Insurance 101: What You Need, What You Don’t

sitting waiting for interview

When it comes to insuring your startup, the choices seem endless—and confusing. What types of insurance do you actually need, and how much? What can you skip? Daniel Struck, an experienced policyholder attorney and partner with the Insurance and Litigation Practice Groups at Culhane Meadows, weighs in.

Connecticut Innovations: Thanks for sharing your expertise, Dan. Let’s get right to it. What types of insurance coverage do high-tech startups need (keeping in mind that most are cash strapped)?

Daniel Struck: An assessment of the specific risks and liability exposures of any business is necessary to make accurate recommendations concerning that business’s particular insurance needs. Nonetheless, as a general matter, there are some commonalities in the insurance needs of startup companies. For any startup business, comprehensive general liability (CGL) insurance and property insurance (or possibly a business owner policy) likely are necessary. These two types of insurance are the most basic forms of business insurance.

  • CGL insurance provides coverage for claims for alleged third-party bodily injury, property damage, personal injury and advertising injury. In other words, this type of insurance covers claims by non-employees that a business or one of its employees has caused injury to a third party or to the property of a third party. Of particular importance, CGL insurance requires the insurance company to defend the insured for any such third-party liability claims. However, CGL policies also contain a number of exclusions that limit what would otherwise be the expansive scope of the policies. Of relevance to a high-tech startup, CGL policies generally contain exclusions for intellectual property claims, such as patent or copyright infringement. In addition, CGL policies almost always exclude cyber-related liabilities such as data breaches or the theft of personal, financial or business-confidential information.
  • In broad terms, property insurance provides coverage for damage or the loss of use of an insured’s property or business equipment as a result of a covered hazard. This is the type of insurance that provides coverage in the aftermath of a fire, a windstorm or some other casualty event. This type of insurance also may provide coverage for the business interruption (the cost of resuming operations and the loss of operations in the aftermath of an insured event). As with CGL insurance, however, property insurance typically contains exclusions and limitations that are relevant to a high-tech company. For example, the destruction or loss of data or the bricking of a device, particularly if that loss is the result of a ransom attack, is not likely covered under this type of insurance policy.
  • Some businesses (depending on size, the nature of the business and its risks, and other factors) may be able to purchase a business owner policy (BOP), which is, in general terms, a combination of a CGL and property insurance. If available, there may be cost benefits to BOP insurance insofar as the premium for a BOP is typically less than the cost of separate CGL and property insurance policies. However, those cost savings typically mean that there will be fewer opportunities for customization or endorsements responding to the specific risk profile of an insured.

In addition, for any business with employees, state law likely requires workers’ compensation insurance.

The insurance needs of a high-tech startup are different from the insurance needs of other startup companies. In addition to the basic forms of business insurance discussed above, high-tech startups also should consider purchasing the following kinds of insurance: (1) cyber/media liability, (2) professional liability/errors and omissions (E&O), (3) directors & officers (D&O) and (4) employment practices liability (EPL). In some cases, fiduciary liability insurance also may be important. Each of these types of insurance provides coverage for categories of risk that may be significant for a high-tech startup.

  • Cyber/media liability policies have a wide range of terms, but these policies typically offer a suite of insuring agreements that may include some or all of the following kinds of coverage: (1) privacy liability (covering potential third-party liabilities for the disclosure of private or business-confidential information); (2) data breach response (covering the costs of providing remediation such as notification, call center and credit monitoring in the aftermath of a privacy breach; (3) regulatory privacy violations (covering fines and penalties as the result of an unintentional breach of a privacy law or regulation); (4) first-party data recovery (covering the reconstruction or recovery of data following a covered event); (5) business interruption (covering the loss of operations and some costs of restoration in the aftermath of a covered event); (5) professional liability (covering claims that the insured committed errors or omissions in the course of providing technology-related professional services; (6) media liability (covering defense and liabilities associated with the publication/distribution of information); and (7) cyber-extortion (covering the costs of investigating and responding to a ransom attack). This list is not necessarily complete, and the scope of the insuring agreements provided under different policies varies widely. Given the range of policy terms and insuring agreements that are available, it is vitally important to be careful in selecting the cyber/media liability insurance form and insuring agreements that best fit the needs of an insured. But for a startup that is engaged in handling data, operates in the clouds, operates in the Internet of Things or provides a forum for exchanging information, the coverage provided by a cyber/media liability policy may respond to essential business risks.
  • Professional liability (E&O) polices in general terms cover the defense and liabilities resulting from claims that an insured or its employees committed errors and omissions/breaches of duty in the course of providing services to customers. For a business that interfaces with and provides services requiring special expertise or skill to clients, this type of insurance may respond to key risks. As noted above, this coverage may be offered to some degree in some cyber/media liability insurance forms. But it is important to be careful in selecting the E&O insurance that responds to the risk profile of a particular insured.
  • Directors and officers (D&O) insurance may seem like an unusual type of coverage to include in a discussion of insurance for a high-tech startup, but this can be an essential coverage for some businesses in the technology startup space. As a general matter, any business, public or private, that has officers and a board should consider D&O insurance to the extent that those key individuals may be exposed to claims that they committed breaches of duty in the course of acting as an officer or director. Moreover, it is good practice as a company grows to ask highly qualified or well-known outsiders to serve on a corporate or advisory board. The startup can benefit from the perspective of a qualified outside director. But an outside director almost certainly will require, as a condition of service, that the company backstop its indemnification obligations with adequate D&O insurance. Even if a startup decides to take the risk of going without D&O insurance, it is likely that such insurance will become a necessity as it brings in new management members and outside directors.
  • If a business has employees (or even if a business is exposed to the risk that its freelance contractors will be characterized as employees), it should consider purchasing employment practices liability (EPL) insurance. Among other things, this insurance covers the defense and liabilities associated with claims of discrimination on account of race, gender, orientation, nationality and age. For businesses that often operate in a highly charged environment and that have highly skilled and compensated employees, the kinds of claims covered by EPL insurance can be extremely expensive and may arise with some frequency.

This list likely appears somewhat daunting. And it is, because there are a wide variety of challenges facing businesses in today’s economic and legal environment. Just saying “we have insurance” is not enough—it does not mean that the business has the appropriate insurance. It is important to treat insurance not merely as an expense item but as a potentially important asset that should be incorporated into the strategic planning for any business.

CI: What type of insurance is a must, and what can startups skip?

DS: The discussion above points to the dilemma of trying to provide a list of “essential” insurance coverage for a high-tech startup. It is equally difficult to provide general rules about what types of insurance are unnecessary for a young company. The particular risks for which insurance is necessary vary from company to company, and there really is no one-size-fits-all answer. In addition, potential customers may require that a company have certain types of insurance.

Determining what insurance is a “must” or can be “skipped” really is a function of the particular footprint of the potential insured. Does the company have employees? Does the company operate in a particular place and have equipment, or is the company really based on the expertise and ideas of the founder? Does the company handle personal information or provide services in the cloud? Does the company produce a tangible product, or does it provide services? Are officers and directors of the company concerned about the preservation of their personal assets? Is the company subject to insurance requirements from potential customers or business partners? These are a few examples of the kinds of questions that must be asked in order to determine what insurance is a “must” for a young company.

 

CI: Should startups use an agent or broker, or go directly to a carrier?

DS: As discussed above, it’s important to select the type of insurance and the insurance form that are right for the needs of a business. In some lines of insurance, the available scope and limitations of coverage are fairly uniform. But in other insurance lines, such as cyber liability and technology E&O insurance, there are wide differences in the scope of the coverage offered by different insurers, and it is important to find the coverage that fits the needs of a business. For this reason, there really is not a simple answer to this question. In my view, the most important considerations in selecting an insurance advisor include: expertise and knowledge about the insurance market, the risks facing a business, and the scope and impact of available coverages; the good judgment to be able to provide meaningful counsel about evaluating risk, completing insurance forms and the difference between a perfect solution and a practical solution; and the level of trust in the reliability of an adviser.

