Tain Capital Believe It's Vital to Have Some Form of Liability Insurance

Vancouver, British Columbia , September 16, 2015 (Newswire.com) - This has seen the demand for VC insurance rise significantly

Cory Austen - Managing Partner & Co-founder of Tain Capital said “we have been looking at India for some time now but as yet don’t have any portfolio companies in the country, however we expect that to change in the near future and feel that taking out a general partnership liability insurance is vital to protect our interests as it’s a country we are not overly familiar with but can see the immense potential”.

Venture capitalists are pouring funds in to Indian firms in hopes of spectacular returns, they are also exposed to unique risks. Funds can flow in and build a great company but disputes between VCs and investee companies are also on the rise. This has led to the demand for a unique insurance cover that protects venture capital and private equity funds.

India has seen huge inflows from domestic funds as well as foreign entities in early-stage investments. This refers to the first or second round of institutional investments in companies that adhere to the following 1) less than five years old; 2) Not part of a larger business group; 3) investment is less than $20 million. The amounts at a company level may not be eye-catching but it all adds up to big amounts. Venture capital investors are estimated to have pumped in over Rs 15,500 crore into Indian startups in 2015 (up to June end) as compared to Rs 14,800 crore in 2014. And deal sizes are getting bigger too.

Risk mitigation procedures are the need of the hour. Fund-raising for India has become more difficult as limited partners (LPs - investors) have intensified their scrutiny of who they should trust with their fund commitments. They are now looking much more closely at factors like team stability, general partners (GP — managers of the fund) track record and investment philosophy. Moreover, LPs are becoming more hands-on in order to pressure-test the quality of investments, assess their value upside potential and ensure liquidity at the time of exit. In this scenario, GPs need to work harder on their existing portfolios to demonstrate their value-creation ability and differentiate themselves on operational capability and realization with LPs.

Amit Agarwal, practice lead financial lines group, JLT Independent Brokers, explains that this type of policies bought by funds can be put in two buckets — policies to transfer risks of the VCs themselves and policies that they purchase for their investee companies.

“One of the most widely purchased insurance by VCs is general partnership liability insurance. It is a management liability product similar to directors and officers insurance with inclusion of cover for employee discrimination and financial losses to first and third parties. The policy provides protection to the past, present and future directors, officers, general partners, trustees, managing members and/or managers of a partnership and its subsidiaries,” he said.