Business Insurance
In the early days, it’s difficult for pre-seed companies to obtain the right business insurance policy without visibility to their revenue model, customer profiles, data security protocols, etc. Each company CEO will decide on the timing and coverage areas for business insurance.
In general, events that will trigger business insurance policy include:
Signing first enterprise contract (coverage like cybersecurity may become necessary)
Fundraising (a due diligence item by new investors)
Small businesses often benefit from a combination of the policies listed below, typically bundled with cyber insurance and subject to a limited cap. For companies ready to secure coverage, we recommend using either Vouch or Embroker's startup program.
After securing external funding and gaining significant customer traction, it becomes more appropriate to tailor risk management policies to specific business needs. Open Core Ventures can introduce companies to a professional insurance broker who will help find a more customized solution.
Recommended policies
The recommended baseline policies for startups include general liability insurance, cyber liability insurance, and professional liability (E&O) insurance.
Coverage for all five insurances listed below can be in the range of $17,000 per year. Coverage for 1-3 should be less than $10,000 per year.
General Liability Insurance
General liability insurance policies protect against claims made relating to general liabilities associated with operating a business which result in damage to people or property.
Recent quotes we've seen for this coverage are around $200 USD for $1M per occurrence and $2M aggregate.
Cyber Liability Insurance
Cyber liability insurance policies protect against claims made as the result of a data breach or software attack.
Recent quotes we've seen for this coverage are around $2,000 USD per year for $1M aggregate.Most carriers are generally reluctant to offer limits exceeding $5M for startups due to the rising frequency and severity of cyber and ransomware incidents.
If a larger cyber liability insurance limit is required for any reason (including requests by customers as part of a contract), the portfolio company should work with the insurance broker to build a cyber insurance tower.
Cyber insurance tower
A cyber insurance tower is a structured, multi-layered insurance program designed for corporations needing high liability limits to cover significant cyber risks. It combines a primary policy with several excess, or "layer," policies from different underwriters to provide comprehensive protection against breaches, ransomware, and data loss.
Professional Errors & Omissions (E&O) Insurance
Errors & Omissions insurance policies protect against claims made relating to unsatisfactory work performed by a business.
Recent quotes we've seen for this coverage are around $3,000 USD for $1M in aggregate.
Other insurance policies
Employment Practices Liability Insurance
Employment Practices Liability insurance policies protect against claims made between managers and employees.
Recent quotes we've seen for this coverage are around $7,000 USD for $1M in aggregate.
Directors & Officers Insurance
Directors & officers insurance policies protect the personal assets of founders and the startup from lawsuits associated with their decisions.
Recent quotes we've seen for this coverage are around $6,000 USD for $1M in aggregate.
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