Directors and Officers Liability Insurance for Start-Ups and other Private Companies

    Venture capitalists invest millions of dollars into start-ups and small businesses hoping that they will take off and be the next Google or Facebook. From my understanding they look over the business proposals and the presentations and financials and hopefully do a lot of due diligence in selecting their investment companies. But, why don't they take a better look at the insurance?

    Directors and Officers Insurance
(D&O Insurance) is insurance important for both public and private companies. Public companies all need and have Directors and Officer Liability Insurance, but many private companies do not. But private companies are exposed to securities litigation when they have investors, including venture capital investors. Directors and Officers Liability Insurance is necessary to protect the personal assets of the officers when these claims happen. D&O Insurance covers the defense costs, settlements and judgments associated with these claims.

    If you are a start up firm looking for insurance, and hopefully you are talking to Andrew Cohn at ALC Risk Solutions, your agent should be asking you if you have or are looking for investors. You are out there every day and night working on your business and trying to sell it. You sell it to potential investors, you sell it to potential clients, you sell it to the media, you sell it to whoever is in the elevator with you at that moment. Doing all this selling you might slip up, or you may have an investor that perceives something different from what you are doing.

    If you are a venture capitalist, requiring directors and officers liability insurance is a no-brainer. Some venture capitalists just give the money, and for you, if you have a problem with the management of the company, you have a wallet to sue in the insurance company. Think about it, if these start-ups had real money, they wouldn't be coming to you for a $100,000 investment. If they mismanage the company, and it goes under, you're out your capital. With the insurance you can try to file suit.

    Other venture capitalists invest money, and also make sure that they are named a director or officer of the corporation. Now this is the really tricky spot. You invest $100,000 in Company XYZ and are put on the board of directors. Company XYZ gets other investors and eventually they mismanage the venture into the ground and everyone is upset. XYZ never had money and now has less. But you, the venture capitalist, one of the directors of the XYZ Company does have money, has money to lose. Require the coverage.

    Here's the final reason to get Directors and Officers Insurance, it's relatively cheap. It really isn't very expensive for the coverage it is providing. As a small to midsized private company you really present a much lower risk in the insurance company's eyes compared to the publicly traded corporations they normally deal with. So if you're a venture capitalist giving hundreds of thousands and possibly millions of dollars to new ventures, require that they spend some of that money on their Directors and Officers Liability Insurance, and recommend that they speak to Andrew Cohn at ALC Risk Solutions.

    Lastly, not all D&O policies are created the same. You need an expert like Andrew Cohn atALC Risk Solutiont to read over the definition of "insured", does it include all past and future directors, officers, international functional equivalents, members of a board of manager, employees, and advisory committees. Make sure it has Spousal and Domestic Partner Liability. Why? A lot of new ventures are started with one spouse working a "real job" and the other playing with their new venture company. Make sure the "real worker" is protected financially as well. Make sure coverage is worldwide, if you're a local entity that has no plans to branch out, they maybe this isn't a factor, but in the age of globalization most companies are now global, and it doesn't cost more for your insurance to be. You should also review the "insured vs. insured" exclusion language. Is your policy a "duty to defend" or "defense reimbursement"? Can you afford to front the bill and be reimbursed? There are a whole lot of clauses, terms and conditions to be mindful of. You really need to deal with an expert like Andrew Cohn at ALC Risk Solutions

Three F’n Percent Follow Up

This morning I get into my office and I see that the number one headline on CNN behind, the picking of the head of the new economic recovery panel is "Durable Goods Orders Drop Sharply". Third place is "Consumer spending Drops 1%". This is crazy, the world must be ending. This must be the worst we've seen since the great depression, or maybe even the worse we've seen since the repealing of the Bank of The United States by Andrew Jackson. But here's the key to staying positive in this economy, Read the Articles. But wait, it's actually a two step process. Step one, read the article, step two, think about what it says.

