Nearly half of founders of US VC backed companies believe they will not fall victim to a cyber-attack despite revealing they are discussing the threat with their backer more than ever before.
Digital business insurance platform Embroker surveyed a range of VC-backed startup founders for its new report, “2023 Cyber Risk Index,” which found said founders are discussing cyber insurance more than ever, with 83% talking to their investors and boards about cyber protection often or always — a 42% increase year-over-year.
However, even as the volume of cyber-attacks experienced by founders increases, nearly half believe they are unlikely to encounter one themselves going forward. This likely originates from inexperience: 72% of founders series C or further reported feeling it is somewhat/extremely likely they will experience a cyber-attack in the future, compared to just 40% of seed/pre-seed and 56% of series A/B founders who say the same.
Embroker added cyber-attacks are constantly evolving, and founders recognise the need to stay attune to the threat: nine out of ten believe malicious AI is a threat to their business going forward. However, with coverage in place, founders believe that in the event malicious AI comes for them, they are covered for it.
“Founders’ concern for their businesses is surprisingly low, perhaps due to the trust they have in their coverage,” the study explained. “Confidence in risk coverage increased 25% year-over-year, with 55% of founders believing that their policies would cover them in the event of a breach. However, concern is rising in other places: founders fear the impacts that malicious AI and disruptive technologies could have on their businesses.”
“Malicious AI is already prevalent and readily accessible, despite the fact that it is relatively new. As a result, insurance and other risk mitigation techniques must evolve to catch up,” said Embroker’s chief insurance officer David Derigiotis. “Cyber-attacks are vicious, no matter the size of the company. To combat these threats, we are witnessing founders progressively searching for reliable protections, including and beyond insurance policies.”
After experiencing the benefits of basic coverage, founders are increasingly upgrading to more comprehensive packages, resulting in 90% of businesses having protection in 2023.
“In the past year, founders have significantly increased their cyber protection; 39% of founders say this is a non-negotiable investment area for them, up from just 21% in 2022,” the study added. “Driving motivators like tension in foreign relations, inflation and hybrid workforces have fallen from the top of founders’ lists, suggesting that SEC regulations and customer trust are what companies are focused on. They are confident in the protections they are putting in place, but as troublesome technologies continue to surface, companies will need to adjust accordingly.”
Embroker added VC-backed founders recognise cyber protection as a necessity, not an option. “Cyber coverage is nearly ubiquitous among startups, and founders’ motivations for purchasing it are evolving,” it added. “Founders report accessing new benefits such as more easily securing funding, avoiding legal attrition and gaining customer trusts. Nearly half, 43%, said it eased their ability to secure funding, up from 36% in 2022. Many aspiring startups are purchasing coverage to prepare for the new SEC cyber disclosure regulations passed in July 2023 requiring accountability for the cyber protections of US and foreign based publicly traded companies.”