Technology start up companies come in various forms and sizes. They are initially developed and financed by their founders after identifying a market need. The product/s or service in that market may not be offered or may be inferior.
In the early stages of development, testing and marketing ideas, financing is sought from external parties. Whilst traditional lending via banks may not always be forthcoming due to lack of credit history, other funders may be sought via Incubator firms, crowd surfing, Angel investors or venture capitalists.
The importance of technology start ups have been clearly highlighted by the Federal Government’s ‘Innovation Statement’ in December 2015 with almost a $1.1b innovation plan put into place over a 4 year period and new tax incentives.
What are the exposures?
There is no guarantee that all Technology start ups will succeed the first time. In fact, a large portion will fail. To assist these companies and their directors, the Federal government has introduced new legislation to;
Reduce the current default bankruptcy period from three years to one year.
Introduce a ‘safe harbour’ for directors from personal liability for insolvent trading if the company is undertaking a restructure.
Make ‘ipso facto’ clauses, which allow contracts to be terminated solely due to an insolvency event, unenforceable if a company is undertaking a restructure.
This does not mean all exposures for the business and its Directors are clearly expunged. Startup companies by their very nature are perceived as risk takers willing to try new things which may lead them into unknown territory. With their enhanced risk profile and short business record they are scrutinised very carefully by insurers.
Hence, it is imperative that an insurance broker is fully aware of the nature of start ups and the ecosystems that support them, the corporate structure, the model, vision and passion of the founders.
Without such understanding the business is exposed. Talk with one of our Directors who have followed the scene for over 15 years with various startup groups in Australian states.
What can go wrong?
A female employee complained of unwanted advances by a fellow employee to her manager but the manager refused to take the matter seriously.
After further advancements, the employee refused to work late hours. The employee was made redundant. She took action against the employer under his management liability policy for unfair dismissal.