Why does Startup Insurance matter?
Insurance is bought for three reasons and founders usually anticipate one. The first is that some of it is not optional: an employer with staff usually has to carry workers compensation, though what triggers the obligation varies more than founders expect. Some states require it from the first employee and others only above a headcount threshold, Texas does not require it of private employers at all, and people genuinely classified as contractors rather than employees generally sit outside it. Confirm the rule in the state where your people actually work rather than carrying a number you heard somewhere. The second is genuine risk transfer. The third, and the one that surprises people, is that somebody else requires it: an investor will want directors and officers cover before an outside director joins a board, because otherwise that person is personally exposed, and enterprise customers routinely specify minimum cover in the contract they hand you. Discovering that requirement during a closing or a procurement review is how a straightforward deal loses two weeks, because cover does not apply to something that has already gone wrong.
What does Startup Insurance look like in practice?
Suppose a first enterprise deal reaches procurement and the standard agreement specifies errors and omissions cover at a level you do not carry. Nothing about the product is in question, but the deal stops until a policy is bound, which takes a fortnight of underwriting questions during the exact window where momentum matters. The cheap version of this story is knowing before the deal which policies your buyer segment typically requires, and buying the smallest sensible cover early rather than the largest cover in a hurry.
What are the common mistakes with Startup Insurance?
- Buying nothing until somebody demands it, which converts a routine purchase into a deal blocker.
- Assuming directors and officers cover is only for individuals, or only for the company. Private-company policies usually do both: they protect directors and officers personally, they reimburse the company when it indemnifies them, and they often cover the company itself, which is why an outside director asks what a policy actually includes rather than whether one exists.
- Ignoring what the contract requires. Enterprise agreements frequently specify types and minimum amounts, and legal review catches it at the worst moment.
- Over-buying at seed. The right policy is the one your actual obligations and buyers require, not the broadest one an intermediary offers.
Related concepts
- Director and Officer (D&O) IndemnificationThe company's contractual and insurance-backed commitment to cover legal costs and damages for its directors and officers if they are personally sued for decisions made in that role, protecting them from bearing the company's legal risk out of their own pocket.
- Customer Contract DiligenceThe review of a company's customer agreements during diligence to verify that the revenue they represent is real, durable, and actually transferable, checking term length, renewal and termination rights, pricing commitments, and any change-of-control or assignment restrictions.
- Vendor ManagementKeeping track of the suppliers and subscriptions a company accumulates: what each costs, when it renews, who owns it, and what leaves with it if you stop.
- Board Meeting Cadence and MaterialsThe recurring rhythm of formal board meetings (typically monthly or quarterly at early stages) and the standing set of materials (metrics, financials, a narrative update) sent ahead of each one so the meeting is a discussion, not a first read.