Prevent Losses through Venture Capital Liability Management

Venture Capital Policies for Protection

Venture capital liability management policies offering well-rounded asset protection are the most effective way to handle significant risk. As the activities of venture capitalists continue to evolve and gain increased exposure, functional insurance policies are becoming imperative. Venture capital liability management reduces the exposure of venture capitalist firms to liability through transfer and migration of risk. Ideally, the venture capital liability management strategy will reduce risk in a cost-effective manner without neglecting any level in the hierarchy of the venture capital structure. A master policy for the entity level is an effective way to absorb suits from any partners or portfolio companies. Beyond the master policy, more specialized forms of coverage can further support venture capital liability management.

Monitor Risk and Develop a Plan

Most agreements of partnership within a venture capital firm require indemnification to partners for liability. Transferring indemnity to a separate entity - a third party - is effective in protecting returns seen by the fund. Portfolio companies should be using insurance service to establish Directors and Officer's (D&O) liability policies as part of their role in a venture capital. Services of a brokerage in professional liability insurance should be aimed at the protection of the fund, the firm's principals, the management company and any existing advisory board. The venture capital liability management plan is necessary for picking up when the other avenues of protection have failed or been exhausted. Venture capital firms who have established coverage at the firm level with targeted policies covering portfolio companies are reducing risk of loss when a portfolio company files bankruptcy. Keeping a policy coordinated at the portfolio company level aids in monitoring risk. Ongoing supervision of a venture capital policy is often as valuable as initiating the policy.

Rewards

Venture capital liability management is complex in nature due to the potentially high number of parties involved. Mergers & acquisitions policies and programs help bolster coverage with attention to reps and warranties, environmental liabilities, tax-related liabilities and any other liabilities correlating with the deal. The most common venture capital liability management policy will be built around four types of coverage: management liability insurance, management indemnification insurance, O&D liability insurance and E&O (professional services liability) insurance. The combination of policies at the venture and portfolio company level should be effective in mitigating a firm's most pressing liabilities. Procuring the appropriate types of coverage for a venture capital will benefit the managing partners. Confidence to obtain new funding - despite the risk of new exposure - helps firms to grow and see returns. Correct coverage offers protection and may be effective in lowering premiums when risk has been reduced. As a venture capital liability management strategy, savvy insurance policies and risk management services protect the capitalist and investments simultaneously.