While this list is definitely not exhaustive, I wanted to briefly shed some light on a couple of the reasons why startups should be thinking about insurance, regardless of where they are in their life cycle.<\/p>\n
\u201cRisk-averse\u201d is probably the last phrase anyone would use to describe the startup community. The whole point of getting into this game is to disrupt, right? And that\u2019s a beautiful thing. It\u2019s what pushes society forward and generally improves the human experience.<\/p>\n
It\u2019s incredible how much risk a startup can take on. I know this is an extreme example, but Paypal broke something like 40 state and federal laws when it began its operations! By doing so, they completely reinvented the purchase experience. When you\u2019re taking on entire industries and shaking up the status quo, something\u2019s bound to go wrong and someone\u2019s bound to sue you eventually. It probably won\u2019t be federal or state regulators, but you\u2019ll still have a black hole of time-wasting paperwork and legal fees on your plate.<\/p>\n
When things go awry, most startups will fold depending on their current revenue-generation abilities and where they are in the funding cycle. This is because they simply don\u2019t have the cash to defend themselves. Most startups also don\u2019t realize that even if the claims brought against them are totally absurd and have no chance of success, they still have to pay their lawyers to deal with it! The beauty of having insurance is that these legal fees (and most other related expenses) are covered by a good policy.<\/p>\n
Obviously institutional investors are not risk-averse either, but they do work very hard to control and mitigate risk as much as possible when making investments. That\u2019s basically their entire reason for doing due diligence on your company. One characteristic that can attract investors or tip the scale in a potential deal is how well the company recognizes the necessity of risk management. Founders that think far enough ahead to purchase insurance definitely seem more legit to investors because they show a certain level of sophistication and foresight, both qualities that are required if an awesome idea is going to grow into a flourishing company.<\/p>\n
As I just mentioned, its not necessarily all about the idea\u2026investors do everything in their power to eliminate risk from the equation. One of the ways in which they do this is by requiring companies to get certain types of insurance coverage. In fact, a representation requiring Directors and Officers insurance is essentially a boilerplate term for institutional rounds these days because it directly protects the VC. But depending on the type of company, you may be required to have Errors and Omissions, Property, and General Liability coverage as well.<\/p>\n
Your investors won\u2019t be the only ones demanding proof of insurance. Many of your customers will demand it too, particularly if you\u2019re in the B2B space. And when I say B2B, I really mean that as generally as possible. It doesn\u2019t matter if you\u2019re selling tablet-based software to hospital outpatient programs, a novelty product to SkyMall, or your consulting expertise to advertising firms\u2026more often than not, your customers are going to want some kind of liability coverage in place. And while we\u2019re on the subject…when you start hiring and want to move into that nice new office, your landlord will require proof of insurance too!<\/p>\n
While that statement isn\u2019t entirely true, it is true about Worker\u2019s Compensation coverage. One of the most common misconceptions about insurance in the startup world is that you don\u2019t need worker\u2019s comp coverage until you have \u201cemployees.\u201d Founders usually go by the title \u201cfounder\u201d or \u201cco-founder\u201d and tend to think that the management-focused title actually changes things. In reality, \u201cemployees\u201d for WC purposes include anyone on the payroll. So if you\u2019re taking salary, you need worker\u2019s comp!<\/p>\n
I know that insurance is probably the last thing on most founders\u2019 minds. I mean, you\u2019re building a company here. You can\u2019t be bothered with this nonsense! But the reality is this: if all goes well, one day you\u2019re going to be a super legit company that\u2019s constantly hiring and expanding. People sue companies with momentum and visibility. The more customers you get, the more orders you process, the more employees on-boarded, the more room for screw-ups.<\/p>\n
It\u2019s important to prepare for these things early on so you\u2019re not caught off-guard when your company takes off.<\/p>\n","protected":false},"excerpt":{"rendered":"
While this list is definitely not exhaustive, I wanted to briefly shed some light on a couple of the reasons why startups should be thinking about insurance, regardless of where they are in their life cycle. 1. To strike a balance \u201cRisk-averse\u201d is probably the last phrase anyone would use to describe the startup community. […]<\/p>\n","protected":false},"author":924,"featured_media":33589,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[43902],"tags":[],"class_list":["post-5488","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-professional-development"],"acf":[],"yoast_head":"\n