Do Startups Need to Review Insurance After a Funding Round?

You closed the round. The money's in and the announcement is out, and everyone's congratulating you. It’s normal for your to be focused on generating PR and deploying that capital efficiently.

But somewhere in all of that, your risk profile changed, and many founders don't notice that their insurance is no longer suitable.

A fund-raise rewrites your exposure in lots of ways:

Board Seats: New investors come with new expectations. You now have a board, and the people on it can be held personally liable for decisions the company makes.

Headcount: You've got a hiring plan that will add headcount faster than at any point in your history.

Cyber Risk: Raising capital means a you're higher profile, too. Which makes you a more interesting target for the kind of people who go looking for soft cyber defenses.

Chunky Bank Account: A round leaves a lot of cash sitting in your account, which makes you a real target for fraud, from invoice scams to social-engineered transfers.

Bigger Promises: Fresh funding often means bigger clients, and bigger clients write tougher contracts. They'll demand specific cover levels and proof of it before they sign.

New Territory: If the raise funds expansion, selling or operating in new markets brings a different legal and regulatory exposure that a UK-shaped policy wasn't written for.

Valuable IP: If you’ve just raised against intellectual property rather than anything physical, that's still a real asset with real exposure, and standard cover tends to treat it as an afterthought.

Every one of those is a change to your risk, and none of them were true of the company that bought its insurance last year.

Don’t get caught out. The cover you have was bought by a different business.

When cheap gets expensive

We speak to founders at this stage all the time, and the same pattern comes up again and again. Insurance gets set up once, early, when the priority is to get something cheap and compliant in place. The problem is that policy was sized for a smaller, simpler company and probably bought “off-the-shelf”.

Post-raise, the numbers behind it are out of date and some of the cover types may be wrong entirely.

Directors & Officers cover is the clearest example. Before you had outside investors, the personal liability sitting on your leadership was limited. After a round, a board seat carries real risk, and investors frequently expect D&O in place as a condition of the deal or shortly after. In our experience it's the first gap a funded company trips over, and you could end up covering costs yourself.

The “oh sh*t” moment

Based on our experience, these problems surface around six months after the raise, and it's rarely on the founder's terms.

It’s highlighted because an enterprise client asks for proof of cover you don't have, or a near-miss makes someone finally open the policy and read it!

Sharp founders have their insurance sorted straight away. But for a lot of them - first-time founders especially - the “OH SH*T” moment catches them out six months in. By then something has usually forced the issue and it all becomes a bit of a scramble.
Steven Darrah, Founder, REALLY HONEST

From where you're sitting, the right time to look at this is now, while it's calm and on your terms. Six months from now it's a fire drill.

Off-the-shelf-cover

There's a reason off-the-shelf insurance struggles when it comes to start-ups, and it's the reason we built REALLY HONEST the way we did.

Startups carry a messier risk picture than the businesses standard policies were built around. You might be selling software and shipping a physical product at the same time. Your core asset might be intellectual property rather than anything you can lock in a warehouse. You might be earning revenue in the US, with the regulatory exposure that brings.

A generic small-business policy doesn't know what to do with any of that, so it either leaves holes in your cover or charges you for protection you'll never use.

So if you’re about to raise or you've raised in the last year, get your insurance reviewed against your growth plans, not the company you were last week.

It's a short conversation, and it costs a lot less than finding the gap the hard way.

Insurance for funded start-ups.