A Founder’s Guide to Scalable
Tech Startup Insurance

Idea Stage Insurance

Infrequently do founders consider insurance at this point and some believe their homeowners' insurance might cover their business, which is incorrect. Because insurance is complicated and relatively misunderstood at this stage, most startups decide not to worry about it until later.

For the uncommon few that do purchase insurance at this point, it typically involves small policies for:

• General liability insurance
• Hired & non-owned auto insurance
• Cyber insurance

A mistake many early entrepreneurs will make is thinking that personal insurance policies will cover assets used during the course of starting their new business. 

Insurance While Proving Your Startup

This is a critical stage and one where many new founders struggle. They might call a local agent to see if they can help (those agents most likely won’t understand startup specific needs) or they might find an online service that can piece together basic coverages that are meant to work for small businesses.

Business insurance coverage at this stage is normally used to satisfy a contractual need or avoid potential legal issues that could arise when you begin pitching your technology. At this point, many founders get a policy meant for a different type of business or policies that leave major exposures.

The proof phase is a difficult time because revenue may or may not be trickling in, but there are real insurance needs that cost money.

Critical Coverage

Consists of the most important types of insurance coverage for the idea phase of a tech business. These typically include cyber liability insurance, technology liability insurance, general liability insurance, worker's compensation insurance, and hired and non-owned auto insurance.

Nice To Have Coverage

If revenue has started coming in or investors have shown interest, there are additional insurance coverages that can extend your protect your early business investments. Nice to have coverage often includes employment practices liability insurance, directors and officers insurance, and commercial umbrella insurance.

Start Thinking About Coverage

As your business scales so should insurance. It's better to start thinking about what comes next before it's already required. Is your startup purchasing physical assets like vehicles? Then commercial auto insurance could be your next upgrade. If you are pursuing large contracts with insurance requirements then a surety bond might be needed before starting contracted work.

Ramping It Up & The Insurance To Match

Part of deciding what types of business insurance and coverage limits a startup will need during this period are: reviewing industry trends, determining the market size, unit economics, and understanding the founders themselves. As the startup continues to grow there will be more and more shareholders with questions about what your insurance covers and if their risk is being properly mitigated.

This is a chicken or the egg problem.

At this point, you need to jump into an insurance policy tailored to your business. Do not be fooled, it is critical that an insurance expert that specializes in technology business help you through this. In the tech world, business requirements can vary tremendously, and the coverages needed do too. Winooski Insurance has many technology-focused companies in our portfolio and each of them has a different combination of insurance carriers, insurance coverage, and pricing.

Quite simply, the risk for a tech company monitoring data for tsunami detection has a different risk profile than someone developing an application to locate the nearest dog park. If your agent does not understand your technology and the technology insurance space you almost always have an issue putting together an insurance package that is appropriate for your startup’s needs.

Underwriters at the best carriers rely on insurance agents to explain all aspects of the client’s business to offer the right policy. Every product produces different risks that should be acknowledged and accounted for. Before taking your scenario into consideration, the average tech startup Seed Round insurance package often includes coverage for the following:

Critical Coverage

There are a few major differences in insurance between the idea phase and seed funding in a startup. Those are: directors and officers and employment practices liability insurance become musth haves. On top of that, policies like cyber liability, technology liability, general liability, and worker's compensation tend to require larger coverage limits.

Coverage limits vary depending on needs, but we often see a five times increase on essential policies during this period. For example, to protect technical assets and data, cyber liability and technology liability policies typically have coverage limits of $5,000,000 after a company reaches seed funding.

Nice To Have Coverage

An umbrella policy continues to be a nice to have as the chances of major exposure to damages increases while your startup scales. Most tech startups at this point should have an umbrella policy with at least a $1,000,000 coverage limit, but we see most with upwards of $5,000,000.

Start Thinking About Coverage

Now that money is beginning to come in, your business is probably considering either leasing or purchasing an office. This addition will require a commercial property insurance policy.

Scaling Your Startup & Larger Insurance Policies

Critical Coverage

The one big difference between the seed round and Series A is that Umbrella Insurance becomes a must have. At this point in your  start-up journey, it's important to avoid unnecessary risks and to make sure that both you and your investors are covered in the event of an accident. 

Tech startups at this point should have an umbrella policy with at least a $1,000,000 coverage limit, but we see most with upwards of $5,000,000.

Nice To Have Coverage

Depending on where your office is located, Commercial Property Insurance could come into play as you reach the Series A round of funding. If you have a office building that your company owns, it's important to cover it with the appropriate protection. 

Start Thinking About Coverage

At this stage, you should now have most of your basic insurance needs covered. However, in the ever-adapting world of a start-up company, new needs may present themselves. When that happens, our team at Winooski Insurance is happy to help. Feel free to contact us and we'll be in touch!