Revolutionizing Startup Protection: Foundershield's Expert Insights on Cyber Risk Management and Insurance Solutions

Unlock the secrets to safeguarding your startup with expert insights from Jonathan at Foundershield. What if you could ensure your business's growth without the fear of unforeseen risks? Join us as Jonathan, a seasoned insurance professional with nearly a decade of experience, shares his journey and wisdom on navigating the complex world of startup risk management. You'll learn why understanding your business model is crucial for communicating risks to insurers and how directors and officers insurance, as well as cyber insurance, can protect your burgeoning startup from liabilities and data breaches. Jonathan emphasizes the importance of partnering with knowledgeable professionals who can help prioritize your insurance needs, allowing you to focus on what truly matters: scaling your business.

Explore the landscape of startup insurance trends and challenges, as Jonathan sheds light on the importance of industry-specific policies. Discover how fintech giants like Robinhood face different risks compared to e-scooter companies such as Bird and Lime, and why tailored solutions are key. As technology advances and regulations evolve, Jonathan discusses the necessity of adapting your coverage to ensure comprehensive protection at a competitive cost. This episode is packed with insights on building trust and relationships from the get-go, helping your startup navigate the insurance maze with confidence and clarity.

Transcript

Speaker 1 0:01

Hey everybody, really fascinating chat today, as we dive into how to help startups navigate risk with a company with expertise in this area at Foundershield, jonathan how are you?

Speaker 2 0:13

I'm doing well, Evan. Thanks for having me.

Speaker 1 0:16

Well, thanks for joining Really interesting topic. Maybe give us a quick overview of Foundershield, the mission and yourself and your journey at the moment.

Speaker 2 0:26

Happy to, and I've been with Foundershield almost a decade, so I'll try to keep it relatively brief. We're a tech-enabled insurance brokerage. That means we're the middleman between business owners and insurance companies. We help facilitate the strategy and placement of the insurance programs for startup businesses. I joined the team it was March 1st 2016. So I'm just coming up on about nine years.

Speaker 2 0:57

I was employee three, I believe, depending on whether or not you want to count the two co-founders. So I've seen a little bit of everything. We scaled the company to today we're over 100 employees. We actually went through a successful acquisition in August of 2021, acquired by a publicly traded top 15 size insurance brokerage. But we found a shield. We still have kind of our own internal team operating as that specialty placement arm within the greater organization. My focus has always been on the client facing side of the house. So understanding all the different unique aspects of startup businesses high growth, venture backed, private equity owned, however you want to classify them both venture-backed, private equity-owned, however you want to classify them and making sure that I'm able to intelligently explain to old-school insurance companies what they're doing, why they should still offer quotes even though they may not be profitable yet, and navigate those risks and put these companies in a position where they can get the correct coverage, the most competitive costs and a scalable solution as well.

Speaker 1 2:06

And I'll pause so you can keep asking more exciting stuff coverage, the most competitive costs and a scalable solution as well, and I'll pause so you can keep asking more exciting stuff. Yeah, no, it's interesting. I mean, I'm a small company founder and I have a unique insurance coverage around liability and being sued for what I say and do online, so that's kind of interesting. But when you think about founders and startups and insurance, there are a lot of misconceptions. There's not much education around this topic. What are some of the key things you'd like to communicate about founders and what insurance they may need or may not need?

Speaker 2 2:39

Understanding the business is, in my opinion, the most important thing. You know everybody, what do you think? Talk to an entrepreneur, right, the entrepreneurial brain is such that they started a company because they feel that there is either a gap in the industry, there's a problem they can solve, and they have a unique way of doing it. If you're able to understand what that unique solution is, well, that's usually what's going to cause the quote, unquote risk of the company. You know, the ability to articulate that to the insurance company is it allows you to say, hey, you know, this isn't maybe, a maybe. It's new and groundbreaking from an operational standpoint, but from a risk standpoint it's not too dissimilar to blank whatever that may be. So understanding the operations and what the go forward plans are for a new organization is important. It's also important that and I mean this is just my job, but it's important that these founders, these entrepreneurs, they have somebody like myself, like my team, they have somebody like myself, like my team, who utilizes. You know they want to move fast, right, they're doing a hundred different things as a single or, you know, single founder or partner founder.