 

CI: Which milestones should trigger a change in a startup’s insurance policies?

DS: Anything that changes the risk profile of a business should trigger a reevaluation of the business’s insurance program. Some of the events that can trigger changes in an insurance program were discussed above and include things like the addition of new employees, asking outsiders to join an advisory board or conducting business over the cloud. As new operations or markets are added, insurance needs may change. With growth and increased competition or visibility, insurance needs may change. Legal or regulatory changes may trigger a need to reevaluate an insurance program. The simple answer to the question is that the reevaluation of a business’s insurance program should be an ongoing project insofar as insurance is not just an expense item but is an important business asset that can be an element of strategic planning.

 

CI: Thank you, Dan.

DS: You’re welcome.

 

Daniel StruckDaniel Struck is a partner with Culhane Meadows and is part of the firm’s Insurance and Litigation Practice Groups. Dan advocates on behalf of corporate and individual insurance policyholders throughout the United States. Dan has represented clients in insurance coverage litigation and advocated on behalf of insureds in contested claims across the country, successfully securing the payment of defense costs, indemnification and first-party losses under a wide variety of circumstances. Reach him at dstruck@culhanemeadows.com.

Bioscience Entrepreneur on Innovation, Team-Building, and How His Company Stood Out in a Crowded Field

Per Hellsund

You asked for more stories about your peers—fellow Connecticut entrepreneurs who are making waves in their respective industries—and we’re thrilled to deliver. This month, Connecticut Innovations sat down with Per Hellsund, president and CEO of Cybrexa Therapeutics, a bioscience startup whose technology targets cancer tumors. (Connecticut Innovations is an investor.) Here’s what he had to say.

Connecticut Innovations: Thanks for agreeing to talk with us, Per. You’ve built several successful companies. What drew you to the startup route?

Per Hellsund: I’ve always been excited about the opportunity to develop innovative technology to solve problems, and the best innovation happens in startup companies, where people who are passionate about applying their expertise to solve a specific challenge come together, whether that problem is in engineering, tech or biology. The flexibility, collaboration and creativity of a startup environment uniquely enables teams to do more, particularly when faced with complex challenges, and to move much more quickly than in larger companies. The energy that accompanies this type of venture is amazing and has always been a draw for me.

CI: You went from leading an inkjet company to running several life sciences ventures. What made you take such a big leap, and how did you overcome the steep learning curve?

PH: For me, the tremendous potential of technology to improve health and extend life inspired my entry into the life sciences. I’m an engineer by training, so applying science to improve quality of life has always been my mindset. In life sciences, I am doing that with a new set of tools, including biology and chemistry. For me, it is critical to bring on world-class technical folks who can fill in the gaps in my skill set. I enjoy learning about new technologies, so the chance to work in a new field was energizing. Life sciences was poised for dramatic change given discoveries in university labs, and oncology in particular has benefited from these, with the immuno-oncology and cell therapy revolutions. Oncology is poised for its next wave of innovation to bring new benefit to patients who still have high unmet need. I was excited to start a company that will be part of that next wave.

CI: You’ve been with Cybrexa Therapeutics for a few years now. What was the biggest challenge you needed to tackle when you took the helm, and how did you solve it?

PH: Cybrexa’s technology, which leverages the pH difference between tumor cells and normal cells to deliver anticancer agents only to tumors, has high potential and broad applications. That broad opportunity set was a challenge for a startup company with limited resources that was looking to quickly establish the credibility of the platform, advance a product into clinical trials, and have the greatest possible impact for patients. In addition, we needed to clearly articulate a value proposition to investors in the very crowded oncology field.

I was fortunate to join with Cybrexa’s scientific co-founders, Peter Glazer, MD, PhD, and Ranjit Bindra, MD, PhD, who are both practicing physicians at the Smilow Cancer Hospital at Yale New Haven, faculty members at Yale and leaders in their field. With their help, we were able to look across all classes of anticancer agents and assess where Cybrexa’s alphalexTM technology had the potential to enable new therapies and change the standard of care. We were focused on two types of drugs: highly potent, efficacious therapeutics that were previously too toxic to be viable, and combinations of two different drugs that were known to have synergistic efficacy, but also had synergistic toxicity that prevented their use. We identified two classes of drugs for our initial focus: DNA Damage Repair (DDR) inhibitors and toxins.

We then recruited a truly phenomenal scientific advisory board—all are world-renowned thought leaders across a variety of tumor types and leaders in early drug development, and have decades of experience bringing drugs from the bench to the patient. With their help and all of the great work of the Cybrexa team, Cybrexa developed the alphalexTM technology platform, generated a lead program, CBX-11 (alphalexTM-rucaparib), that will file an IND by early next year, and a pipeline of preclinical candidates—all in a little over two years. That’s an incredible amount of progress.

CI: You’re adept at building high-impact teams. Can you give us some tips on how you go about it?

PH: I always look for new team members to bring more than just competence and being great at what they do. Fit with company culture and generally bringing energy, commitment, creativity and, most importantly, passion are crucial—as is maintaining an environment where these characteristics are encouraged and valued by leadership.

Things change quickly in biotech, particularly in startups. The ability to embrace change and learning agility are therefore important as well. So is the ability to think and work globally.  Although we are currently a 20-person company, we work with companies across the globe, sometimes on a daily basis.

CI: Our readers are interested in learning more about expanding beyond Connecticut’s borders. You have experience growing companies that end up with an impressive global reach. Do you have advice for getting noticed on a global scale?

PH: Considering all customers and resources in all markets from the very start of product development is important. At Cybrexa, we developed an understanding of standard of care across the globe as well as the unmet need from the physician, payer and patient perspective, which differs across countries. We seek the best vendors, collaborators and partners regardless of geographic location, and plan to commercialize every product globally.

CI:  What do you like about Connecticut as a place to start and grow a business?

PH: For a life sciences company, Connecticut has the ideal combination of highly skilled, experienced talent, outstanding research universities, proximity to venture capital and a reasonable cost base for facilities and equipment. Although Connecticut does not yet have the same high profile in biotech as our neighbor to the north (Boston), life sciences startups seeking to stand out in an ecosystem that supports innovation should consider Connecticut.

CI:  Thanks for your time, Per.

PH: My pleasure.

What You Need to Know About Non-Competes

white board meeting

You have trade secrets, and keeping them out of the hands of your competitors is critical to your business. But with ever-changing laws, not to mention recent criticism levied at noncompetes, are they still the best way to go? We asked experienced attorneys for advice. Here’s what they said.

 

“Noncompetes sound like a great idea for startups [because] they allow you to prevent employees who leave from taking the knowledge and experience they gained at your company and using it somewhere else. But the devil is in the details. Many jurisdictions view noncompetes negatively, because they don’t want contracts to stop people from getting work after they’ve left a job. States like California completely disregard any kind of noncompete language. Other states take a different approach, allowing noncompetes as long as they are reasonable. This generally means that noncompetes last for less than two years, are narrowed down to just other companies that directly compete with you, and apply only to a reasonably small geographic area. Even so, I recommend checking with the local state laws and court precedent to see what counts as ‘reasonable’ and whether noncompetes are even recognized at all!”

Zachary Strebeck is an attorney who works with video game and software startups at Zachary Strebeck Law

“Companies often require their employees to sign restrictive covenant agreements that include noncompete, nonsolicitation and confidentiality clauses. A noncompete prohibits a former employee from working for a competitor, while a nonsolicit typically prohibits a former employee from soliciting customers or employees, and a confidentiality agreement prohibits the disclosure of confidential information. The Obama administration estimated that about 18 percent of American workers are covered by a noncompete agreement, about 37 percent of American workers have worked under such an agreement at some point in their careers, and about 14 percent of American workers making less than $40,000 a year are subject to a noncompete. Congress recently passed the Federal Defense of Trade Secrets Act, which prevents the misappropriation or misuse of a trade secret. Many states also have their own trade secrets act.

