The Leading Edge #002 - Wait, What's Risk Finance?

Weekly Word

Welcome to the second edition of Edge Management’s new weekly newsletter, “The Leading Edge”! Each week, we will cover topics across our industries of focus, and highlight the latest and greatest at the intersection of innovative insurance and finance.

We’d love your feedback on what you enjoy most about the newsletter and what you’d like us to cover in upcoming editions of The Leading Edge. We look forward to hearing from you!

What the Heck is Risk Finance?

What is one thing that every investment across the board – whether it’s in a stock, a company, a piece of real estate, etc. – have in common? Simple answer: risk. No matter where you want to invest your money, you know upfront that an investment involves risk. For founders and companies looking to attract investment, risk can mean a lot of different things, but is generally something that they would like to reduce, or at least control. After all, fewer risks typically lead to happier investors. A company’s ability to manage risks often depends on the tools it has at its disposal. While countless pages have been written about risk management techniques, Edge has structured solutions that enable our clients to use their company’s risks as the basis for funding.

Before we get too far into the weeds on how Edge’s approach to risk unlocks funding for our clients, a quick distinction between risk finance and risk management. For that, let’s take a look at an example of a first reaction to the Edge elevator pitch about what we do:

Person A: What does your firm do?

Edge: We are a risk finance consultancy that believes insurance can be used as an alternative form of capital.

Person A: Oh yeah, risk management, I know that field well. I have a cousin who works for a risk management group.

Edge [accustomed to this response]: Not quite. We do work with risk, but we take it to the next level. Our solutions use a company’s risks to actually unlock funding they wouldn’t otherwise have access to.

Risk management, according to Oxford Languages, is "the forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact". In plain English: figuring out which risks can hurt a company financially and putting a plan in place to control how much impact those risks can have.

Risk mitigation, on the other hand (according to how we do things here at Edge), goes a step further. We perform a complete risk analysis on our client’s technology, company structure, and business plan. What are we looking for in that analysis? Anything that investors will look at as a potential cause for concern. Remember: our main goal is to make our clients’ projects attractive from an investment perspective. Once we have completed the risk analysis, we rely on our 25+ years’ expertise in the specialty insurance space to structure and place coverages that mitigate the risks we have identified. Having those coverages in place helps ease investor concerns and ultimately enables our clients to secure much-needed funding.

Being aware of the risks your company may face and having a plan in place to manage those risks is important. But the ability to mitigate risks to ease investor concerns unlocks tremendous financial upside for companies. The Edge approach enables our clients to obtain funding that would have otherwise been very expensive, or unavailable, to them. Which is why it’s so important for founders to understand the difference between risk management and risk finance. And why we are considered industry experts in the risk finance space.

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