Subtle Value-adds: Business Insurance
It’s easy to think insurance is surplus when the company is just getting off the ground. In the grand scheme of to-dos, insurance should probably fall by the wayside to goals like acquiring users, making money, building a minimum viable product, or finding investors.
Most founders think of buying insurance as a basic “CYA” move and that’s definitely the most direct benefit of buying coverage. If/when something goes awry, you essentially have a multimillion dollar line of credit to cover legal fees, damages, property/data restoration costs, etc…
Here are a couple more subtle ways purchasing business insurance can provide an instant ROI by acting as a sword rather than a shield:
1. Insurance attracts investors
While early stage institutional investors are not risk-averse compared to their Wall Street counterparts, they do work very hard to control and mitigate risk where they can (hence the often tedious due diligence phase). One characteristic that can attract investors or tip the scale in a potential deal is how well the company recognizes the importance of risk management. Founders that jump on purchasing insurance seem more legitimate to prospective investors because they show a certain level of sophistication and experience, both qualities that are required if an awesome idea is going to grow into much more.
Insurance will be required as soon as the round is closed anyway. A Directors and Officers insurance requirement is essentially a boilerplate term for institutional rounds these days. D&O protects the personal assets of the Directors and Officers and if the VC is taking a seat on the board this requirement is guaranteed to be in there. Key Man insurance is also usually required as well.
2 Insurance opens doors to new partnerships
Investors aren’t the only ones that require proof of insurance. If your company is B2B SaaS, E-commerce, Manufacturing, or Internet of Things (for a few examples), you better believe your clients / vendors / suppliers / retailers will have some pretty hefty insurance requirements. Corporate lawyers are continually tightening up the language on these contracts. It doesn’t matter if you’re selling tablet-based software to hospital outpatient programs, consumer goods via Amazon, or consulting expertise to advertising firms…more often than not, liability coverage will be required. And when you ramp up hiring and want to move into your new office, your landlord will require proof of insurance too! FYI: the standard terms for these contracts typically require General Liability, E&O, and Cyber Liability coverage.
We’ve seen our fair share of deals come down to the wire because the company was totally caught off-guard by insurance requirements. Having coverage in place prevents this pain point.