Partners, employees, portfolio companies, vendors, and regulators can sue a company or its leaders, alleging failures in management or the provision of investment advisory services. This coverage is a unique blend of D&O and E&O insurance, covering defense fees and indemnification.
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Who is VCAP Insurance for?
Companies involved with venture capital or private equity firms face unique risks. Legal threats can come from all sides, including partners, employees, portfolio companies, vendors, and regulators, to name a few. Allegations of failures in management or the provision of investment advisory services often top the list of claims.
Additionally, companies and key individuals can face lawsuits if a third party experiences financial loss because of an act, error, or omission during the company’s performance of investment management services. VCAP insurance responds to these situations, covering defense fees, management indemnification, and professional services liability.
Private equity firms
PE firms provide financial backing to startups and operating companies.
Venture capital firms
Like PE firms, VC firms also providing financial backing and are involved heavily in business development
VC-backed companies
Limited partners, other partners, founders, and co-founders all face unique risks relating to investors — it’s the nature of the beast.
Why you need VCAP Insurance
Summary
Complex litigation is expensive, especially in the world of financial institutions. Legal threats can come from limited partners, employees, other partners, portfolio companies, vendors, and regulators. The policy responds to these disputes by paying legal fees and judgements/settlements from lawsuits alleging failures in management or the provision of investment advisory services. Here a few claim scenarios that illustrate why insurance is important for PE and VC firms:
Reasons for getting VCAP Insurance
Covers key individuals from liability related to the organization’s management
Protects against claims of investment or management failures
Covers legal fees and settlements regarding the company’s performance
Wrongful termination
Limited partners allege that the general partners wrongfully terminated the partnership agreement and sold the assets of its flourishing business to themselves through a newly formed entity. Since there was no auction or competing offers for the assets, those assets ended up being intentionally undervalued far below market value which enabled the general partners to buy them back at a bargain price. The limited partners allege that this constituted self dealing in breach of the general partners’ fiduciary duty.
Trade secrets & IP
One of three tech entrepreneurs who jointly developed a certain type of software which was just starting to flourish, allegedly canceled the company’s state registration without authority, shut down the existing company and started up a new one without the other two founders. The intellectual property was then moved from the old company to the new one. The two former founders filed suit against the new entity, its D&Os, and also the venture capital firms involved, for misappropriation of trade secrets, breach of fiduciary duty, aiding the breach of fiduciary duty, fraud and conspiracy
Dilution
Five founders of the company who once owned 40% of it allege that through the years a group of venture capital firms assumed management and engaged in a series of self-interested and dilutive stock offerings under terms that were grossly unfair to the common shareholders which resulted in them receiving less than $50k from an $80 million merger.
What Does VCAP Insurance Cover
You will have to consult your policy documents to confirm exactly what coverage your VCAP insurance provides but here are a few scenarios that typically would and would not be covered.
Management liability
Protects a corporation as well as its directors and officers.
Management indemnification
Protects managers in ways that other policies fail.
Outside directorship liability
ODL extends D&O liability coverage, protecting directors and managers who also serve on boards of outside entities.
Professional services liability
Offers liability protection for professional services.
Crime
Protects your company against specific money theft crimes.
VCAP FAQs
As with most commercial insurance policies the cost of VCAP insurance depends on a number of factors. Here are some of the main points that insurance carriers will take into account when calculating your premium:
Size of the fund: similar to public D&O being based off of market cap size.
Type of investments: VC investing in cannabis and crypto is going to be multiples more expensive than a VC investing in SaaS.
Principle’s experience and backgroun
How it works
Finding insurance coverage doesn’t have to be painful. We aim to make the purchasing experience as streamlined & intuitive as possible.
1
Get a quote
Use our custom built online portal to get quotes fast. We automate clerical tasks that plague the traditional insurance brokerages, giving us more time to be responsive and alert to your company’s needs.
1
Get a quote
Use our custom built online portal to get quotes fast. We automate clerical tasks that plague the traditional insurance brokerages, giving us more time to be responsive and alert to your company’s needs.
2
Pair with a specialist
No two organizations are the same. Our team of coverage experts partners with your team to engineer your risk management strategy, together. We take the time to understand the intricacies of your company to get you the best possible coverage.
2
Pair with a specialist
No two organizations are the same. Our team of coverage experts partners with your team to engineer your risk management strategy, together. We take the time to understand the intricacies of your company to get you the best possible coverage.
3
Stay one step ahead
To do better, you need to know better. With changing political, technological, legal and economic landscapes, staying ahead of the curve is critical.
Our in-house team is tapped into the latest developments of your industry, proactively ensuring you’re covered.
3
Stay one step ahead
To do better, you need to know better. With changing political, technological, legal and economic landscapes, staying ahead of the curve is critical.
Our in-house team is tapped into the latest developments of your industry, proactively ensuring you’re covered.
In our first post on venture capital insurance, we took a high level view of four scenarios where this management liability, professional liability, and employment...
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