When does a venture fund need insurance in place?
Before the fund starts taking investor money or a partner joins a portfolio company’s board, whichever comes first. If your investors have asked for insurance, their deadline sets yours. Start a few weeks ahead so there’s time to compare options properly. An investor’s requirement is the minimum they want to see. It doesn’t tell you whether the policy fits the way your firm works.
Why VC funds need insurance
A venture firm can face claims from three directions: from investors in its funds, from the companies whose boards its partners sit on, and from regulators. Different parts of an insurance program respond to each, even when the same partner is involved in all three.
Insurance pays for lawyers and for covered settlements or judgments, up to the policy limit. Without it, those costs can fall on the firm or on the partners themselves.
What a VC fund usually carries
Most venture firms look at two coverages first, often sold together on one contract as a general partners liability (GPL) or venture capital asset protection (VCAP) policy. Those are package names, not separate kinds of coverage. As the firm grows into a business with staff, bank accounts, and data, it adds the coverage any other business needs.
- D&O, for claims about how the firm and its funds are run
- E&O, for claims about the investment work itself, such as a disputed valuation or investing outside the fund’s stated guidelines
- Cover for partners who sit on portfolio company boards
- Cyber and crime, for a data breach or money sent to a fraudster
- Employment practices liability, once the firm has employees
Every fund has to be named
A venture firm is usually several legal entities: a management company, one or more general partners, the funds, and sometimes special purpose vehicles. A policy covers only the entities and people it defines as insured. Insuring the management company doesn’t automatically cover every fund.
When you raise a new fund, get it added before it starts investing. If you’ve had the same program for years, check that newer vehicles made it on.
What your investors’ requirement does and doesn’t tell you
Investors often send insurance questions or requirements as part of their diligence. Those tell you what they want to see. They don’t tell you whether the policy fits how your firm operates, which funds it names, or whether D&O and E&O share one limit.
Send us the exact request along with your entity chart and any current policies. We’ll show you how your coverage measures up and go to insurers for terms that fit.
What happens when the coverage doesn’t fit
Having insurance doesn’t settle what it covers. The public court record below involves other firms, not Cilantro clients, and each outcome depended on its own facts, policy language, and governing law.
Goggin v. National Union Fire Insurance
Two directors of U.S. Coal also managed separate investment entities. When claims were made about what they did in those overlapping roles, they asked for coverage under a D&O policy.
In November 2018, the Delaware Superior Court ruled that an exclusion for acts in an outside capacity applied to the claims tied to the investment entities. The ruling was about that one policy. It was not a finding of misconduct, and it did not say the directors had no insurance anywhere.
What we check for you: Every role your people hold, including board seats and other vehicles, and which policy covers each one.
Delaware Superior Court opinion, November 30, 2018Further reading
Background from insurers and regulators. These pages describe their own products and rules, and are not an offer of coverage from Cilantro.