Venture Capital Asset Protection

What Is The Asset Protection Package?

The venture capital asset protection package that we offer is quite similar to our popular startup package, providing venture capital and private equity firms with market-leading directors & officers (D&O), errors & omissions incl. cyber, employment practices liability, and fiduciary liability insurance in one convenient package.

Directors & Officers (D&O) Insurance

Venture capital firms demand that startups buy D&O insurance before they agree to invest in them. That’s because someone from the VC will probably take a position on the funded company’s board and that person wants to be protected once they do. It’s no different for the directors and officers of any venture capital firm. Your organization’s leaders and their assets will be protected by a good D&O policy if claims related to misuses of company funds, misrepresentations of company assets, breach of fiduciary duty, and non-compliance are filed against them.

VC Errors & Omissions (E&O) incl. Cyber Insurance

VC firms and their executives and partners often provide professional services, such as consulting, to other companies and business leaders. E&O protects against claims that allege damages arising from professional services that you have provided.

Every company working online in any capacity today should have a cyber policy as well, but that’s especially true for VC firms that tend to invest heavily in technology. Cyber insurance protects your firm in the event of data breaches, cyber thefts, and phishing attempts and is packaged with your E&O coverage to offer protection from many of the modern perils VCs face.

Employment Practices Liability (EPL) Insurance

EPL insurance protects your firm and management from employment-related lawsuits such as sexual harassment, discrimination, wrongful termination, failure to promote, and more.

Fiduciary Liability Insurance

In venture capital firms, the fund manager of a limited partnership owes a combination of a duty of loyalty and a duty of care to limited partners. Fiduciary liability insurance is designed to protect your firm from claims of mismanagement and the legal liability arising out of your fund manager’s role as a fiduciary.

Who Is Venture Capital Insurance For?

The venture assets protection package is for all venture capital and private equity firms that want to effectively mitigate and transfer the many risks that these types of companies face via one efficient and sophisticated insurance package.

Private equity and venture capital firms have increased in visibility over the last decade with the boom of tech startups. High-growth companies no longer look to angel investors or banks to get the money they need to grow their businesses since they often need large amounts of money in order to grow as quickly as they need to grow in order to get an edge over the ever-increasing number of serious competitors.

Instead, they partner with private equity and venture capital firms to get the millions of dollars they require to make the fast and impactful moves needed to be successful in today’s startup environment.

Private Equity vs. Venture Capital

So what’s the difference between private equity and venture capital firms? Private equity means that there is a shared interest in a private company, one that’s not publicly listed or traded. The industry relies mostly on pension funds and other types of institutional investors that can provide serious financial backing for these companies.

When it comes to getting funded by a private equity firm, it’s a complex process. It’s a long-lasting process in which large amounts of money are pooled over long periods of time. The end goal of most private equity firms is to make a success out of the private company that they are funding and then resell the company to another firm or wait until the company goes public in order to cash out and make a profit.

Venture capital firms are also commonly funded by large financial institutions or by private investors who have done very well financially. Even though the risks involved in funding high-growth startups and other companies are significant, the potential payoff is usually worth it for VCs. On top of that, venture capital directors and officers will have a significant say in how the company is spending their money and what steps are being taken to grow the company effectively.

Because of this, VCs will often play a much more crucial role when it comes to guidance, mentorship, and decision-making than you would typically see from a private equity firm. Many VC investors have already grown and sold very successful companies and tend to invest in companies in industries in which they have already succeeded, which makes their expertise and knowledge invaluable to startup founders.

Venture capital firms and private equity firms face risks that are very unique, which means that they need insurance coverage that is equally unique and tailored to these needs. The reason these risks are so unique is that these types of firms face potential claims from a huge variety of sources. VC and PE firms can be sued by employees, firm partners, portfolio companies that they have invested in, federal regulators, and the list goes on.

Why Do VC Firms Need Insurance?

Venture capital and private equity firms can face claims from many different sources; employees, partners and limited partners, portfolio companies, regulators, and more. In the world of venture capital and financial institutions in general, litigation is often very complex, which means it’s also very expensive.