“Because noncompete agreements impact the marketplace, courts carefully scrutinize these agreements. Due to the potential harm to both the company and the employee, these situations are often expedited, so noncompete cases proceed very quickly. To determine whether a noncompete is enforceable, judges evaluate several factors, which vary by state. These factors include how long the employee worked for the company and whether the employee received enough of a benefit for the noncompete, how broad the noncompete is in terms of time, geography and the restricted activities; the types of clients the company [has]; and the employee’s access to confidential information.

This area of law is constantly changing, and several states have recently passed new laws to restrict noncompetes, especially for low-wage employees.

“Companies concerned about protecting their vital information should craft creative agreements that evolve with the law and have strong remedies. Businesses should also determine their goals to help shape their agreements. Is the goal to prevent competition generally or with a specific entity? Is there a concern about losing clients or employees? And what do the restrictions indicate about the business to potential employees, clients and the general public? The answers to these questions can help companies determine the right agreement to protect their business.”

Amit Bindra is a partner and employment law attorney at the Prinz Law Firm

“There are better ways to protect your intellectual property. Noncompetes are treated under state business law. This means that what works for a noncompete is going to be different, sometimes extremely different, for each state. In the modern world, where startups often have virtual employees in many different states, this creates problems. The noncompete you write for employees in your home state might not hold up in the state court of your virtual employees. You can try to solve this with choice of law clauses, but these might not always hold up. State courts generally have jurisdiction over people working in their state, even if the companies they are working for are out of the state.

“Patents and nondisclosure agreements, however, are national. The same patent can be used to exclude a company in California or a company in North Carolina. Under the federal nondisclosure law signed by Obama, nondisclosure agreements can also be used across the country to prevent employees from sharing business secrets, even after they leave the company.

“If you use a noncompete, use it only for high-level employees. Courts have taken a dim view of lower-level employees (production line employees, for example) being forced to sign noncompetes. [Also,] the noncompete needs to be reasonable in geographic and time scope (what this means is different for each state)—a noncompete covering the entire world and all time will not work.”

Daniel W. Cole is an intellectual property lawyer and patent attorney with Olive Law Group

“One of the most common mistakes startups make when instituting noncompetes relates to timing. Generally speaking, noncompete agreements (and other restrictive covenants) must be supported by consideration to be enforceable. When hiring a new employee, the offer of employment provides the necessary consideration to support the noncompete agreement. But startups often neglect to use employment agreements of any kind early on, so it’s common for a startup to present noncompete agreements to employees after they’ve already been working there for some time. When this happens, it’s imperative for the startup to offer additional consideration—usually in the form of a salary increase, bonus or promotion—to ensure the noncompete is enforceable. The promise of continued employment is not sufficient consideration to support the noncompete.”

Mark Tyson is the founding attorney of Tyson Law, a business law firm

“Startups working with proprietary technology should include confidentiality and nondisclosure provisions in their employee contracts in addition to company policies. Many courts do not look favorably on noncompete provisions, and even when they are included, there usually must be limitations on scope, geographical area and how long the company expects the noncompete period to last. Courts will also look at whether there is additional compensation as consideration for the noncompete.”

Caroline Conway practices business and family law at The Law Office of Caroline A. Conway

Eric Rosow, CEO of Diameter Health, explains why building the right team is so critical to success, and how do you make it happen.

Eric Rosow, CEO of Diameter Health, explains why building the right team is so critical to success, and how do you make it happen.

 

Read full article: Connecticut Entrepreneur Talks Technology, Teams, and How He Applies a Concept Called “Swing” to His Business.

Connecticut Entrepreneur Talks Marketing, Sales and Why Big-Company Experience Doesn’t Work at Startups

brainstorm sketch on wall

Dr. Steve Shwartz is co-founder and executive director of Device42, a Connecticut Innovations portfolio company that was named the fastest-growing tech company in Connecticut from 2015 to 2017. (Device42 was acquired in early 2019 by a private equity group.) He’s also a serial entrepreneur, investor, patent holder and author of a book on artificial intelligence, and has participated in multiple IPOs and exits over the course of his career. In other words, Steve is exactly the type of entrepreneur one can go to for insight and advice. We caught up with Steve recently to get his take on hiring, marketing and why Connecticut is a great place to grow a startup.

Connecticut Innovations: Thanks for agreeing to talk with us, Steve. You have an impressive background as both an entrepreneur and an investor. Do you think there is a certain personality type that chooses the startup life instead of, say, working for an established company?

Steve Shwartz: Over the years, I’ve discovered that when I hire someone with only large company experience into a startup, they nearly always fail. Here’s why: First, people in large companies make decisions slowly. Decision-making [there] tends to be a very bureaucratic process. Startups can only succeed against established companies if they are nimbler. As a result, decisions in startups have to be made quickly. Big companies create committees that take forever to reach a conclusion. In startups, decisions are often made on the spot by individuals or in impromptu meetings that might last a half hour.

Second, jobs in big companies tend to be narrowly focused. Tasks are well defined, and anything outside an individual’s focus area is done by someone else. To some degree, in a startup, everyone does everything.

Third, in a big company, no one sticks their neck out or takes risks, because a mistake can get you fired. In a startup, mistakes are—or should be—expected and tolerated. Learning from mistakes is one of the ways startups find their way.

Finally, every employee in a startup has a significant impact on the company’s success. Therefore, it’s very important for startup employees to be highly motivated by that success. In a big company, an individual employee has virtually no impact on the success of the company. Too, employees at large  companies are often motivated by political gain rather than company success. Politicians coming into startups discover that the other employees quickly start to ignore them.

CI: Why did you choose the startup route?

SS: I got into startups accidentally. I had moved to the New Haven area to be an AI—artificial intelligence—postdoc at Yale. Roger Schank, a well-known AI professor there, decided to start an AI company and convinced me to be the first employee rather than pursue an academic career. I’ll always be grateful to him for that advice and opportunity.

CI: Why did you found Device42? What was the problem you saw that needed solving?

SS: I didn’t start Device42. It was started by Raj Jalan, and I joined him shortly thereafter as a co-founder. Raj had been a data center consultant helping customers perform digital transformations. Back then, it meant helping customers move to server virtualization and/or new blade architectures. Raj would ask his customers how all their IT assets, such as servers, network components and applications, were interconnected, but no one ever knew, so he would spend 60 percent of his billable hours figuring it out. He felt there had to be a better way, and that was the genesis of Device42.

CI: You’ve been at the company more than seven years. How drastically has it changed since you founded it, and what has been the biggest challenge so far? (And how did you solve it?)

SS: Raj and I started out by renting a desk at The Grove coworking facility in New Haven. For two years, we were a two-person company with a few offshore resources. We wrote code and sold systems over the internet. By the end of 2014, we had 80 customers in 20 countries—and had never met any of them. That was when we raised our Series A funding round led by CI.

For the first couple of years, we spent nothing on marketing. It was all organic search engine optimization; customers would find us via Google Search. Following the Series A round, we started buying Google AdWords, and that was our primary marketing focus for this past four years. Most of our customers came in through this direct channel. However, we were mostly attracting individuals and small teams in the IT department, and our average subscription sale was relatively small.

In order to continue doubling revenues every year, we realized that we couldn’t continue to rely on small sales. So we developed a channel program in which large global system integrators use our product to service their large customers. 
We had to do a lot of trial and error to find the right formula, and we were fortunate to have two very capable channel sales vice presidents who established the relationships.

CI: You have an impressive blog, with frequent, informative posts. Does the blog drive new business? What goes into managing the channel?

SS: We don’t have a lot of hard data on the effectiveness of the blog posts. However, my suspicion is that the blog posts have a much bigger impact on existing customer satisfaction than on customer acquisition.

CI: How else do you market the company’s products and services?  

Steve ShwartzSS: Oddly enough, we’ve had a lot of success without doing any marketing other than inbound marketing through Google AdWords. We just hired a vice president of marketing whose job will be to develop new marketing channels such as trade shows and analyst relationships, so stay tuned.

