A New KPMG report has revealed that venture capital (VC) investment in Australian start-ups has reached a record-breaking $1.25 billion – a trend broker Gallagher said highlights the need for appropriate insurance to be in place.
According to the professional services giant’s Venture Pulse Q4 2018 on venture-capital trends, Australian companies forged up to 41 multimillion funding deals over the three months of the third quarter last year. The report also predicted substantial activity in VC funding, particularly in late-stage deals, in such sectors as autotech, healthtech, and fintech.
“For the first time we are starting to see a steady flow of major funding rounds over US$10 million, aimed at helping locally founded businesses take on global markets,” said Amanda Price, KPMG head of high-growth ventures and Australian start-up expert. “Overall, global VC investment for last year totalled $255 billion.”
Michael Herron, Gallagher national head of financial and professional risks, said VC beneficiaries need to take up appropriate insurance, as he warned that “the solutions that go hand-in-hand with these are more challenging to obtain than previously.”
Compliance requirements is one other factor VC beneficiaries must consider, including Australian Securities Exchange (ASX) continuous reporting requirements.
“Failure to live up to prospectus expectations or the delayed reporting of an earnings downgrade, for example, could lead to investors buying shares on less than full disclosure of information,” Herron said. “Those sustaining losses as a result may be encouraged by plaintiff law firms to join a class action.”
The resulting securities liability and litigations costs from these class actions are covered under an annually renewable directors’ and officers’ insurance program, while prospectus liabilities are typically covered by a one-off, single-premium policy, running for up to seven years. Gallagher, warned, however, that insurers have become more selective about the level of risk they will accept, often requiring answers to extensive lists of questions.
“The facts are all important and the broker narrative is key to insurers taking a more co-operative view,” Herron said.