As a VC, your main goal is to deliver outsized returns on your portfolio investments. Many VCs in the region had initially taken a purely financial approach of seeding investment capital across a set of startups and letting them figure out the rest by themselves. With the startup ecosystem maturing, the most successful VCs are taking a more active approach by partnering with founders to mentor them and help them solve the hardest problems.
VCs are already well versed in risk assessments when it comes to portfolio companies. Product market fit, market size, team strength etc are all things under consideration as part of the selection process. What we are finding more common is that VCs are also considering the startup’s risk exposure to potential legal action. Founders are very much focused on driving their company and products forward, however are unaware of the need for legal risk mitigation. In our recent podcast interview with Ine Jacobsen from Cocoon Capital, she shared her thoughts on the very real legal risks startups face that might have detrimental impacts and bankrupt them.
When tackling big problems, it often requires risk taking. Whilst founders are the ones in public representing their companies, the investors behind the scenes are more often than not the driving force for innovation, speed and growth. Investors are just as much at risk of legal action from disgruntled incumbents or risk of formal investigation or enquiries by regulatory bodies that are not quite ready for change.
As a result, it is quite common to see VCs requesting their portfolio companies to have Directors and Officers (D&O) insurance as part of the closing conditions as early as the seed round. This insurance protects the company, founders, board members and management from any potential lawsuits or investigations that arise from their management duties. Investors holding board seats that are either passive or active in the company all see the importance this insurance has for their own personal protection and the companies.
When VCs request their portfolio companies to get D&O insurance, the startups are usually at a loss at where to start. D&O is not an insurance product that can be bought easily online. Whilst most insurers offer it, a lot of insurers shy away from startups as they are deemed too risky, especially those in fintech or medtech. Moreover, the insurance proposal forms are usually really tedious to fill out and some insurers even request a copy of the startup’s financials. This slows down the process for startups to get the insurance in place.
The other problem that most VCs encounter is monitoring the compliance across the whole portfolio. It is painful, manual and usually places unnecessary burden on operations teams, especially for funds that have a large number of portfolio companies.
Anapi is solving this with a tool for VCs to easily track and manage all the insurance policies of their portfolio companies. We have also partnered with a forward-thinking insurer to simplify the D&O insurance purchase process online to a mere few questions specifically for startups. Anapi’s offerings are helping to create a better protected world in the venture capital space. Reach out to us about our D&O solution for your portfolio.