EV55_Day 03_Final Table

Sometimes you just need to put your money where your mouth is. We saw Warren Buffett take this approach recently with his $1 billion March Madness challenge (though the chances of anyone winning were cosmically low). Today, we’re seeing a similar approach taken by TigerText, the secure enterprise real-time messaging product whose disappearing and encrypted messaging products far predate that of Snapchat.

The Santa Monica company is targeting a number of heavily regulated industries like healthcare, legal, and financial services, making the reliability of its service of paramount concern. Rather than simply shouting from the rooftop the details of security features, TigerText is offering to indemnify its customers for up to $1 million against fines resulting from violations of HIPAA’s technical safeguards arising from sending and receiving confidential and protected health information (PHI) via the company’s app.

The dollar figure on TigerText’s guarantee may appear to be smaller than Buffett’s at first glance, but the company has more than 10,000 businesses and 3 million individual users as customers, making the potential liability nothing short of staggering.

TigerText has become a critical service for many medical professionals since the 2011 decision by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) to ban the use of traditional SMS for communication containing PHI. But nurses and physicians at more than 4,000 health facilities across the nation routinely use TigerText on their mobile devices and PCs to share sensitive information. Violating the JCAHO statute by using unsecured communications can result in a $50,000 fine for first-time violation and up to $1.5 million for repeat violations within a single year. TigerText is betting big that its clients won’t be paying those fines.

“No other secure texting vendor stands by their solution to this level, which is just one more way TigerText protects you and your patients,” says TigerText co-founder and CEO Brad Brooks.

TigerText’s guarantee smacks of the similar-sized insurance policies advertised by sharing economy companies Uber and Airbnb, protecting their drivers and their hosts against liability and damage to their property. It was a lesson the companies had to learn the hard way by first offering inadequate protection and getting nailed with disgruntled customers and ugly PR debacles. Given that historical context, TigerText appears savvy to take this step before being called to task for not standing behind its product.

TigerText is coming off a $21 million Series B round of funding in January of this year, but it’s unlikely that the company will be spending much of that cash on payouts against its $1 million guarantee. I say this not because I’m so sure of the reliability of TigerText’s security features, but more so because I’m confident the company has backed up this guarantee with a special-purpose insurance policy, although Brooks has not said so explicitly. The company likely pays a healthy premium to be able to indemnify its users, but doing so means it won’t need to be cutting seven-figure checks any time soon.

Matrix Partners’ Josh Hannah wrote a compelling article on Pando over the weekend about the challenges of tackling regulated industries. In some cases, this means fighting even to be allowed to operate in a category, or to change the status quo within an industry. In TigerText’s case,  it’s not the company so much as its end-users whose behavior is heavily regulated. Nonetheless, regulation represents a very real potential obstacle to the success of its business.

With today’s guarantee, however, Brooks has told his customers that they can focus on doing their jobs, while TigerText worries about the regulations for them.

[Image via WSOP]