DEC - JAN8From a startup with a few employees to a publicly-traded company with hundreds of employees, technology companies vary in size and can grow rapidly. With this growth trajectory, a tech company's insurance needs will likely change because more growth can present different risks and challenges.One factor behind a tech company's rapid growth is venture capital funding. VCfirms raise capital to invest in startup companies with the goal of eventually selling their stakes and earning a return for investors. But not all venture capitalists play the market for the same results. These investment professionals invest in businesses for many reasons including outsized returns relative to the S&P Index, as well as portfolio diversification given some allocation to higher risk /return assets. In addition, they may look for strategic investments to gain knowledge and achieve influence over emerging technologies and gain a competitive edge in the marketplace. Today, not even a global pandemic can slow down venture capitalists nor negatively affect their capital funding. In fact, according to Crunch base News' "Global VC Report 2020: Funding and Exits Blow Past 2019 Despite Pandemic Headwinds," venture funding was up to $300 billion globally in 2020­ a 4% increase from 2019. While venture capitalists invest in a variety of industries, they are particularly attracted to technology because startups in this vertical have potential for rapid scale, high margins, recurring revenue, and overall, attractive long-term growth. All of these factors can be accelerated with upfront investments.The Venture Capital Firm StructureVenture capital firms are typically led by General Partners or Managing Directors, who are supported by Principals and Analysts in deal sourcing and investment due diligence. In addition, there are Operating Partners who are responsible for performing fund administrative functions such as accounting, legal, and marketing. Many firms also have value-add Partners supporting the portfolio companies across a variety of functions, e.g., business development, recruiting, and capitalization. Venture capital fund investors are known as Limited Partners ("LPs"). LPs provide capital and may serve in an advisory capacity to the fund. Venture capital firms make money in a given fund when the underlying portfolio companies exit at a profit relative to investment cost. Exits can take many forms but might include a public offering, whether through IPO, direct listing or SPAC. Companies may also exit via acquisition by a strategic buyer. And in some instances, a company might be sold to a private equity firm. How Can Tech Companies Protect Themselves as They GrowTechnology companies grow in stages with each one bringing new, more complex risks. Insurance can help provide the security needed to keep these businesses innovating and growing as the risks they face evolve over time. From start-up to growth mode, there may be more employees or different products, which can bring challenging liability risks, so having the right insurance coverage at each stage can help prevent any costly surprises along the way.· Angel or Pre-Seed PhaseThe first stage of funding for a tech company is often the angel or pre-seed phase. Founders fund their startup with their own money or with capital from friends and family. Sometimes, they may pitch their idea to angel investors to secure funding. At this stage, a tech company does not typically have liabilities, assets or contracts that would require insurance coverage. Buying insurance coverage is a proactive measure to provide peace of mind.· Seed PhaseSeed stage funding helps a company continue along its early journey. A company may be developing minimum viable products and is often testing its solution with beta customers. The team at a Seed stage tech company is often still quite small and may include the founders and a few employees, like engineers or development staff. Funding varies depending on type of tech company but can range between a few hundred thousand dollars to single digit millions. Insurance coverage for this stage of growth can be addressed with a Business Owner's Policy (BOP), which combines business property and business liability insurance into one business insurance policy. It is ideally suited for tech companies with unique needs because HOW INSURANCE SOLUTIONS CAN HELP PROTECT TECH COMPANIES AS THEY GROW By Andrew Zarkowsky, Head of Technology Industry Practice, The Hartford, Nick Kreczko, AVP, Hartford Stag Ventures and Dan Neubelt, Senior Analyst, Hartford Stag Ventures Dan NeubeltMY OPINIONIN
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