Unlimited liability is not a legal position. It is often a pricing failure.

Many founders focus heavily on price, scope and payment terms.

That is understandable.

Those are visible commercial points. They determine revenue, cash flow and delivery expectations.

But one of the most important commercial clauses in a startup contract is often found much later in the document:

the limitation of liability.

Founders sometimes treat liability caps as legal detail.

They are not.

A liability cap defines how much downside the company is accepting if something goes wrong.

For startups, that can be a business-critical issue.

Liability should match commercial upside

A basic principle is simple:

Risk should be proportionate to reward.

If a startup earns a small amount from a pilot, proof of concept or early customer contract, it should be careful before accepting unlimited or disproportionate liability.

For example, a EUR 10,000 pilot should not casually create exposure that could threaten the entire company.

This does not mean the startup should avoid responsibility.

It means responsibility should be structured sensibly.

The contract should reflect:

• contract value
• product/service maturity
• use case
• customer dependency
• data involved
• security risk
• regulatory context
• insurance coverage
• and the startup’s ability to control the risk

A liability clause is not separate from the commercial deal.

It is part of the commercial deal.

Customer templates are designed for the customer

Many startups sign customer templates because they want to move quickly.

That can be practical.

But founders should remember one thing:

Large companies usually draft templates to transfer risk away from themselves.

That is not unfair. It is expected.

But startups must understand what they are accepting.

Customer templates may include:

• unlimited liability
• broad indemnities
• liability for indirect losses
• strict service commitments
• data security obligations
• audit rights
• termination rights
• warranties that exceed the product’s actual capabilities

A founder may think they are accepting a customer’s standard procurement process.

In reality, they may be accepting a risk allocation that does not match the size of the deal.

What is a liability cap?

A liability cap limits the maximum amount one party may have to pay for certain claims under the contract.

For example:

• total fees paid during the previous 12 months
• 100% of the contract value
• 200% of the contract value
• a fixed euro amount
• or a different cap for specific categories of claims

The right structure depends on the transaction.

A small pilot, a SaaS subscription, an enterprise implementation and a regulated health-tech deployment may all justify different risk positions.

The important point is that the cap should be intentional.

Not accidental.

Direct and indirect damages

Founders should also understand the distinction between direct and indirect damages.

Contracts often exclude liability for indirect or consequential damages, such as loss of profit, loss of business, loss of goodwill or loss of data, depending on the wording and applicable law.

This matters because some claims can become much larger than the contract value.

If a startup accepts liability for broad categories of loss without a cap, the exposure may become difficult to predict.

Founders should not assume that “we are a small vendor” protects the company.

The contract defines the risk allocation.

Carve-outs: not everything is capped

Liability caps often include carve-outs.

This means certain claims are excluded from the cap and may be uncapped or subject to a higher cap.

Common carve-outs include:

• confidentiality breaches
• IP infringement claims
• data protection breaches
• willful misconduct
• gross negligence
• payment obligations
• misuse of the service

Carve-outs are not automatically wrong.

But they should be reviewed carefully.

For example, an uncapped data protection carve-out may be inappropriate for a small pilot unless the startup fully understands and controls the risk.

Likewise, broad IP indemnities can become problematic if the startup uses third-party components, customer materials or subcontractors.

The question is not whether carve-outs exist.

The question is whether they are commercially justified and properly limited.

Liability and data

Data-related liability deserves special attention.

For SaaS, AI, health-tech and analytics companies, data is often central to the service.

If the contract includes personal data, customer data, sensitive data or regulated information, the liability structure should align with the actual data roles and responsibilities.

Founders should ask:

• Are we controller or processor?
• What data do we process?
• Are we responsible for customer inputs?
• Do we use subcontractors?
• Are there international transfers?
• What security commitments are we making?
• Is our liability capped?
• Are data breaches carved out from the cap?
• Does our insurance cover this risk?

Data clauses and liability clauses should not be reviewed separately.

They work together.

Liability caps and investor confidence

Investors care about liability exposure.

During due diligence, they may review key customer contracts and ask:

• Are liabilities capped?
• Are there uncapped indemnities?
• Do contracts include broad warranties?
• Are data protection risks controlled?
• Are customer templates heavily one-sided?
• Could one customer claim threaten the company?
• Are contract risks scalable?

The investor concern is not academic.

A startup with uncapped or poorly managed liability across multiple customer contracts may be riskier than its revenue suggests.

Recurring revenue is more valuable when the contractual risk is controlled.

How founders should think about liability

Founders should treat liability as a commercial negotiation point.

Before signing, ask:

• What is the contract value?
• What is the worst realistic downside?
• What risks do we actually control?
• Are indirect damages excluded?
• Is there a liability cap?
• Are carve-outs reasonable?
• Does insurance cover the exposure?
• Does this contract create a precedent for future deals?

The goal is not to remove all risk.

That is impossible.

The goal is to avoid accepting risk that is disproportionate to the commercial upside.

Final thought

Liability caps are not legal decoration.

They define how much downside the startup is willing to carry.

That is why founders should not review contracts only by looking at price, term and payment schedule.

The hidden question is often:

What could this cost us if things go wrong?

A startup can take commercial risks.

It should.

But those risks should be understood, priced and limited.

Because unlimited liability is not a legal position.

It is often a pricing failure.

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Senior Associate Marko Moilanen,

email: [email protected]

tel: +358 40 517 0002