Tech companies have developed a reputation for quick growth. With the potential of significant returns on successful investments, the appeal for venture capitalists and investors to invest in a technology business continues to grow.
In a continually changing environment tech companies need to act fast when reacting to market opportunities and quickly execute ideas into workable solutions before the competition catches on. This is why ensuring that you have the best talent on board is essential to the success of your business. However, shortages in skilled technical staff mean that savvy workers can command high salaries making it even more difficult for a fast tracked tech company to hire the talent they need, whilst balancing a healthy cash flow.
This is where investment capital can generally help assist tech companies with their hiring needs. That being said, offering great salaries alone does not necessarily guarantee the attraction of the best and brightest talent. Additional employee benefits such as private medical, dental, death in service, and enhanced pension contributions may all be considered to add to a job vacancy’s appeal.
Once you have created the winning formula with a top-notch team, you can then identify the key person or people whose expertise is vital to the company’s operations and future success.
If one of these key people were to die or suffer a critical illness (whether permanent or temporary), the business could either collapse or be so crippled that it would have to take a huge step back to reboot and rebuild. This is why investors will generally insist on arranging key person coverage on individuals whose skill, knowledge, leadership or experience contributes to the company’s continued financial success.
In this circumstance a lump sum payment would be made into the company’s account, for the business to use as they see fit to cover the replacement costs of that individual. Ultimately, providing the investors with peace of mind.
Investors do not solely invest in great ideas, VC’s invest in people. The big idea that will change the world, our behaviour, culture or the way we think is obviously key, but investors want to be sure that the team behind the idea has the skill and ability to deliver.
After all, the investors are not the guys who manage the day-to-day operations of the business, that’s the job of the management team, who are held accountable for the consequences of their decisions and actions taken whilst managing the business. It is therefore important to include some form of coverage for the Directors’ & Officers’ personal liabilities associated to negligence in respect of their managerial duties and it is common practice for investors to insist on this, to provide a safety net for their investment.
The common risk scenarios we see which are associated with management decisions include:
• Inaccurate or inadequate disclosure of financials
• Failure to comply with regulations or laws
• Mismanagement of funds
• Making decisions which exceed the authority that has been granted
• Employment practices and HR issues