Article one, "Durable Goods Orders Drop Sharply", the headline when you click on the scary link says, Biggest durable order drop in 2 years. My god, two years, I remember how badly off we were when we found out that durable goods orders were so low 2 years ago. I remember those harsh winters of 2006 after the October 2006 durable goods report. Come on media, stop with your scare tactics and report the news.

The second article "Consumer spending Drops 1%", has two key things it reported on. One, consumer spending dropped 1% in October, partially due to people saving up for their holiday spending. The second thing they reported, in the penultimate paragraph was "Personal income, however, rose 0.3% in October, following a 0.2% rise in the previous month. Economist had expected a 0.1% rise." (CNN) And finally the last paragraph talks about how prices are starting to come back down slightly.

My conclusion is simply read the media articles for the facts and come up with your own conclusions. The Weather Channel makes money during Hurricanes and Blizzards; CNN makes money during bad Economies, War and Elections. Sadly Americans have all but forgotten the wars in Iraq and especially Afghanistan, so CNN all but stopped covering them. The election is over, and they want to make us worry. So they need more than anything for this economy to keep sucking.

3%...Three F’n Percent

That's what's screwing up the economy right now. 3% of homes are struggling with foreclosure. 3% of homes has taken down Bear Sterns, Lehman Brothers, AIG, Wachovia, Freddie Mac, Franny Mae, Indymac, Washington Mutual, Countrywide, and is close to killing Citigroup, General Motors and Chrysler. 3%! 3% of homes have tightened everyone's wallets from Wallstreet to Mainstreet. This has drove people to depression and anxiety and has caused them to make decision in which they are betting against the United States of America and the world's economy from recovering.

    One thing we here is job loss. "Job Loss is the worst it's been in 8 years." "Unemployment is Sky Rocketing." "Employment is the worst it's been since 2001." Well, I was around way back in 2001. I didn't notice that it was that bad. We didn't have experts calling for bailouts and stimulus packages. We were too worried about terrorism and wars. If we're as bad as we were in 2001, then we're not doing that bad. 2001 wasn't a Great Depression.

    I'm not saying that the United States and world isn't having economic problems right now. If you've lost a job, or lost your house, or can't afford medical care, or to put food on the table, this is a crisis. But what is going on now is a self-fulfilling of the prophecies that were blown out of proportion by the media. This type of article, one that is saying that we aren't doing that bad, one that is positive about the Country and World and the economy will not get picked up by the main stream press. This article is John McCain's "the fundamentals of the economy are sound". I voted for Barack, and I think he is going to lead us out of this rut. But, McCain was right. The fundamentals of the U.S. economy is not AIG or GM. The fundamentals the US economy are working hard, entrepreneurship and good old fashion hard-nosed, hard-headed idealism. An ideological belief that we are the best in the world. We might screw up, but we get back up. We have the best the Earth has to offer, and we've melted the talents of cultures across the world. We have freedom and the ability to go from nothing to something.

    So what's the answer? Work hard, act like the economy is fine. That doesn't mean spend like an idiot. Take this as a lesson, but live your life. During the Cold War people had bomb shelters and bunkers and bought gold and commodities like the world was ending tomorrow. They're still waiting and their bomb shelter is obsolete. So sell bomb shelters and commodities to idiots that think the world is going to end with this crisis. Or go out and do some networking, write a blog, cold call, just sell some business. The world isn't ending tomorrow and we've got a job to do.

Miami Business Networking’s New Blogspot

I will now be doing most of my blog about business networking from my new blog, http://miaminetworking.blogspot.com. I like this new link. I'm posting some of my old content on there right now. However, in the future I hope to have an active, up-to-date blog about my weekly business networking meetings including upcoming events, new groups, and other great tips. Http://andycohn.blogspot.com will still be up, this site will remain how it always has with mix of business networking and insurance and risk related topics, however, I will focus more attention on the business networking side for http://miaminetworking.blogspot.com. Thank you for reading, and keep on reading and networking.