Speaker 2 3:54

Insurance is usually towards the bottom of that list. We get that. But if you go to this kind of just like robo-broking model automation without an actual insurance professional to supplement it, that's where I've seen the most problems. So, like I said, having that ability to understand a business, having that ability to explain to these founders the different types of risks whether it be operational, personnel, managerial one of the first insurance products that are required of a lot of these startups, especially the venture-backed ones, is something called director's and officer's insurance, that's insuring the individuals personally, should they be personally named in the suit. So there's a lot that goes into it. Having that relationship and understanding the actual business allows me to explain what the risks are and allows me to paint the picture of here's where I would prioritize your insurance portfolio. Here are the potential costs you're looking at, here's how much you should buy based on what your peers are buying, so on and so forth.

Speaker 1 4:55

Interesting. Well, let's cut to the chase. In your experience, what are some of the key policies? A high growth startup should consider right away.

Speaker 2 5:05

Our biggest sellers are directors and officers insurance, which I told you about again, super high level. It's protecting the individuals that hence the name. The directors and officers usually who are on the board. Should they be personally named in a suit? Think misappropriation of funds, alleged misleading statements, wrongful competition, any of these managerial decisions or actions where they can be personally named. That's going to be your D&O insurance. Because we work with so many tech forward companies. Almost all of them are also buying cyber insurance.

Speaker 2 5:45

You know, you hear about. You hear about, like the headline news, the CrowdStrike outage impacts. You know, all these Fortune 500 companies. You don't oftentimes hear about some of the middle market type breaches, and there's a lot of them. There's data breaches. We see claims arising out of ransomware, especially with the rise of cryptocurrency. A lot of these sophisticated hackers. They'll take control of these smaller businesses, websites and operations and they'll say send me, you know, whatever it is 50 Bitcoin, a lot more difficult to trace by authorities. All that stuff is contemplated under a cyber insurance policy. So again, just kind of humanizing the process. If you're starting a SaaS company, if you're starting a fintech company, anything in that tech space ecosystem, you're almost always looking at DNO and cyber first and foremost.

Speaker 1 6:47

Interesting and do industries matter? You mentioned fintech, crypto, healthcare. Is this pretty generic or are there unique challenges in different industries.

Startup Insurance Trends and Challenges

Speaker 2 6:56

It's a great question and, like I said, it's probably why the first thing I ask about is tell me about your operations. What are you actually doing? Right, if you're running a podcast, you are actively talking and making representations that somebody could say, hey, that you stole my idea. Right, it's more of like a media liability risk. But, to give a more tangible example, we, by some stretch of luck, by some stretch of being in the right place at the right time, we actually started working with a lot of the early stage micromobility companies. Think those like e-scooters.

Speaker 2 7:32

You see out there on the streets, the risk for somebody offering shared e-scooter or e-bicycle rides is a lot different than, know, an early client of ours in the fintech space like Robinhood. So, because there's different risks, there's different policies, right, somebody getting physically injured and pointing their finger at Robinhood, just to give a name, or anyone Coinbase unlikely. Somebody pointing their finger at them for an allegation of financial loss. Somebody pointing their finger at them for an allegation of financial loss a little bit more of a realistic risk. On the flip side, you look at a Bird or a Lime, these scooter companies, the chance of somebody getting physically injured and saying, hey, it's because your brakes malfunction, your handlebars wouldn't turn. Yeah, that's a lot more of a realistic risk for a company like that as opposed to hey, listen, my bank account was compromised.

Speaker 2 8:28

So because of the different risks, there's different types of insurance policies that are relevant, just to drop the names bodily injury type claims. You're looking at general liability insurance or product liability insurance, financial loss risk. You're looking at cyber. You're looking at E&O Arizona Mission, sometimes D&O, depending on who's named in the suits. But different operations, different risks, different need for insurance policies, for sure.