CI: What do you like about Connecticut as a place to start and grow a business?

SS: I’ve started a lot of companies in Connecticut and think it’s a great place to start a company. There are fewer qualified people for hire, but there is also less competition. There are also a lot of people who commute into New York City who are very happy to stop commuting for the right job.

CI: Thanks for your time, Steve.

SS: My pleasure.

Connecticut Entrepreneur Talks Technology, Teams, and How He Applies a Concept Called “Swing” to His Business

rowing crew in boat

 

In competitive rowing, there is a term called swing. It refers to an elusive feeling of near perfection and synchrony among a crew, in which all rowers in the boat are in a “symphony of motion” and there is no wasted energy. Eric Rosow, CEO of Farmington-based Diameter Health (Connecticut Innovations is an investor) and a competitor in the 1987 Pan American Games, is no stranger to swing, in rowing and in business. CI sat down with Eric recently to learn more about his company and his experience as a serial entrepreneur.

Connecticut Innovations: Thanks for agreeing to talk with us, Eric. You have experience working for large organizations as well as startups. What drew you to the startup route?

Eric RosowEric Rosow: I founded my first startup in 2000 after working at Hartford Hospital in biomedical engineering. It was an amazing experience to build a great organization. I had the good fortune to remain on board as a general manager and divisional vice president when we sold the company in 2008 to Eclipsys Corp., now part of Allscripts, a leading electronic health record company. But I found that I really missed the excitement of a startup. I’d seen firsthand what small, nimble and passionate teams can do to effect change in health care, and I wanted to try my hand again. So, in 2014 I bootstrapped what became Diameter Health with co-founder John D’Amore, another Eclipsys alumni. We joined UConn’s TIP program in 2015 and just closed our series A-1 with strategic investor Optum Ventures, which joined our original investors including Activate Venture Partners, Connecticut Innovations, Excelerate Health Ventures and LRV Health.

CI: Why did you found Diameter Health? What was the problem you saw that needed solving?

ER: In 2009 the government poured some $30 billion into promoting the use of electronic health records (or EHRs). We’ve largely achieved that goal in 2019, with more than 95 percent of hospitals and 90 percent of office-based physicians using an EHR. But the nationwide effort to move all health records from paper to the digital realm has created the unintended consequence of what we at Diameter Health call “clinical data disorder.” The symptoms of this condition are causing a lot of pain in our healthcare system. The most urgent “symptom” is a lack of what we call semantic interoperability between and among EHR systems. Even the government has taken note and has written rules that require health systems, practitioners and health information technology vendors to adopt standards that make these systems talk to each other. The goal is to make it possible to go from one healthcare service provider to another and have your medical history immediately accessible. But even with pipes laid down that connect health systems, we are still stuck with the issue that the way one provider documents is not the same as another. This makes it difficult for systems that depend on that data to do their work. For example, identifying gaps in care such as the need for a flu shot is impossible for a computer when some say “influenza vaccination” and others say “flu shot.”

“Diameter Health software is aimed squarely at solving the problem of all this variability so that we can truly optimize the use of digital data to keep people healthy.”

CI: What are some of the greatest challenges you’ve faced so far in starting and growing the company, and how did you address them?

ER: Determining the right product-market fit for your product and/or service, coupled with relentless focus and execution, are challenges throughout a company’s life cycle. In my experience, these attributes, coupled with managing tight cash flow and building a great team, are critical and especially challenging during the early years of a company. I’m super proud of how capital-efficient we’ve been as we scaled Diameter Health over the past few years, but I’m much prouder of the team we’ve built and continue to build throughout the company. In his book The Hard Thing About Hard Things, Ben Horowitz said, “One of the great things about building a tech company is the amazing people that you can hire.” While it can be extremely challenging to find and recruit the best talent, it’s the most rewarding aspect of being an entrepreneur.

CI: Diameter Health wasn’t your first foray into entrepreneurship. What did you learn from founding Premise that you carried over to Diameter Health?

ER: While it may be trite, I cannot overstate the importance of building the right team. Startups are team sports, and I believe assembling the right athletes, in the right positions, with a clear strategy and game plan is the single most important aspect of ensuring success for the customers, the employees and the investors.

CI: Entrepreneurs often have a hard time delegating. As an elite competitive rower, you have experienced a concept called “swing,” where all the rowers in the boat are in symphony and there is no wasted energy. How can founders get into swing with their teams and learn to let go and delegate?

ER: As a longtime oarsman and rowing coach, I feel that I have a built-in advantage as an entrepreneur and business leader. I consider the sport of rowing to be a metaphor for life since it teaches us that the core principles of teamwork, strategy, commitment, trust, empowerment, balance and execution are essential attributes to success. But more than simply a metaphor, competitive rowing offers practical tips for founders. A rowing team needs its members in the right seats, working together and doing the jobs they’re most suited to do. For example, the coxswain steers the boat and sets race strategy, the stern pair sets the pace for success, the bow pair in the front are responsible for the boat’s stability, and the engine room are the athletes in the middle of the boat responsible for the boat’s core power and propulsion. Founders should look for the right people, hire them and not be afraid to move them into the right positions if the initial lineup doesn’t work. I’m a big believer in Colin Powell’s advice that it’s key to hire for strength rather than lack of weakness. Once you get the right people, keep working on optimizing their contribution, so you will achieve the “swing,” where everyone’s synchronized and there is no wasted effort.

CI: What’s next for your company?

ER: Right now, I’m 110 percent focused on Diameter Health and working with this amazing team to realize our potential and build an important and impactful digital health company that supports the Institute for Healthcare Improvement’s Triple Aim framework by (1) improving the patient experience of care (including quality and satisfaction), (2) improving the health of populations and (3) reducing the per capita cost of health care.

CI: What do you like about Connecticut as a place to start and grow a healthtech company?

ER: Great quality of life, easy access to Bradley International Airport and train stations, great colleges and universities to draw interns and employees from, and a fantastic ecosystem of health systems and payers to partner with as we develop new products and solutions and validate market need.

CI: Thanks for your time, Eric.

ER: My pleasure.

 

How to Avoid Burnout

Employee Burnout

When we asked for advice about avoiding burnout, our inbox just about blew up. We received more tips on this topic than any other we’ve written about so far, and the emails are still coming. Read on for the best of the bunch, from entrepreneurs who have never lost their way to those who have succumbed but managed to reignite their passion. Then drop us a line and let us know how you stay resilient.

“As a serial entrepreneur and someone who’s managing multiple businesses simultaneously, I have firsthand experience with burnout—and how to avoid it. My top pointers: (1) Pare down to square up. List each month’s top 10 absolute must-do tasks. Whittle them down to three. Accomplish these first. (2) Don’t prioritize your schedule. Schedule your priorities. Ignore the rest. (3) Do something dissimilar. Cultivate an enjoyable discipline or hobby, which will refresh and reinvigorate.”
—Chetan Rao, co-founder, Wodehouse Tea

“As an entrepreneur who ended up in the hospital from adrenal failure, I have definitely been there. Business owners have to work long, hard hours, especially in the beginning. You would think I would have slowed down, but I still work 12–14 hours a day. The difference is the level of stress. If I’m working long hours without too much stress, and if I make the work fun, I can handle it. But you have to know your own body and when you need to slow down or stop. That’s a hard thing for a business owner to do. If you can’t figure it out, take frequent breaks. Do something mindless. It makes a big difference.”
—Julie Austin, CEO, Creative Innovation Group

“You may be tempted to cancel plans with friends, take business calls while out and about, or even spend family dinners on the computer—all to prioritize your business. But far too often entrepreneurs hit a wall and burn out by working this way. Having a work-life balance will increase your overall satisfaction and will likely lead to more productive time spent on work. The trick is to set a schedule for yourself and make sure you stick to it. Over time, you’ll start to focus on the most important work because you will treat your time off more seriously and will have to prioritize accordingly.”
—Siavash Ghazvinian, entrepreneur and owner, EthicalTree

