Insurance Regulatory and Development Authority of India (IRDA) gave the green signal to insurance companies to invest in venture capital funds (VCs). Investing in VCs will expose the insurance companies to a huge amount of risk as VCs are high-risk high-return. The insurance companies will have to work out which VC they should invest and how much. The objective of the VC in which they would be investing should be very clear as it would be the deciding factor on the investment returns. The things to be checked are solvency ratio, percentage share in the venture capital, exit clause, and the management track record.
With the world economy facing a recession and economic giant USA adopting the fetal position, the VC concept that has been the driving force of the dotcom boom, has burst. Result: Nightmare for VCs.
Insurance companies will have a large corpus to invest in VCs. In which case, they should have decision-making rights in the VC. This is important to protect the insurer’s insurance customers.
