s a story that every developer, entrepreneur, and tech professional needs to understand, because it reveals the hidden ethical fault lines running beneath our entire industry.
The Deal, The Dollars, and The Deception
To grasp the full picture, we need to untangle a web of powerful players and opaque financial maneuvers. At the center of it all is a 2019 deal where a London-based private equity fund, Novalpina Capital, acquired a majority stake in NSO Group for a reported $1 billion.
Here’s a breakdown of the key figures and their interconnected roles:
| Player | Role & Connection | What’s at Stake? |
|---|---|---|
| NSO Group | The Israeli tech firm that developed Pegasus, a powerful “zero-click” spyware tool sold exclusively to governments. | Accused of enabling human rights abuses by allowing its software to be used against non-criminal targets. |
| Novalpina Capital | The private equity fund that bought a majority stake in NSO Group in 2019. | Financial returns versus the massive reputational and ethical risk of owning a controversial asset. |
| Weil, Gotshal & Manges | The elite global law firm that advised Novalpina Capital on the acquisition of NSO Group. | The firm’s reputation and its role as a trusted advisor in major global transactions. |
| Gerhard Schmidt | A senior partner at Weil who led the advisory team. He also personally invested millions into the Novalpina fund and sat on a board overseeing NSO. | A significant personal conflict of interest and ethical questions about his dual roles as advisor and investor. |
The Financial Times revealed that not only did Schmidt’s firm advise on the deal, but Schmidt himself committed €2.5 million of his own money to the Novalpina fund that was buying NSO. Furthermore, he took a seat on the board of a Luxembourg-based entity that held the NSO stake, a position that involved overseeing the spyware maker’s governance. This wasn’t a passive investment; it was an active, multi-faceted involvement in one of the most ethically fraught tech companies on the planet.
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The Pegasus Problem: Innovation Weaponized as a SaaS Product
To understand why this is such a big deal, we need to talk about Pegasus. This isn’t just another piece of software. It is arguably the most powerful piece of cyber-surveillance technology ever sold to governments. Pegasus can infiltrate a smartphone without the user even clicking a link, gaining complete control over the device—accessing messages, tracking location, and even activating the camera and microphone.
NSO Group has always maintained that its technology is a crucial tool for law enforcement and intelligence agencies to combat terrorism and serious crime. And in a world of complex digital threats, there’s a legitimate argument for such tools. But the problem lies in its application. Pegasus has been linked to spying on:
- Journalists investigating corruption.
- Human rights activists campaigning against authoritarian regimes.
- Political opponents of ruling governments.
- Even heads of state, including French President Emmanuel Macron.
This is the classic “dual-use” technology dilemma on steroids. The same innovation that could dismantle a terrorist cell could also be used to dismantle a democratic movement. In essence, NSO Group created a highly effective, weaponized SaaS (Software as a Service) platform for espionage. Its power comes from sophisticated programming and the exploitation of zero-day vulnerabilities, often supercharged with automation to make deployment seamless. The ethical guardrails, however, proved to be far less robust than the code itself.
This isn’t an isolated incident; it’s a symptom of a larger disease. We see parallel debates in the world of artificial intelligence and machine learning, where biased algorithms can perpetuate social injustice, or in facial recognition tech that can be used for mass surveillance. The through-line is a dangerous disconnect between the creators and funders of powerful technology and the real-world consequences of its use. What this case screams is that “ethical debt” is just as real as technical debt, and the interest payments are infinitely higher. It forces us to ask: who are the gatekeepers? If the lawyers advising the deal are also investors, where does the accountability lie? This is the moment where the industry has to decide if ESG (Environmental, Social, and Governance) is just a buzzword or a fundamental principle of modern business.
Blurred Lines and Broken Trust: The Role of Gatekeepers
Gerhard Schmidt’s multiple roles—legal advisor to the buyer, personal investor in the fund, and board member overseeing the asset—represent a critical breakdown in the checks and balances that are supposed to govern the worlds of law and finance.
When an entrepreneur seeks legal advice, they expect impartial counsel focused on their best interests. When a fund’s investors (known as Limited Partners or LPs) commit capital, they trust the fund managers—and their advisors—to act as responsible stewards. Schmidt’s deep personal and financial entanglement creates an undeniable conflict of interest. Was his advice to Novalpina shaped, even subconsciously, by his own financial stake in the deal’s success? Did his oversight role for NSO truly prioritize ethical governance, or was it secondary to protecting his and the fund’s investment?
This situation highlights the immense power that elite service providers wield in the tech ecosystem. They are the gatekeepers who greenlight the deals, structure the funds, and legitimize the startups that shape our world. When that trust is compromised, the entire foundation of responsible innovation begins to crumble.
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Why This Matters for Everyone in Tech
It’s easy to dismiss this as a messy affair involving billionaire investors and secretive spyware firms. But the ripple effects touch every corner of our industry.
- For Developers and Engineers: The “I just write code” defense is obsolete. The software you build, whether it’s a social media algorithm or a cybersecurity tool, has real-world impact. The NSO story is a stark reminder to ask critical questions about your employer’s business model and the ultimate application of your work. Your programming skills are not neutral.
- For Founders and Entrepreneurs: Due diligence is a two-way street. When you’re raising capital, you’re not just taking money; you’re taking on partners. Investigate your investors and advisors. Who else are they backing? What is their reputation? An association with an ethically compromised investor can taint your startup permanently.
- For Investors (VCs and LPs): The NSO saga is a case study in reputational risk becoming catastrophic financial risk. Novalpina Capital ultimately collapsed in a bitter dispute between its founders, partly fueled by the pressure of owning NSO. The US government blacklisted NSO Group in 2021, severely crippling its business. The lesson is clear: ignoring ethical red flags is not a viable long-term investment strategy.
The Aftermath and the Road Ahead
The fallout was severe. Novalpina is no more. NSO Group is a pariah in many Western countries. And Weil, Gotshal & Manges faced intense scrutiny, with the firm stating that Schmidt’s investment was a personal matter and that he was “no longer a partner at the firm” (source). While the immediate players have faced consequences, the larger questions remain.
How do we prevent the next NSO? The answer lies in a systemic shift towards transparency and accountability. The powerful AI and machine learning tools being developed today, often hosted on scalable cloud infrastructure, will present even more profound ethical challenges. We need:
- Stronger Governance: Clearer rules and consequences for conflicts of interest among advisors and investors.
- Investor Activism: LPs in venture and private equity funds must demand ethical mandates and refuse to fund firms that invest in morally bankrupt enterprises.
- A Cultural Shift: The tech industry must move from a “growth at all costs” model to one of “responsible innovation,” where ethical considerations are a core part of the product development and funding lifecycle.
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The story of Gerhard Schmidt and NSO Group is not just about one lawyer or one spyware company. It’s a cautionary tale about the seductive power of money, the weaponization of technology, and the systemic failure of the gatekeepers we trust to uphold ethical standards. It’s a call to action for every one of us to build a tech ecosystem where the bottom line is never more important than our shared humanity.
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