The venture capital asset protection package will respond to a variety of claims that can be filed against your firm and management, paying for all associated legal fees, as well as judgments and settlements.

As already mentioned, when they invest in a startup, VCs will join the company’s board of directors in order to act as advisors. This opens them up to a variety of litigation, especially claims of management failures or investment failures. These so-called “portfolio risks” can expose VCs to anything from regulatory fines to intellectual property infringement lawsuits.

Venture capital leaders who join the board of a startup also open themselves up to a plethora of operating risks. This means that as they continue to participate in growing the startup’s team, they run the risk of experiencing employment practices liability claims such as lawsuits related to alleged acts of harassment, failure to promote, or wrongful termination.

Furthermore, becoming a limited partner can open you up to fiduciary responsibilities and risks that come with being someone who is responsible for the management of various funds.

What Does The Asset Protection Package Cover?

This bundle includes policies that are packaged together to ensure that adequate coverage is provided for the unique exposures of venture capital and private equity firms including, but not limited to, the following:

• Claims filed against management related to misuse of company funds, breach of fiduciary duty, non-compliance, and more. These types of claims would be covered by a directors & officers insurance policy.
• Claims related to professional services or the failure to provide them as needed, which would be covered by a technology errors & omissions policy.
• Claims and other financial damages arising from cyber attacks such as data breaches and social engineering attacks, covered by a cyber liability policy.
• Fiduciary claims related to the management of funds protecting directors and officers and other related entities that fiduciary liability insurance would protect against.
• Claims related to employment practices wrongful acts such as harassment, discrimination, wrongful termination, failure to promote, and more. The legal costs and potential settlements in such cases would be covered by an employment practices liability insurance policy.

What’s Not Covered?

While this package does give venture capital firms expansive protection on some of the most important fronts, there are still other business insurance policies that any type of financial services firm would need regardless of industry and size, including the following:

Commercial Package Policy (CPP)

This package policy usually includes general liability, commercial property, and business interruption insurance. While most smaller businesses with less sophisticated coverage needs can purchase a business owners policy (BOP) when looking for this type of essential coverage, the CPP will most likely be a better fit for the complex risks that a venture capital firm can face. These coverages help protect against claims arising from third-party property damage and bodily injuries and can offer financial support for fixing or replacing damaged property and equipment. CPPs are also very flexible and can be tailored to your VCs specific coverage needs.

Workers Compensation Insurance

This is required coverage for most businesses in every U.S. state but Texas. Workers comp covers employee injuries, rehabilitation costs, lost wages, and legal costs in the case of an employee claim related to a workplace injury.

Key Person Insurance

If there is a key individual in your VC firm that is vital to the success of your organization, a leader without whom the business would greatly suffer both financially and reputationally, key person insurance should be considered. A key person policy is basically a life insurance policy for a person or people in your firm who are deemed virtually irreplaceable.

Commercial Crime Insurance

Commercial crime insurance will reimburse your firm if money, securities, or any other tangible property is lost as the result of a criminal act. It covers crimes such as employee theft, robbery, wire transfer fraud, and more.

What Does Venture Capital Asset Protection Insurance Cost?

Costs are rarely uniform when it comes to business insurance because coverage needs and premiums are determined based on the specific risks of each business that applies for coverage.

When it comes to venture capital asset protection insurance, there are several important factors that need to be taken into consideration by the insurer during the process of calculating premiums, including:

Fund Size: The size of your VC fund influences a lot of things within the firm, including accounting requirements. The larger the size of your fund, the greater the risk, because the greater the number of companies you are working with, the more variables there are that are introduced into your investment strategies.

Investment Profile: The types of industries that you are investing in will always be very important to insurers when determining your insurance premiums. For example, VCs that invest heavily into risker industries such as cannabis and cryptocurrencies are going to pay more for insurance than those who strictly deal with the tech and software development startups.

Principle Profile: The principles of a venture capital firm are the senior members of the investment team. The amount of experience your team of senior investors has, their professional backgrounds, and their history of successful investments are all things that are closely looked at by insurers when putting together premiums for VC asset protection coverage.