To buy, renew, reword midterm, or trigger insurance for Venture Capital firms (VC Insurance): contact us. We contractually guarantee lowest cost within the global insurance marketplace for tailored coverage impacting IRR that we structure independently of any insurance broker or lobbyist. This includes changing and triggering the language of existing VC insurance bought from brokers or any insurance lobbyist.
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Intro to Insurance for Venture Capital Firms
Protection for venture capital firms comprises of different business insurance and protection items safeguarding the valuation of a portfolio company from physical, digital, and monetary misfortunes. There is an immediate relationship between the advantages of protection for venture capital firms and IRR. Such relationship turns out to be a lot stronger when protection is revamped and structured freely of any insurance broker, company, or lobbyist, so that it covers core risks and functional dangers of a portfolio company while delivering high payout proportions from insurance policies, which converts into quantifiable cash flow protection. After estimating the degree to which cash flow or income is secured, the dollar measure of safeguarded cash flow or income can be consolidated into the valuation models of a portfolio company influencing both liquidity and valuation of such portfolio company and at last IRR. There are a variety of commercial insurance products that can be reworded to protect the core risks of a portfolio company depending on the nature of its operations.
IRR Impact of Insurance for Venture Capital Firms
The impact of insurance for venture capital firms is similar in principle to that of insurance for private equity firms. The difference being VC firms may use different valuations methodologies than PE firms. Nevertheless, the premise is the same in that VC metrics entail measuring the probability of occurrence along with the severity of specific risks, which will yield an expected value of risk (EVR*) for each risk measured. The total expected value of risk (TEVR), which is the sum of all EVRs across measured risks, will have an impact on cash flow consistency and protection of growth, and therefore have a direct impact on the enterprise value of the portfolio company vis a vis others.
The insurance bought by venture capital firms will essentially have an impact on TEVR. Specifically, the amount and payout ratio (or inversely the basis risk) of the insurance relative to a specific risk will influence the severity of such risk, which will then impact EVR. For example, a cyber risk that has a maximum severity of $10 million (without insurance) will have a net maximum severity of $5,100,000 with cyber insurance of $5,000,000 entailing a deductible of $100,000 and a payout ratio of 100%. In this example, severity was reduced by ~50%, which would translate into EVR being reduced by ~50% assuming the probability of occurrence of such risk has not changed. That is a significant reduction in the magnitude of a single risk. If multiple measured risks can yield similar levels of reduction in EVR, then TEVR will be substantially reduced and will have a noticeable impact on Enterprise Value.
Why Venture Capital Insurance (VC Insurance)
Venture capital insurance is a form of investment insurance, which directly impacts IRR. The stronger and more consistent the operations of a portfolio company, the more operational resilience is achieved by the VC fund, which should be reflected in valuations through higher multiples.
Cost of Venture Capital Insurance (VC Insurance)
Venture Capital Insurance cost typically ranges from less than 0.5% to 2.5% of the limit of insurance depending on the size, type, and complexity of the firm, fund, or portfolio company. We contractually guarantee the lowest venture capital insurance cost in the global insurance marketplace upon managing the procurement of venture capital insurance. As part of our insurance management services, we perform insurance premium audits including commissions earned by brokers. Contact us.
Venture Capital Insurance Brokers
There are many venture capital insurance brokers ranging from Marsh, Aon, Willis, and thousands of others. However each venture capital insurance broker will be different depending on its distribution contracts with insurers as well as team. DeshCap specializes in conducting an insurance broker RFP to hire the most suitable venture capital insurance broker given the size, type, and complexity of your fund. It is also important to have insurance experts independent of any insurance broker or lobbyist change and trigger the language of venture capital insurance policies for best results on cost, compliance, protection, financing, and valuations. Contact us.
Disclaimer
This content is independent of any content coming from insurance brokers, insurers, law firms, or insurance lobbyists. Commercial insurance is rarely taught in schools, and when it is, it’s mostly done through the lens of brokers or insurers. There are many misconceptions around Insurance for Venture Capital firms, like many other topics in commercial insurance, due to bad habits acquired through over reliance on insurance brokers or insurers or information providers who are lobbied by them. It is also important to note that insurance has both an operational aspect and a legal aspect, on which we put weights of 95% and 5% respectively in terms of importance to protecting a business and its investors (the point is that going to court to enforce coverage defeats the purpose of buying insurance, so you want to make sure that whatever insurance you buy protects your organization right and pays out fast on large losses).