“The advice I would give a founder on the edge of burning out is to immediately step away from work. It is much better to take a holistic attitude about trying to accomplish tasks over the long run than trying to cram too much work into a short period of time. Immersing oneself in work when in burnout mode is counterproductive.”
—David Reischer, Esq., CEO, LegalAdvice.com

“I’ve burned out twice, and am now more productive on a 40-hour work week. I work less but am substantially more productive. Silicon Valley has built an unhealthy culture of ‘hustling’ that looks good on the surface to investors and the market, but ultimately the quality and pace of output isn’t where it should be. Working smarter, shorter hours has led me to the most productive years in my career. I now operate two businesses and am at peak productivity.”
—Adrian Del Balso, CEO, Little Universe

“You have to learn to take a step back and ruthlessly prioritize. Here are two things I found particularly helpful: (1) Stop doing unnecessary work. Not everything you are doing is adding value. Have you heard of the 80:20 principle? It shows that with 20 percent of the work you can deliver 80 percent of the value. Take a look at everything you’re doing, automate what you can, and stop doing the stuff that isn’t adding value. (2) Be generous and give to others. I know it seems counterintuitive to add something to your already full plate, but trust me, it’s worth it. From my own experience, I have found volunteering to be hugely beneficial to my mental health and stress levels.”
—Claire Whittaker, product manager, Amazon UK; writer, Artificially Intelligent Claire

“Burnout was a constant struggle until I made a simple behavioral change: taking one day per week off from working. I tend to burn the candle pretty hot through the work week and then often much of the day on Saturday as well, but I take Sunday completely off. No email, no calls, no work-based productivity of any kind. For me, this day of ‘not being allowed’ to work is incredibly restful because I don’t have to worry about whether I need to be working. The decision has already been made, and now I can just enjoy the rest.”
—Grant Hensel, CEO, Nonprofit Megaphone

“The key to avoiding burnout, especially as your company grows, is the ability to delegate. If you want to grow, you have to learn to let go! One of the things that has helped us enormously is creating playbooks for each of the positions in our office. This is a full how-to, complete with screenshots, so it’s very easy to onboard new employees and ensure that what you expect from them is 100 percent clear.”
—Serena Holmes, president and CEO, Tigris Events Inc.

“This is a really important topic that has a bit of stigma attached to it. Being an entrepreneur is no easy feat. Before I start to burn out, I look for a little pick-me-up. It’s never a substance—rather, it’s a social interaction. My team members know I’m their leader, but that doesn’t mean I have to be rock solid 100 percent of the time. I have identified several team members who I’m able to turn to, each for a different purpose: one I go to for advice, another for a funny story or quick joke, someone else when I just need to blow off a little steam, and yet another when I need someone who’s always game for a little physical activity to reenergize. This strategy might sound simple, and it is. It is okay for a leader to be human and to need social support.”
—Reuben Yonatan, founder and CEO, GetVOIP

“My company, Robin, launched as a B2C startup in 2016. A little more than a year later we recognized that regardless of how much effort and how many hours we invested in making the business work, we simply didn’t achieve sustainable growth. Thus, we decided to transform Robin into a B2B business. In the process of admitting defeat…and starting from scratch, I experienced enormous stress, insomnia and even panic attacks, especially before meetings with investors. To get back on my feet and avoid a complete burnout, I [engaged in] substantial self-reflection, which resulted in a complete change of my personal habits. I started maintaining a sustainable routine that included eight hours of sleep, less coffee, less alcohol and a healthy balance between time invested in [work] and my personal life.”
—Adam McIsaac, CEO, Robin Media Inc.

“An extremely valuable process to learn about and perfect is time management. By moving your mindset from a constant state of trying to find more time (which is a major contributing factor to burning out) to understanding how to best structure your time, your conception of success could look a little healthier.”
—Kate Brodock, CEO, Women 2.0

“Prior to founding my business, I was involved in several early-stage, venture-backed startups. To say that I’ve ‘been there’ is an understatement! For me, the thing hanging between staying sane and balanced versus being burned out is avoiding the temptation to try to do everything. That meant drawing clear distinctions between which activities I or my team would manage, and which activities we were knowingly putting on the back burner. In my current business, we are focused on three key marketing areas: research, strategy and operations. The know-how exists internally to do a whole host of other marketing activities, everything from content writing to social media to PR. But we’ve learned to say ‘no’ and stay focused. Trying to tackle everything means no activity gets the full, undivided attention it deserves.”
—Laura Troyani, founder and principal, PlanBeyond

“Human brains were not designed to multitask. Focusing your mental energy can help you get more things done without burning out. I recommend starting each Monday by planning out your must-do projects and blocking out non-negotiable work time (in segments of 1.5–2 hours) on your calendar. You’ll be able to sprinkle in smaller to-dos throughout the week while ensuring you’re accomplishing the biggest tasks that are most impactful to growing your business.”
—Kara Fasone, PhD, co-founder and chief wellness officer, Wise & Well Academy

“Having been an entrepreneur for 20-plus years with three different businesses, I have been through several burnout periods. Most entrepreneurs I know are excited by new challenges, and when you are in the weeds trying to address those challenges, it’s the most thrilling part of being an entrepreneur. You may be working crazy hours, but the adrenaline and drive to solve the problem keeps you motivated and moving forward (well, that and lots of coffee and bourbon). It’s only after the challenge has been addressed and the post-surge hangover sets in that burnout starts to rear its ugly head. There are two ways I have found that keep this roller-coaster ride from turning into burnout. One is to cap my workload at 55 hours. After 45 hours, I’m not very productive, and I have found that the law of diminishing returns applies once I hit 55 hours. The second way I keep myself motivated is by never finishing a project without having the next challenge already in mind. For example, we recently revamped our product offerings and overhauled our website for the first time in four years, which was a big undertaking. But before we finished that project, I already knew that my next project would be implementing a better lead-gen process. I am really enjoying it, and it’s opening up new ideas and strategies, which I find exciting.”
—Jeff Kear, owner, Planning Pod

“Go to sleep with a clean mind (and inbox). I’m a big believer in not letting your inbox pile up, causing you stress overnight. Finish your work for the day, and then turn the phone off for a solid couple hours before sleep. Celebrate small wins. It’s super important to recognize the ups, because you are for sure worrying about the downs.”
—Adam Tishman, co-founder and CEO, Helix Sleep

“Avoid shiny object syndrome. As entrepreneurs, it’s so easy to get overwhelmed by all the social media platforms and marketing strategies out there. Trying to master them all will just lead to burnout. Pick a few strategies that play to your strengths, and focus on those.”
—Taylor Mack, owner, SilverFire Books; social media marketing strategist, Small Biz Refined

“Find the ‘why’ behind your business. If you’re just in business for the money, then you might as well have a job. Why did you start your business? What would your customers lack if you didn’t do what you do? I can honestly say that I could die tomorrow and know my life mattered because every single day I am blessed to impact my clients’ lives and businesses. They say when you love what you do, you never work a day in your life. That’s true. It’s not the coaching that wears me out—that energizes me! It’s the networking and selling and billing and collecting and taxes, etc.—all the stuff that’s NOT coaching. But then I come back to why I do that stuff—to impact people’s lives and businesses—and it’s all worthwhile.”
—Elene Cafasso, MCC, Enerpace, Inc., Executive Coaching

“It’s incredibly important not to forget about self-care. When you’re starting a business, you really do put every bit of yourself in it, and days can get extremely long. When I got an angel investor and was able to hire full-time staff, it reduced stress dramatically. I hired good people I could trust and offloaded responsibilities to them, and now am able to work a 40-hour week. Another thing is, treat yourself like you treat your employees. Take that darn vacation. The company will not fall apart without you.”
—Michael Sunderland, managing director, Full Stack Talent

 