Speaker 1 8:54

Yeah, well said, interesting challenge. And how comprehensive should coverage be? And I guess cost is a big issue for founders. I mean, we've obviously got our home insurance, life insurance, health insurance, car insurance and now we've got to layer on some other coverage. I mean, do you work with micro enterprises or solo practitioners, like I have a, you know, liability coverage is pretty affordable, but how small and how big can you go with?

Speaker 2 9:27

early stage teams. You know we've stayed a few questions in there. I'll try to address all of them. We started the company over 10 years ago with the notion of early stage startups. Early stage venture backed companies needed a more streamlined, seamless and intuitive route to procure business insurance. We've stayed true to our roots. We continue to support the startup ecosystem. But part of our hypothesis was that as we onboard businesses at their early stage and understand their plans for growth and understand how and if they execute on those plans, we'll be best positioned to grow with those organizations. And that hypothesis proved true. We work with over 5,000 venture-backed startup-type organizations all 50 states, canada, the UK, israel, a bunch of other tech hubs overseas so it's proven true. So that answers your question about you know at what stage. And we've made strategic decisions to help support that growth from hiring, from M&A activity, from tech stack build-out, so on and so forth m&a activity from tech stack build out, so on and so forth. Uh, but yes, we we still believe if we can build trust and a relationship at the early stages of an organization, we'll be best positioned to grow with them.

Speaker 2 10:54

Maybe not every single one turns into, you know, a fortune 500 company, but some fade off, some grow and stabilize, some are the next uh unicorn or ipo out there. So, uh, that that addresses the how early do you work with? How late do you work with? Um, yeah, what else? How comprehensive is the coverage? Was the other part of that? Anyone who tells you, anyone who tells you, like, well, price, it doesn't matter, it's just lying, price matters. It is part of every single conversation I have. It's just a matter of how much the actual coverage is discussed as well. A lot of times, for very early stage companies, you're looking at more off the shelf policies, and it's truly just a cost play policies, and it's truly just a cost play. As the business grows, the intricacies of the risk oftentimes develop and grow as well. That's where you can start getting a little bit more granular into what we're actually offering from a protection standpoint.

Speaker 2 11:58

And I'm not even just talking about buying more policies, more types of insurance. I'm talking about how kind of changes to the business as a whole are impacting their day to day. So you think about stuff like the growth of AI, some of the cyber insurance carriers. Right now they're offering, you know, ai enhancement endorsements. You look at the ease by which and you probably get this also on your cell phone the ease by which companies can blast out like text messages.

Speaker 2 12:28

A lot of cyber insurance companies were getting slapped with all of these tcpa claims. They said, oh, let me, let me dial that back. Instead of offering a million dollars, I'm gonna say, yeah, I recognize this. I'm only gonna offer, you know, ten thousand dollars in coverage, kind of like. Kind of kind of dark, but kind of like leaving somebody a dollar in your will to say, hey, we know this is happening, we don't want any part of it. So, as that happens, there becomes a need in the market, in the insurance market. Hey, this TCPA risk is a real thing. Now you can buy your own TCPA insurance policy because you know that it may not be covered on your cyber policy. So the coverage is super important, but it really it becomes more part of the conversation, at least in my experience, as companies mature a bit and are starting to take their risk a little bit more seriously and look beyond just the bottom line price tag. Hopefully those are examples. Yeah, really interesting.

Speaker 1 13:25

Yeah, fascinating, and I looked up a fact as you were talking insurance the industry is a $1.7 trillion industry in the US, which is a mind boggling number, but it's undergoing a lot of change. You know regulatory changes. Obviously we're seeing the fires and the floods and hurricanes sadly happening. How do you stay on top of all that regulatory change and what are some of the trends that you're looking at or worried about?

Speaker 2 13:55

I read a lot of news articles about it. No, I mean listen, the insurance market is no different than any other market in the fact that it's cyclical and there's different subsets of the market that go through different cycles. Right now and you know, I send my love to everybody out in LA, but right now property insurance in high risk areas whether that be forest fire hazard areas, coastal Florida if you have any friends down in Florida it is borderline impossible to get property coverage, at least affordable property coverage. We're in a very hard market for high risk property right now, so much so that you know people are talking about well, the government has to step in and provide, you know, a kind of stopgap solution here, because private insurers just aren't going to want to take on that risk for any cost based on their losses. On the flip side, we were in a very hard market for what I call non-tangible risks.

