Startups require careful planning and execution to succeed. Securing funding is crucial to expansion plans. While entrepreneurs focus on attracting investors and scaling their businesses, one often overlooked aspect is the need for insurance coverage. Insurance plays a vital role in safeguarding startups from unforeseen risks, and knowing when to acquire it is essential.
The seed stage is where startups begin their journey, usually with a small team and a minimum viable product (MVP) to test the market. At this stage, acquiring insurance coverage may not be a concern, because the focus is primarily on validating the business idea and securing initial funding. However, founders should start considering insurance options, particularly professional liability insurance or errors and omissions (E&O) insurance. This coverage can protect the company from potential claims which may arise as they interact with clients, customers, or partners.
As startups progress to the early stage, they often secure their first round of funding. This allows them to expand their teams, enhance product development, and start generating revenue. At this point, insurance becomes more important to protect key assets. Property insurance can safeguard assets like office space, equipment, and inventory against risks such as fire, theft, or natural disasters. General liability insurance is crucial to cover bodily injury or property damage claims that may arise due to the startup’s operations.
It is important to note that the requirement for insurance may not arise until a contract is in place, such as a lease agreement, a client contract, or a private equity, venture capital (VC), or angel-led funding round in the seed stage. These contracts may include provisions that mandate insurance coverage. However, the decision to acquire insurance should also be based on your risk tolerance.
Consider your comfort level with the potential risks associated with your business. If you hold sensitive data, are you willing to bear the financial and reputational consequences of a data breach without insurance coverage? While insurance may not be legally required until a contract is in place, assessing your risk tolerance is crucial.
If you have questions about the right time for your startup to get insurance contact us today! Provide a sense of security for you, your team, and your investors.
