[ljd]

Adverse Selection[1] is a big problem with insurance in general. Insurance of this nature has adverse selection problems in spades.

The people that think their startup is likely to fail will be most likely to contribute to the pool.

[1] http://en.wikipedia.org/wiki/Adverse_selection

[jekdoce]

A properly designed simple market would take care of this.

[ljd]

I'm not necessarily sure that I follow. How do you create a market for participant selection?