“I founded a business in my parents’ garage after leaving a lucrative job in finance. I worked on my businesses for several years without seeing any reward, and on many occasions experienced burnout. I poured everything I have into my businesses. I have plenty of experience with managing stress and finding an effective way to recharge my batteries: (1) Delegate smaller tasks. I hired a part-time executive assistant purely to manage my calendar, emails and appointments. (2) Mandatory Sundays off. It’s the only way to get a real breather each week. (3) Start work early. I noticed that I am incredibly inefficient when I work later at night, so I force myself to go to bed relatively early so that I can get up at 5 a.m. The early morning gives me a chance to work without interruption. (4) Do not listen to podcasts. I used to incessantly listen to podcasts throughout the day, during my commute and when I got home. I noticed that they were contributing to my stress since they kept my brain constantly firing. I’ve since switched to music.”
—Jeff Rizzo, CEO, RIZKNOWS and The Slumber Yard

“We don’t take on clients or jobs that aren’t the right fit for us. We know who our customer avatars are, and if an opportunity presents itself that isn’t a great fit, we won’t take it just because the money is there. We won’t let money be the force that drives us to burnout.”
—David Gafford, founder and CEO, Fusion Creative

“I take a break during the day to take a walk or do a workout. While I’m walking I’ll listen to a podcast about entrepreneurship. The physical activity helps my body relax, and when I’m listening to an inspirational story from an entrepreneur, I get back to work energized and ready to face any challenges that come my way.”
—Raya Khashab, co-founder, EzClocker

“Psychology is without a doubt the hardest part of being an entrepreneur. I’ve been able to keep up my fighting spirit despite often working long hours. There are a few things that have really made a difference: Being passionate about the business itself, not the end results; taking care of my physical fitness with challenging workouts, enough sleep and a healthy diet, and having great co-founders and colleagues. Since you’re going to be working a lot, it’s really important that you enjoy spending time with the people you work with.”
—Jesse Nieminen, co-founder and chairman, Viima

Creating a Winning Funding Strategy

During the creation stage of your entrepreneurial journey, money shouldn’t really enter the transom of your mind in a significant way. But once you realize you’re onto something groundbreaking, a truly disruptive innovation, you’ll have to figure out the funding sources that will fuel your progress from starting block to finish line.

We asked some of the key players on the CI Venture Team—those responsible for evaluating investment opportunities, structuring investments and monitoring portfolio companies—for a look into their playbooks derived from steering hundreds of companies from entry to exit. The following article is a synopsis of their collective wisdom.

CAPITAL-RAISING MINDSET

Know What You Want

One of the first questions to ask yourself before you even begin to think about raising money is what you hope to accomplish with your company. Do you want a business that you can grow organically and control over the long term? Or do you want to grow fast, strike gold and move on to the next big thing? If your answer is the latter, then venture capital funding is probably your best bet.

Be Worth the Risk

Fundraising strategy is more art than science. Every situation is unique, and the variables are often unpredictable. However, at the risk of oversimplifying the challenge at hand—just build a great company with an ace management team and a compelling business plan in a large and growing market. Accomplish this, and you’ll have a solid inroad to potential investors.

Think Like an Investor

If you clear all the initial hurdles and get an opportunity to make your case to an investor—to explain why your emerging business will be one of the relatively few to succeed—remember that the goals and priorities of VCs may not be exactly aligned with yours. Pitching friends and family, and even angels, who may be rooting for you to succeed is considerably less daunting. With a VC pitch, you have to be prepared to up your game.

VC investors may be drawn in by your moxie and fascinated by your ingenuity, but they’re going to want to hear your realistic expectations for what you can accomplish in the near term and detailed projections of your path to an eventual big payout. Venture investing is a high-stakes business with a singular mission to maximize returns. For the VC, whether your company will change the world is just a means to an end. So, your pitch should be patterned to this messaging.

HONE YOUR PITCH PERCEPTION

You with Me?

Even if you’ve rehearsed your pitch to every friend, neighbor and unfortunate soul sitting next to you on the train, and you’re sure you’ve nailed it, you should develop a keen awareness of the receptivity of each audience you pitch. If you begin to see attention waning, shift gears. If you’re mired in financials, change things up—talk about your competitive edge or increase in repeat customers. Or pause to take a few questions to break up the monotony.

For an optimal fundraising strategy, you should always have multiple pitch styles ready to go to take advantage of unexpected opportunities to discuss your company. You should have a tight elevator pitch, a high-level 10- to 15-minute pitch, and a more detailed presentation for when you have 30 minutes or more.

Enough Said

The adage that you learn more from listening than from talking is one you should take to heart. Plan to spend half your pitch time presenting the problem you’ve identified and your unique solution, and use the other half to answer questions. A big mistake many founders make is getting caught up in the momentum of their pitch without leaving time to address investor concerns.

You should be prepared to respond to all manner of questions about your technology, the market and your business plan. And be ready to discuss the upside for your investors—how they’ll make their money back, the projected revenue growth rate, and the time horizon to a potential exit.

KNOW WHOM TO ASK AND WHY

Narrow the Field

There is a great deal of specialization among institutional investors, and funding from the wrong source can sometimes be just as perilous as not raising enough. VCs tend to focus on specific industries, geographies, fundraising stages and other factors. So, a scattershot approach just won’t do. When you’re creating a capital-raising strategy, it’s important to understand the investors and other players in your marketplace.

As tempting as it might be, don’t jump at the first offer. Take the time to evaluate prospective investors—you should be vetting them as much as they’re vetting you. Think through where you’re getting your money and make sure there’s good alignment with the source of your capital and what you want to do, how you want to do it, and in what time frame.

You should also find out what other companies are in the VC’s portfolio, keeping in mind that if the VC is holding companies similar to yours, that’s not necessarily a negative. It may be looking to create synergies. You may be able to gain an edge by discussing ways that your business will complement the other companies in the VC’s portfolio.

Find a Lead Investor

As you set out on each specific fundraising round, focus first and foremost on finding an experienced lead investor, ideally one at the helm of a strong syndicate with deep pockets and a sector focus that includes broad industry expertise and a network of contacts. This will make the process immeasurably more efficient. With a lead investor, you’ll have (a) the validation of an investor that has provided a term sheet and is willing to take charge of the round, and (b) a professional fundraising organization working for you to fill out the round. Once you turn over the reins, you can turn your full attention back to running your business—at least until it’s time to start finding a lead for your next fundraising round.

Consider Strategic Investors

Another fertile ground to consider for fundraising is strategic investors. These are large players, often the largest ones, in the very industry you seek to disrupt.

A strategic investor can share industry insight and even become your customer. Such an investor can provide a distribution platform to the extent that your product or service is value-added for their customer base. And you can gain access to their global sales force.

On the down side, if you’re working too closely with a strategic investor, you could find others reluctant to invest. Perhaps your strategic investor is a competitor of the investor you’re pitching. You may find that having a strategic investor on your capitalization table could tank your ability to work across the entire industry. Finally, working with a strategic investor might limit your options of viable candidates if your ultimate goal is a strategic sale. Once again, you have to carefully evaluate the sources of capital and all the potential ramifications.

Know What You Don’t Know

When you’re planning a raise, an important part will be building an experienced advisory board with industry experts that can lend valuable knowledge and a fresh perspective you might not have considered. Often your lead investor will be one of your best advisers because it’s someone who’s willing to put skin in the game.

The advisory team should include a few key constituencies: industry insiders who, through their contacts and influence, can open doors for sales. Others whose industry knowledge can help shape your product, service or company offering. Others may be able to open doors to investors or other sources of financing. As you’re planning out your raise, these contacts and connections will be vital.

A PATHWAY VIA MILESTONES

Everyone in the venture capital world talks about the importance of milestones—those specific, measurable achievements that create value and help ensure that your company can continue on its journey. But for investors, the real holy grail is traction, because the more traction you gain, the less risk your company faces, and the more enticing your next investment round will be. So, when you’re touting your milestones as the linchpin of your fundraising conversations, you should explain how each and every one increases traction and decreases risk for your company.

