Indemnification in an SPA
Last updated
Quick Answer
Indemnification is the contractual mechanism by which a seller compensates a buyer for losses from breached representations, subject to a basket, a cap and a survival period.1,2
What it is
The package is a set of interacting limits: a basket or deductible sets the floor before any claim is payable, a cap sets the ceiling, survival sets how long claims may be brought, and carve-outs push fundamental representations and fraud outside those limits. Representation and warranty insurance reorganizes the whole package rather than merely lowering the cap.1,2
Operational context
What good looks like
Why It Matters
This is the part of the agreement that decides what a breach is actually worth. A generous cap behind a short survival period and a tipping basket may be worth less than a modest cap with dollar-one recovery.1
Term Family
Related concepts
Frequently Asked Questions
What is Indemnification in an SPA in venture capital?
The package is a set of interacting limits: a basket or deductible sets the floor before any claim is payable, a cap sets the ceiling, survival sets how long claims may be brought, and carve-outs push fundamental representations and fraud outside those limits.
Why is Indemnification in an SPA important for startups?
Understanding Indemnification in an SPA is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.T2-03 — ABA Business Law TodayAnnouncing the ABA's 2025 Private Target M&A Deal Points StudyABA Business Law Today(Indemnification is the contractual mechanism by which a seller compensates a buyer for losses from breached representations, subject to a basket, a cap and a survival period.)primary · T2 · deal-documents · document
- 2.T3-02 — K&L Gates2025 ABA Private Target M&A Deal Points StudyK&L Gates(Indemnification is the contractual mechanism by which a seller compensates a buyer for losses from breached representations, subject to a basket, a cap and a survival period.)secondary · T3 · deal-documents · document
- 3.T3-03 — Wagner HicksThe New Normal in Private M&A: Key Takeaways from the 2025 ABA Deal Points StudyWagner Hicks(Indemnification is the contractual mechanism by which a seller compensates a buyer for losses from breached representations, subject to a basket, a cap and a survival period.)secondary · T3 · deal-documents · document
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