Angus McRae had some interesting words about my post on healthcare issues for entrepreneurs so I thought I’d explore them some and make sure everyone got a chance to read his thoughts.
Two important points, I think, come from Angus’ comment. First,
Does the VC want to take on the fiduciary liability associated with becoming a plan sponsor?
And second,
In my mind the viability of the idea is dependent on the size of the VC’s portfolio and its willingness to take on the responsibility of managing the benefits of a varied group of employers.
Traditionally VCs have just provided money and insight and each portfolio company would make other decisions independent of other portfolio companies. Not too long ago, one VC (I’ve forgotten which one now - if you remember, post in the comments) acquired an executive recruiting firm so as to (presumably) help portfolio companies recruit better talent. This clearly leads to value creation for both the entrepreneur and the VC if better employees can be recruited more quickly for the startup.
I think this same thing applies to health care benefits. Having benefits isn’t a competitive benefit and doesn’t create value in the startup. It’s just another thing that distracts the entrepreneur from the important task at hand. The problem, though, may be this issue that Angus points out:
Insurers require there to be common ownership between the employers. This requirement may differ from carrier to carrier, but you should find the Internal Revenue Code definition of a “controlled group of corporations” to be safe ground.
Clearly I’m not a lawyer nor do I know the Internal Revenue Code. If this is the reason that this can’t happen, I think entrepreneurs and investors need to start lobbying their congressional representatives
for help in rectifying this situation.
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