How you define those milestones will vary widely by industry, geography and fundraising round. Even within the same industry, investors will have different opinions. So, it’s best to get lots of input and leverage your network of contacts to make those determinations. Here’s where having the right advisers in place can be invaluable to help you craft the narrative to promote the next financing round.

For each raise, you should make a clear commitment to what you will accomplish with the money raised. And if you don’t hit those marks, it’s crucial to have a compelling reason why and back it up with the milestones you have achieved in the time frame. You should also be prepared for it to take more money and time than you think to hit your milestones. And be prepared for unexpected changes—the macro market can blow up the playing field and leave you scrambling to reset your priorities.

FUNDRAISING METRICS

When to Raise

One of the biggest challenges for entrepreneurs is knowing when to begin seeking outside investors. If you go out to market too early, without the appropriate traction, you’ll sacrifice your future credibility. Also, once you take investment money in exchange for an equity stake in your company,  you’ve started the clock on building the business for the purpose of delivering a return for investors. So be ready before you go there.

When the time is right, coordinate your fundraising outreach to align with an active pipeline of ongoing milestone wins. For each raise, you should be able to point to a few key traction-building, risk-mitigating milestones you’ve achieved as well as specific progress toward the next two or three milestones on the horizon.

Naturally, it’s easiest to raise money when you don’t need it. If you haven’t hit your milestones and your bank account is on fumes, it’s ridiculously hard to raise money. The broadly accepted rule of thumb for startups is an 18-month runway. That will give you 12–15 months to hit some strong milestones and three to six months to raise your next round.

How Much to Raise

Generally speaking, you should seek to raise no more, and no less, than you can put to work—although, if you’re offered more than you’ve asked for, you should take it. But then the onus is on you to employ the funds to maximum advantage. By the time you head out to fundraise, you should have a clearly stated rationale for how much money you’ll need to hit the specific milestones you’re striving for. And then, always build in a buffer to handle the unexpected—if you have to slow down because you run out of funding, you can lose crucial momentum that may be difficult to regain and you also open the door for a competitor to gain traction and pass you.

Of course, even with the best-laid plans you may find yourself tapped out. But it doesn’t have to be game over. You could just need more time. This is where a strong syndicate is so vital. If you come up short, existing investors can often provide a lifeline. With the latitude of some bridge funding, you may be able to get back on track and gear up to raise a more formal round at a higher valuation to attract new investors.

SOLVING THE DILUTION DILEMMA

When Less Is More … So Much More

The unanimous consensus of the CI investment team is that founders should not be overly concerned about dilution. Those focused less on losing control and more on raising the right amount of capital from the right sources will be more successful. Most really good founders and virtually all serial entrepreneurs are not distracted by concerns about dilution—they are focused on the big picture and the value they will own at the end. If it’s a blockbuster, everyone wins.

You will always need money and connections. And there is a cost in terms of sharing control. Once you take on investors, they may have voting rights and will most assuredly have opinions on a range of issues. But if you have a critical funding need and can strike a reasonable negotiation of terms, take the money!

BALANCING BUSINESS AND FUNDING NEEDS

The only way to balance running your business and raising capital is to figure out how do both. Unfortunately, the two are inextricably intertwined—without capital you won’t have a business, and if you allow your business to languish, you won’t be able to attract new investors. The most prolific founders and serial entrepreneurs either possess or have learned to cultivate both skill sets.

FINDING THE SPENDING SWEET SPOT

Ideally, as soon as you raise capital you will initiate a plan to put the money to the best possible use. Your goal should be to strike a balance between spending enough to ignite fast growth while not becoming reckless with investor money.

Managing your burn rate is an issue of tempering your grand vision with what’s practical. A good board and advisers can be tremendously helpful in this regard. Be open to stress-testing your assumptions with other points of view. Then factor all that in to figure out the proper expense level.

Remember your financial responsibility to your investors. Don’t hire too quickly. And keep spending to a minimum until you have proven traction with customers willing to buy your solution. Then you can consider accelerating spending on sales, marketing, social media, support staff and the like. And don’t overlook the fact that there is a great deal you can outsource—from HR, to back office, financial management, marketing and more.

You will always have to balance spending and growth and keep close tabs so you’re sure you’re generating results. With a formalized 12-month budget and a three- to five-year operating plan, you can easily and consistently monitor your progress.

FINAL THOUGHTS

We have some parting words of wisdom from the article’s contributors:

  • Be careful of the deal structure you put in place in early rounds. It could create obstacles down the road and turn off new investors.
  • Make sure you have good legal representation—and not just any Choose one who knows the VC business and has done deals before. That sort of expertise and advice will be expensive, but money very well spent.
  • The internet has great information. The National Venture Capital Association (NVCA) website has model documents and term sheet, which can be used as a starting point. Big venture funds also have great information on their sites.
  • Remember that funding a startup is largely about relationships. You have to be able to make human contact, no matter how smart you are. You might be the right person to start the company, but not the right person to fundraise or serve as CEO.
  • To be the most appealing to investors, you should have a laser focus on your defined target market and stick to it. If you’re targeting several customer types from multiple industries, your focus will look fragmented.

NOTE: Special thanks to the following CI subject matter experts who were interviewed for this article and whose insights are incorporated herein:

Peter Longo, Senior Managing Director, Investments
Alison Malloy, Managing Director, Portfolio Acceleration Services and Director, Investments
Douglas Roth, Managing Director, Investments
Daniel Wagner, Senior Managing Director, Investments

 

 

 

Cybersecurity Imperatives for Startups

Cybersecurity Imperatives for Startups

Incidents of cyberattacks and malicious hacking seem to be dominating the news cycle of late, but computer system crimes have been increasing since the late 1980s. Many of the early occurrences were not meant to be harmful—skilled young programmers, often on a lark, sought to challenge the defenses of cyberspace.

Today’s attacks, however, have been far more nefarious—like the May 2017 WannaCry ransomware outbreak that affected more than 200,000 victims in at least 150 countries. While such high-profile cyberattacks tend to grab headlines, it’s really small businesses and startup companies that are the most vulnerable targets for cybercriminals. Yet, due to inattention and lack of resources, these businesses often have the least-protected IT infrastructures.

SOBERING STATISTICS

A May 2016 cybersecurity survey published by smallbiztrends.com shows that, “small businesses are not only at risk of an attack, but many have already been attacked. 55% of the respondents said their companies had experienced a cyber attack and 50% had data breaches involving customer and employee information over the prior 12 months.”

Perhaps the biggest cybersecurity risk facing small businesses is their failure to recognize the potential losses they could face. Research published by Towergate Insurance indicated that, “82 percent of small business owners believe they are not targets for cyberattacks because they don’t have anything of value to steal.” But the reality is that even small businesses have a lot to protect including their intellectual property, brand, reputation, and customer information.

Furthermore, if a cyberattack results in significant system down time, that loss of income may be unrecoverable. U.S. Congressional lawmakers in proposing legislation to help small businesses have stated that, “60 percent of small businesses that suffer a data breach go out of business within six months.” And according to its annual Cost of a Data Breach Study, the Ponemon Institute found that the average cost of a data breach increased from $3.79 million to $4 million in 2016.

TYPES OF CYBERTHREATS

There are many different types of cyberattacks with new techniques continuing to evolve daily. While cybersecurity and IT professionals work tirelessly to uncover and neutralize malicious threats, hackers are doggedly working to expose and exploit new vulnerabilities.  While monetary gain is the most common motive for cyberattacks, disgruntled employees, vindictive competitors, angry customers and more can also pose a threat. The following list includes the most pervasive types of cyberattacks perpetrated today.

Malware is a broad term for a range of cyberthreats including Trojan horses, viruses, worms, spyware and the particularly notorious ransomware. These types of electronic infections typically enter systems via email attachments, software downloads or operating system vulnerabilities and often spread to other connected computers in a network.

