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Indemnity cap

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Quick Answer

The indemnity cap is the ceiling on the seller's aggregate indemnification exposure for breaches of general representations.1,2

What it is

It sits above the basket and below the purchase price, and fundamental representations and fraud are usually carved out from it. Where representation and warranty insurance is in place the cap's role changes fundamentally: the seller's retained exposure collapses toward the policy retention, and the buyer's recourse runs to the insurer instead.1,2

Operational context

What good looks like

Why It Matters

Comparing caps across deals without knowing whether RWI was present compares two different things. Published median figures for the with-RWI case rest on law-firm restatements of a study table rather than on the table itself, so treat any single number as directional until the study is in hand.1

Related Questions

What is a specific indemnity and when does a diligence finding become one?

A specific indemnity is a dollar-one, usually uncapped promise covering one identified problem, sitting outside the general indemnity's basket and cap.

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Frequently Asked Questions

What is Indemnity cap in venture capital?

It sits above the basket and below the purchase price, and fundamental representations and fraud are usually carved out from it. Where representation and warranty insurance is in place the cap's role changes fundamentally: the seller's retained exposure collapses toward the policy retention, and...

Why is Indemnity cap important for startups?

Understanding Indemnity cap is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 1.T3-02 — K&L Gates2025 ABA Private Target M&A Deal Points StudyK&L Gates(The indemnity cap is the ceiling on the seller's aggregate indemnification exposure for breaches of general representations.)secondary · T3 · deal-documents · metric
  2. 2.T3-03 — Wagner HicksThe New Normal in Private M&A: Key Takeaways from the 2025 ABA Deal Points StudyWagner Hicks(The indemnity cap is the ceiling on the seller's aggregate indemnification exposure for breaches of general representations.)secondary · T3 · deal-documents · metric

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