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I have a startup and I have LOTS of risks;

1) Companies suing me because of internal politics

2) My software is running on a corporate server, which I have no control over and if this goes down I might get sued because my software was down.

3) A company might end up simply not paying a perfectly justifiable invoice due to it going bankrupt, or all management getting fired (this actually happened to me) And so on.

There is a saying that says that the risks that will hit you the hardest are those that you could not forsee.

Therefore, I would like to see a list of all the things that startups can get insured against. Does anyone have such a thing or know some international insurance companies that offer such services (I am not after the standard fire/theft insurance).

Edit: It should be mentioned that I have customer that are on the scale of 1000 times bigger than my company. This means that I cannot make strong demands on contents of contracts or how we do business. What I deliver to the company is very sensitive to the internal politics, which means that I can get directors fired.

If I got sued by this company for whatever reason, I would probably go bankrupt before the case even got to a court-room, just because they could pull every trick in tbe book and I would have to pay 300$ an hour for a lawer.

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It sounds to me like you have to pick a better set of customers. That would reduce the risks you enumerated. None of those would be high on my list, but I don't have an answer for your underlying question. – TimJ♦ Nov 24 '10 at 14:49
It would really help to know more about your business and your customer. This all sounds quite unusual and it's hard to answer your question without more information. – Bob Murphy Dec 23 '10 at 5:55
I did not ask the question to get an answer primarily for myself. I am interested in this topic in general and just used my situation as an example. If I provide more details, I will get answers like: "Why don't you do this and that instead of buying an insurance, and then I will never get a useful list. – David Dec 23 '10 at 22:45

6 Answers

up vote 2 down vote accepted

Your best insurance is to make sure you are incorporated, or an LLC. Get creative with your books and make sure you dont hold more money or assets than you have to.

That way, if you do bust, then you will at least walk away better.

As for as Failure insurance, it doesnt really exist. What you could do is mitigate some of the risk by adjusting your business. You can get insurance against some types of law suits, but dont go around looking for Pre Paid legal help.

It really sounds like you are being over cautious. All business carries risk, as does life.

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I am certainly not overcautious. – David Dec 2 '10 at 11:07
up vote 2 down vote

1) Is extremely strange, how can you be sued for internal politics? Any employees of your company should be bound contractually to behave at certain standards. If they don't you are well within your rights to fire or sue them (assuming the employment contract is right).

2) If you software is running on someone else's server, you either need terms in the licensing that say the hardware is the responsibility of the customers. Or, if this server is at a company unrelated to the customer, what on Earth are you using that server for?

3) You are entitled to ask for credit references from companies, prior to providing credit. Otherwise you simply say they get the product upon payment. The management getting fired shouldn't prevent you from getting paid. If the company agreed to buy from you, they are contractually bound to do so even if the person buying within the company gets fired. If a company goes bankrupt you should contact the administrator appointed and you'll get a cut of any company assets that are left and sold off (shared amongst all creditors).

3 is a reasonable problem, though I've not ever not been paid once in 6 years. The fact you are worrying about 1 and 2 (which actually you can't insure against, thinking about it) suggest some fundemental problems at your company, unfortunately. You need to address the issues, not look to insurance to tape them over.

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up vote 1 down vote

Your best level of protection will come with an LLC and a well-written contract with your clients. For our software clients, we recommend they include a clause that servers will go down and your company is not responsible.

I do not have a complete list of risks, but I would recommend you talk to an insurance broker and a lawyer. Between the two, you should be able to cover most of your bases.

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Again. Certain kind of insurance like WC and GL may be required as condition of any contract by the client. – Karlson Dec 11 '12 at 15:55
up vote 0 down vote

You address #1 and #2 by getting your attorney to write up a good contract and follow the terms of those contracts. If you assume liability for things that you don't control, you are going to have a problem... lawyers won't allow you to do things like that.

The last item is a risk that you can mitigate. If you suspect that a customer will go bankrupt, you can try to negotiate for pre-payment, bill month to month or require credit card payments. If they just won't pay, you can sue them.

You can use a "factor" to essentially borrow against your receivables and handle collections, but there's a steep cost for doing that.

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up vote 0 down vote

I believe a different way to buy such insurance is to hedge against the risks. For example hedging against currency fluctuations. It seems like buying derivatives can often replace insurances. From link text the categories of hedgeable risks are:

  • Commodity risk
  • Credit risk
  • Currency risk
  • Interest rate risk
  • Equity risk
  • Volatility risk
  • Volumetric risk

Some of these might very well be interesting to startups.

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You're missing an important thing. You created this question yourself, and in the question the risks are "individual" in nature (fx your business failing to deliver / getting unreasonably sued by a single customer). The hedges you present in this answer are market-level, meaning there is an open market pricing goods and aggregating data from a huge number of market participants.You can hedge against the Euro - US Dollar exchange rate dropping, but not against a single server failing or a single company doing something wrong. – Jesper Mortensen♦ Dec 22 '10 at 12:24
I agree. Your point is the reason why I did not accept you own answer. It was just one aspect of it all, which may be utilized in some cases to reduce risks for startups. – David Dec 22 '10 at 15:53
up vote 0 down vote

Insurance does exist to help protect you in this type of situation. You can get commercial liability insurance, errors and omissions insurance, Technology Professional Liability and contract litigation insurance.

If you do get into a lawsuit, the insurance company would take over the case for you and pay the attorney fees and settlement. Most cases will setting before going into court. You need to select the coverage amount that makes your comfortable.

I would encourage you to look into technology professional liability insurance if you are worried about the software portion of your business.

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