Denial-of-Service/Flooding refers to attacks meant to intentionally overload a website or network with data requests as a means of crippling the system and blocking those with legitimate reasons to access system operations or functions.

Password Cracking efforts strive to discover passwords using techniques such as Brute force Attacks, which methodically try every password possibility one by one, Dictionary Attacks, which test various combinations of dictionary words and Keystroke Logging Infections, viruses that track user keystrokes.

Phishing usually employs an official-looking email or pop-up advertisement to entice customers or employees to click on a link and reveal their user names, passwords, account information or credit card numbers.

Man-In-the-Middle Attacks are a ruse whereby the perpetrator pretends to be both parties on either side of an online exchange. For instance, the criminal would trick a bank customer into thinking he or she is communicating with his or her online bank and once the customer logs in to the bank’s secure server, the criminal has full access to the customer’s accounts.

Pharming occurs when website visitors are redirected from a legitimate website to a bogus, imitation website. Once on the phony site, the customer can unknowingly share personal details such as credit card numbers and account information.

Inside Attacks can be the most disheartening for companies to face because they are the result of the deeds or misdeeds, whether malicious or unintentional, of their own employees. Disloyal and disgruntled employees in particular can pose a grave threat when their vindictive motives are unknown.

CYBERSECURITY SOLUTIONS

Once the various methods of cyberattacks are understood and the potential motivations for cybercrimes are explored, the question that remains is how small business and startups can protect themselves.  To that end, the Federal Communications Commission has provided the following guidelines.

Ten Cybersecurity Tips For Small Businesses

  1. Train employees in security principles. Establish basic security practices and policies for employees, such as requiring strong passwords and establish appropriate Internet use guidelines with penalties for violating company cybersecurity policies. Establish rules of behavior describing how to protect customer information and other vital data.
  2. Protect information, computers, and networks from cyber attacks. Keeping clean machines with the latest security software, web browser, and operating system is the best defense against viruses, malware, and other online threats. Set antivirus software to run a scan after each update. Install other key software updates as soon as they are available.
  3. Provide firewall security for your Internet connection. Make sure the operating system’s firewall is enabled or install free firewall software available online. If employees work from home, ensure that their home system(s) are protected by a firewall.
  4. Create a mobile device action plan. Mobile devices can create significant security challenges, especially if they hold confidential information or can access the corporate network. Require users to password protect their devices, encrypt their data, and install security apps to prevent criminals from stealing information through public networks. Be sure to set reporting procedures for lost or stolen equipment.
  5. Make backup copies of important business data and information. Regularly backup the data on all computers. Critical data includes word processing documents, electronic spreadsheets, databases, financial files, human resources files, and accounts receivable/payable files. Backup data automatically if possible, or at least weekly and store the copies either offsite or in the cloud.
  6. Control physical access to your computers and create user accounts for each employee. Prevent access or use of business computers by unauthorized individuals. Laptops can be particularly easy targets for theft or can be lost, so lock them up when unattended. Make sure a separate user account is created for each employee and require strong passwords. Administrative privileges should only be given to trusted IT staff and key personnel.
  7. Secure your Wi-Fi networks. If you have a Wi-Fi network for your workplace, make sure it is secure, encrypted, and hidden. To hide your Wi-Fi network, set up your wireless access point or router so it does not broadcast the network name, known as the Service Set Identifier (SSID). Password protect access to the router.
  8. Employ best practices on payment cards. Work with banks or processors to ensure the most trusted and validated tools and anti-fraud services are being used. You may also have additional security obligations pursuant to agreements with your bank or processor. Isolate payment systems from other, less secure programs and don’t use the same computer to process payments and surf the Internet.
  9. Limit employee access to data and information, and limit authority to install software. Do not provide any one employee with access to all data systems. Employees should only be given access to the specific data systems that they need for their jobs, and should not be able to install any software without permission.
  10. Passwords and authentication. Require employees to use unique passwords and change passwords every three months. Consider implementing multifactor authentication that requires additional information beyond a password to gain entry. Check with your vendors that handle sensitive data, especially financial institutions, to see if they offer multifactor authentication for your account.

EXPERT GUIDANCE

To lend further context to this vital subject matter for small businesses and startups, we’ve tapped a couple of industry experts who are in the trenches day after day and have seen more than their share of the cyber underworld.

Gilad PelegGilad Peleg is CEO of SecBI—Security Business Intelligence—a well-known organization in the cybersecurity field for its adaptive investigation platform designed to help security experts and organizations investigate, respond to and prevent breaches. Here are some of his thoughts:

Don’t Forget to Protect Your Most Valuable Asset—Your Idea

As Peleg pointed out, “Every startup’s main asset is its Intellectual Property. They usually invest heavily in creating it, and very little in protecting it! Startups work fast and in distributed environments employing myriad tools, platforms and locations (on premise, cloud, VPN and remote work) and often put less emphasis on security. Even little things like ensuring that their employees’ laptops are password protected and are not left in the car [should not be] ignored.”

Think Beyond the Basics

Peleg said, “Startups need to deploy the basic security controls such as firewalls, anti-virus, secure web gateways, etc.  However, deploying such systems is not a foolproof solution. Hackers might (and probably will) get through to access your network and possibly exfiltrate sensitive data. Today’s cyber security attacks utilize very advanced techniques that are extremely hard to detect, requiring great skill and expertise to perform what is called ‘threat hunting.’ Most startups do not have dedicated security personnel. This means they need to employ very efficient technology such as machine learning and artificial intelligence to enhance their security posture.”

Consistently Test Cybersecurity Systems

Peleg emphasized, “You can’t close all holes, but you can make a serious attempt to do as much as you can and then test yourself. Once all security controls have been deployed, utilize a solution that can quickly assess whether the network [has been] compromised or if there are active breaches or signs of data exfiltration.”

Yoni Shohet We also spoke with Yoni Shohet, Co-Founder and CEO of SCADAfence, a pioneering organization that delivers innovative cybersecurity solutions to the pharmaceutical, chemical, food and beverage, automotive and building automation industries.

As this article has stated, many startups underestimate their exposure to cyber threats. Shohet said, “Today, cybercriminals are able to gain financial benefits from hacking any organization – big or small. This is mainly thanks to ransomware attacks where the adversary takes control over sensitive data/devices and demands money in return. Any company that has Internet connected computers can easily become victims of such attacks where they can lose control over their intellectual property or sensitive customer data. Therefore, all companies must take the proper measures to ensure safety from these types of attacks—including proper backup of data, strict access control, strong authentication and encryption.”

Be Wary of Third-Party Vulnerabilities

As Shohet would point out to startups, “You are only as strong as your weakest link. This is true when it comes to third party vendors and your supply chain. Startups need to make sure that when they allow external parties to access their data, they should always make sure that they only have access to required information and that the maximum protection is put in place. This will allow these companies to better contain the potential damage caused by third parties.”

Start With the End In Mind

A final piece of advice Shohet offered is that, “Startups should build their own products with security in mind. This means ensuring that during the entire development life cycle that the products they develop are not vulnerable to attacks. For example, certain products cannot afford to risk an attack that might interfere with their operation or switch them off completely—such as lifesaving medical devices or smart home devices. Therefore, these products must be tested for security issues and vulnerabilities throughout the entire development process.”

FINAL WORD: MAKE CYBERSECURITY A TOP PRIORITY

As evidenced by the increasing number of cybercrimes targeting vulnerable small businesses, cybersecurity is a risk that startups must be prepared to actively manage. That means everyone in the organization—from owners to employees—must recognize the importance of protecting the company and its customers and be an integral part of the solution.

Does Your Startup Need Social Media to Thrive?

Does Your Startup Need Social Media to Thrive?

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If you ask any marketer whether social media is critical to building an audience, you’d be hardpressed to find one who would say no. Most brands have a presence on LinkedIn, Twitter and Facebook, if not Instagram, Pinterest, Google+ and Snapchat.

 

 

 

 

 

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