As you take steps to raise capital for your organization, purchasing insurance for startups should be one of your top priorities. What do CEOs and CFOs need to know about D&O insurance for startups?
Startup companies quickly reach a point where they need insurance. But startup founders often don’t have the time and expertise to figure out what coverage they need – and most brokers don’t understand the unique needs of startups. Putting D&O insurance in place before actively fundraising has unique coverage advantages. To learn more about this, contact an expert.
At the highest level, purchasing insurance for startups is all about protecting your company, leadership, and employees – and enabling your business to continue growing with minimal distraction in the event of claims. By giving the purchase process the attention it deserves, you are not only putting your company in a position to succeed, but you are also investing in creating stability in the event of a claim, reducing the risk of failure.
Having the right insurance policies in place can save you from the money pit of legal fees and wasted time that comes with a variety of liability lawsuits you could face.
As you take steps to raise capital, you will need to purchase Director’s and Officer’s Liability insurance. This is key to attracting new directors. It will often be a requirement for some venture capital firms and board members. Private companies are subject to government regulations and have exposures to shareholder and employee lawsuits. Purchasing D&O coverage is a key coverage milestone that should not be overlooked as you raise capital.
What is D&O Insurance?
Essentially, D&O insurance is coverage for lawsuits and claims made against a company’s directors and officers.
If a director or officer makes a decision that leads to claims of mismanagement, breach of contract, breach of fiduciary duty, noncompliance with laws or regulations, or other similar accusations, those individuals are the ones in the crosshairs—not the company itself.
D&O insurance for startups covers defense costs and settlements arising from demands and lawsuits brought against your company’s board of directors and/or officers personally for allegations of breach of fiduciary duty, misrepresentation, or errors & omissions. If you are looking to raise money, most institutional investors will stipulate as part of the term sheet that a D&O policy will be purchased within 90 days after the close of the financing. Additionally, when putting your board of directors together, savvy board members will inquire about the adequacy of your D&O coverage and having an excellent policy can be a powerful recruiting tool.
Interested in learning more about how D&O insurance protects the founding team? Or
check out the 5 Common Sources of D&O Liability. There is nothing more important when it comes to protecting your company, especially if you are raising capital. Contact the experts at HRO Resources to get started with a quote today.