Venture capital firms and their partners have unique exposures. HDFC ERGO’s Venture
Capital Asset Protection (VCAP) policy safeguards their reputations and investment
returns by mitigating potential losses.
The policy is a combined product offering management liability, management indemnification,
outside directorship and professional services liability insurance in one policy
- helping eliminate gaps in your insurance programme.
The following are some of the exposure that venture capital firms face as investors
and developers of emerging companies:
- Positions on Portfolio Company Boards: Active participation in
managing your portfolio companies is a hallmark of your firm, but there are risks
to be considered.
- Indemnification: To what extent does the indemnification power
of a portfolio company protect a venture capitalist serving as an outside director,
in particular, on the board of a portfolio company in the seed or early stage of
development?
- Down Round Financing: The perception created by down rounds may
be that the best interests of other parties are intentionally not being considered.
- Conflicts of Interest: Divergent interests may create scenarios
in which not all interested parties feel they have benefited to the fullest extent
possible.
- “Wash-outs”: Some situations create the perception that a venture
capital firm is acting unfairly and in its own best interest while breaching its
fiduciary duty to a particular portfolio company, its management and its investors.
- In-kind Distributions: An in-kind distribution is a highly anticipated
event. What happens if it doesn’t go exactly as expected?
- Bankruptcy: Declaring bankruptcy is a reality for some emerging
companies, but that reality can carry significant liabilities for the company’s
board of directors and business developers.
- Confidential information: How secure is confidential information
when it is being communicated via e-mail, fax or letter or while it sits on a partner’s
desk or in a filing cabinet?
- Employment Practices: In certain cases, new management is hired
to take a portfolio company to the next level. How does old management feel about
this?
- Intellectual Property: With thousands of new companies being started
the world over every year it is becoming increasingly difficult to be certain that
proprietary intellectual property has not already been ‘claimed’ by another.
- Initial Public Offering: Initial public offerings invite added
scrutiny by unaffiliated third-party investors of past and present financial information,
management decisions, the offering itself, etc, potentially resulting in costly
and distracting litigation.
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