Venture capital (VC) investment in Australian businesses broke all previous records in 2018, soaring to $1.25 billion, according to a new report from KPMG. The trend highlights the need for start-ups to have appropriate insurance in place.
The professional services giant’s Venture Pulse Q4 2018 on venture capital trends records multimillion funding deals with Australian companies in numbers as high as 41 over the three months of the third quarter last year.
“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,” says KPMG Head of High Growth Ventures, Australian start-up expert Amanda Price. Overall global VC investment for last year totalled $255 billion.
The report predicts market conditions will bring an element of investor caution to VC funding in 2019 but still anticipates substantial activity, particularly in late stage deals. The sectors expected to attract interest include
- autotech (autonomous vehicles, alternative energy powered vehicles, ride hailing)
but “in Australia the diversity of the start-ups being funded is testament to the scale of economy and opportunity”, Price says.
Gallagher National Head of Financial and Professional Risks Michael Herron stresses the need for VC beneficiaries to obtain appropriate insurance. “The solutions that go hand in hand with these are more challenging to obtain than previously,” he warns.
Another factor to consider is compliance requirements, 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 says. “Those sustaining losses as a result may be encouraged by plaintiff law firms to join a class action.”
Securities liability and litigation costs arising from these class actions are covered under an annually renewable directors and officers’ (D&O) insurance program. Prospectus liabilities are typically covered by a one-off, single premium policy, running for up to seven years, but insurers currently are 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 cooperative view,” Herron advises.
This subject is explored in greater detail in the latest Gallagher Market Overview Report, Reflecting on a year of change. The report is available as a digital download.