Can’t sleep at night? You just received an enormous venture capital investment and don’t know how to protect it. Massive problem. I wouldn’t be able to sleep, either.

From Hero to Zero: How to Instantly Lose your Venture Capital Investment

I see it all the time. A new business starts out, excited, with huge plans, as most of us are at that point. You get started and hit the ground running. Then one day, the roadblock. You’re out of cash. Your business is still considered new and you haven’t racked up enough assets, business credit or history to get any sort of commercial loan.

You know the concept of your business is one of a kind, and it has potential to be the next Google. So what do you do?

Seek venture capital funding, of course. If your business really is that great, make sure you have a well-written (and I mean perfect) business plan. It should be rock solid and outline all growth opportunities and long-term company goals, step by step. If you don’t have this, close your business doors and don’t even bother. Once this is in place and ready to go, you should start submitting your plan and business idea (the “pretty picture”) to both Angel investors and Venture Capital Firms, in hopes of obtaining some financing.

So, what are Angel Investors and Venture Capital Firms?

“Angel” investors (sounds Heavenly) are high net-worth individuals that usually have built an empire by building and selling companies, and have the funds to invest in new or money-making businesses that interest them. Usually they’ll invest in an industry that they are familiar or comfortable with.

Then there are Venture Capital Firms, which typically use their shareholders’ monies to invest in a company that’s a start-up or a company they feel has great potential (there’s that stellar business plan). They are large and have massive pools of capital to give.

Both Angel Investors and Venture Capital Firms invest in your business when you cannot obtain the traditional financing you need to grow according to your business plan.

Why on Earth would people just give you this kind of cash? What’s the catch?

Nothing in life is free, as they say. This investment is usually given in exchange for shares of company stock. Investors typically collect a greater ROI (return of investment) than traditional lending institutions.

Most all investors will want at a minimum a spot on the company’s Board of Directors. If they are investing millions in your business it’s because they believe in the growth potential. They are investing in your concept and idea, so anticipate they’ll be involved every step of the way, to ensure they’ll get those precious millions back. Wouldn’t you do the same?

Now that I have this Investment, how do I keep it protected and not lose it?

The 500 Million Dollar question… I’ve been fortunate enough to be the “middle man,” if you will, and help both VC firms and business owners alleviate some of the stress with protecting this enormous investment.

I’ll give you an example. Let’s say there’s a start-up company with a couple owners. These owners are the bread and butter of the business. Without them, the business would be a bunch of 20-somethings behind a desk, staring at the ceiling wondering when the next iPhone is coming out. This company just obtained over $10 million in venture capital funds from some investors, because they have a unique concept that shows huge growth potential.

They obtain the funds and everything is peachy. Then the unexpected hits them in the face: one of the owners dies suddenly (insert heart palpitations). This owner contributed to most of the company’s success, and now that investment seems like it’s about to go down the drain. What are they going to do to pay this money back and grow the company without this owner? Instant Zero.

If there was a life insurance policy in place on this owner’s life specifically to protect this large investment, the business could continue and grow as normal. The life insurance benefit would replace the business value of the owner, so the company could hire another person with similar experience and move forward as planned. Back to Hero!

If an owner or key employee is invaluable to the business and contributes a great deal to its success, a life insurance policy should be obtained so that the venture capital investment is protected should this person die during the payback phase.

We are familiar with the underwriting process and the steps you must take to get coverage. While the underwriting process is not an easy task, it is definitely necessary and can be done if you work with someone experienced.  Not all insurers will even touch cases like this, especially when a start-up company wants millions of dollars in coverage and cannot show the experience or assets to back it up, other than this new investment. If you work with the right people, however, you’ll get covered.

Tech companies are extremely susceptible to this issue, as they don’t have many tangible assets to show, typically. The business owners are usually the main asset because they are the ones marketing the company and overseeing the day-to-day operations.

My very first VC case with a tech start-up involved many insurers declining the coverage all together, because of lack of assets, capital and experience. The owners were in a completely different industry before opening their business, and had no experience at all. Plus, they weren’t in the job field long. They were very young and this was their first adult job. Nothing was in their favor. After going through insurer after insurer, we finally found one who liked their “pretty picture,” and they were approved for a policy.

We specialize in assisting companies to obtain life insurance policies to protect their new venture capital investment. If you’re a start-up company, angel investor or venture capital firm and would like information on how to protect your investment, contact us today.