Speaker 2 15:01

I go back to cyber. In that sense, we were in a very hard market in cyber insurance world about a year and a half. Two years ago I had clients. I had to explain that you know their price was going up three X despite their business remaining relatively stable. But as the insurance companies insulate themselves with these higher premiums. Their loss ratio just real quickly. A loss ratio is the amount of money collected compared to the amount of claims paid out. Their loss ratio becomes more favorable. They have reinsurers that will give them more capacity. Say, hey, you wrote some good business, you're profitable, go write some more.

Speaker 2 15:42

Next thing you know everyone's trying to write. It brings prices down because you can get a little bit more competitive. You get into a softer market, which right now we're in for a cyber on the cyber side of the house. But it's all cyclical. You know something will happen, ie a CrowdStrike outage that I think they're putting estimated potential losses at $5.4 billion. Wow, you know that's not going to be paid out overnight, but when it does, that might impact the cyber market. So each different subset, each different type of insurance kind of has a cyclical market into itself. As the market hardens you get new entrants coming in to try and capture some market share. That's another thing that helps soften it a little bit as well. I think that will happen on the coastal Florida side of the house for property. I know there's a lot of work, people trying to gain capacity to write it. But they're also wary of the fact that it's a hard market for a reason there are hurricanes, there are floods, there are severe losses. So we'll see.

Speaker 1 16:48

Yeah, a pretty dynamic space. So looking ahead for 2025, besides helping lots of startups and founders, what else are you excited about? What's on your radar for early this year?

Speaker 2 17:00

So we've always been. We being Founders Shield, we've always been at the forefront of utilizing technology within the insurance industry. I think we were the first insured tech in the commercial insurance side of the house. There's a couple others that we've competed with over the years and we know them well, but we've always believed that you got to stay ahead of the curve when it comes to utilizing technology. Again, I told you earlier on I am not of the belief that tech can replace the need for an insurance broker, especially as you work with later stage companies, but I am of the belief that technology can be used to streamline the insurance process.

Speaker 2 17:43

So what we've been focusing on? A lot you asked about, you know really early stage companies like single founder, partner, founder led organizations, where you probably have under 10 employees still. We've built an online platform, a digital questionnaire that essentially turns these archaic insurance apps into yes or no fill in the blank type questions, questions that you know a founder or a head of legal or head of finance, head of operations whatever their role may be can answer without being an insurance professional. What we do with that? With one click of a button, we're able to transcribe all of those questions onto the insurance company specific application. So those underwriters, the old school insurance underwriters they're looking at their application just like any old school broker would get it.

Speaker 2 18:32

What we've been focusing on this year to continue to stay ahead of the curve is building out more APIs, so direct connectivity with the insurance company. So, instead of having to even click a button to transcribe all of the information we're collecting onto the apps, the underwriters are getting it straight from our website, essentially collecting onto the apps. The underwriters are getting it straight from our website, essentially and based on their underwriting guidelines, because underwriting it's a lot of checkboxes. Oh, they have multi-factor authentication in place. Check, they have EDR Check. I'll quote it right, we're able to turn around some quotes within five minutes. It's very powerful for smaller business. But again, as you onboard more small business and you build more relationships, our hypothesis continues to be that we can grow with them and we can continue to build carrier relationships and support the entirety of our portfolio. So I would say, to answer your question, a more direct answer and shorter answer carrier connectivity.

Speaker 1 19:36

Fascinating. Yeah, that sounds like a giant leap forward. Anyone who's dealt with legacy insurance companies and brokers as most of us has feels the pain there. So congratulations on that and on helping so many founders and startups Great job. Thanks for joining and sharing a bit of the vision.

Speaker 2 19:53

My pleasure, my pleasure, thanks, thanks, jonathan.

Speaker 1 19:56

Thanks everyone for listening and watching and sharing.

Speaker 2 19:59

Take care. If anyone has a question for you, that's for me, tell them to give me a shout. I would love to chat with them. All right, I'm sure you can help, all right.

Speaker 1 20:06

Thanks a lot, Jonathan.