Report Shows Founders Encountering Shifting Headwinds, Retrenching in the Face of Adversity

As VC-backed startups enter an unprecedented era of risk, a new report finds that rising costs, employee concerns and inflation weigh heavily on the minds of founders in 2022. The report, the Startup Risk Index 2022, released today from commercial insurtech Embroker, delves into the mindset of founders to understand the threats to their business and how they consider, plan and respond to them in a rapidly evolving market and fundraising landscape.

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The report cites a range of issues from those inside a startup to external factors that are often outside of their control. In 2021, 32% of startup founders identified the rising cost of business as impacting their operations. But in 2022, the majority of founders (26%) cited increased debt as the number one internal risk to their business moving forward. The top three external risks founders are concerned with in 2022 are inflation (26%), supply chain shortages and interruptions (24%), and competition (23%).

In response to these rising concerns, 30% of founders said that controlling growth was one of their primary strategies for mitigating risk.

It is clear that as founders think about business risk, they are willing to take personal risks to drive success for their startup, but only to a point. In fact, 33% of founders said they would be willing to sacrifice their pride for the betterment of their startup, whereas 33% claimed they would not be willing to risk their reputation in such pursuits.

Founders revealed the complex and at-times inconsistent relationship that they have with risk, as 63% consider themselves to be “risk averse,” while 65% later conceded that risk-taking is essential for business and necessary to grow.

“VC-funded startups enjoyed record fundraising and growth in 2021, but are now facing an increasing set of rapidly evolving challenges – including disruptions like public market instability, supply chain shortages, and inflation,” said Matt Miller, Embroker CEO. “Looking ahead to the remainder of 2022 and into the next year, founders will be forced to navigate new and emerging risks and make some hard decisions.”

“While the challenges of today’s business environment may portend doom, plenty of growth opportunities will arise,” continued Miller. “And if history tells us anything, founders are resilient. Founders are at their very core builders. In challenging economic conditions, things will break and need to be rebuilt or built from scratch.”

Founders Run the Risk Gamut: Risk Profiles

The report also explored how startup founders self-identify when it comes to risk. The breakdown of the different profiles of founders ranged from the fearless to the most conservative mindsets:

• 17%: I’m not afraid of risk and never will be. This is likely not my first startup.
• 38%: For me, risk means opportunity and I look for it on a regular basis. It is how I grow my business.
• 27%: I expect and prepare for risk. Risk is inevitable and I know what the consequences are and plan for any risks that may come my way.
• 12%: Taking on risk is a balancing act. I’m not afraid to take on risk but I need to have an adequate response should a risk occur.
• 4%: I don’t know yet as I’m a first-time founder. I want my startup to grow but I don’t know if I’m prepared to handle all these risks.
• 2%: I stay away from risk as much as possible.

Embroker developed a Risk Archetype Quiz as a free tool to help founders understand their individual risk tolerance and find out what kind of risk taker they are.

“Now is the right time for founders to look inside themselves and acknowledge their risk mindset. Identifying where they fall along this spectrum can help them learn how to balance both internal and external risks to strategically grow their business while protecting their bottom line, even as new risks begin to surface,” concluded Miller.

To learn more about the risks startup founders are willing to take to grow their business, visit: www.embroker.com.

Methodology:

For the Startup Risk Index 2022 report, Embroker surveyed over 500 U.S.-based VC-backed startup founders in February 2022. The survey was completed online and responses were random, voluntary and anonymous.

About Embroker

Embroker is transforming commercial insurance by making it radically simple for businesses to get the right insurance at the best price. Embroker focuses on industry-specific coverage for the most complex and inefficient lines of insurance, such as Directors and Officers, Employment Practices Liability, Cyber, and Professional Liability. Embroker uses predictive modeling powered by proprietary technology to automate underwriting and make the buying process simple, fast, and more affordable. Through Embroker Access, Embroker provides partner agencies and wholesalers with the capability to offer all of Embroker’s industry-leading insurance products to their customers. Founded in 2015, Embroker is headquartered in San Francisco and has raised more than $140M in funding from leading Fintech and Insurtech investors.

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