You're closing your seed round. The term sheet is signed. Then your lawyer emails you: the investor requires Directors & Officers (D&O) insurance as a closing condition. You have two weeks.
This happens constantly. Here's everything you need to know.
What is D&O Insurance?
Directors & Officers insurance protects the personal assets of company directors and officers (founders, executives, board members) from lawsuits alleging they made wrongful decisions in their management role.
When an investor sues because they believe you mismanaged company funds, a regulatory agency investigates your data practices, or a terminated employee claims wrongful firing — D&O insurance responds.
Without it, your personal bank account is the backstop.
The Three "Sides" of D&O Coverage
D&O policies come in three "sides" — understanding them helps you buy the right policy:
Side A — Personal Protection Directly protects individual directors and officers when the company **can't** indemnify them (bankrupt, legally prohibited, etc.). This is the most critical coverage for founders personally.
Side B — Company Reimbursement Reimburses the company when it **has** indemnified directors and officers (the most common situation).
Side C — Entity Coverage Covers the company entity itself for securities claims. Usually included in startup D&O policies; essential after you raise a priced round with formal securities issuance.
For most startups: A combined ABC policy covers all three sides. Side A-only policies exist for publicly traded companies with specific structures — not what you need at seed or Series A.
When Do You Need It?
Definitely before: - Closing any priced institutional seed round (many angels require it too) - Signing enterprise contracts with D&O requirements (rare but increasingly common) - Hiring your first board member outside the founding team
Consider earlier if: - You have co-founders with divergent interests (founder disputes are a real D&O scenario) - You have advisory agreements with equity - You're operating in a regulated industry (fintech, health tech, edtech)
What D&O Covers for Startups
Specific scenarios that trigger D&O claims for early-stage companies:
Investor lawsuits: - Allegations that you misrepresented the company's financial position during the fundraise - Claims of self-dealing or conflicts of interest (e.g., founder loans from company) - Disputes over how funds were used post-investment
Regulatory actions: - FTC or state AG investigations related to data privacy - SEC inquiries if you conducted a Reg CF or Reg A+ offering - DOL audits related to your benefits plan (though Fiduciary Liability is a separate policy)
Employment claims (via EPLI endorsement): - Wrongful termination, especially after a significant pivot or RIF - Discrimination claims from employees or candidates - Harassment claims involving senior leadership
What D&O Does NOT Cover
- Fraud or intentional criminal acts (if proven — defense is covered)
- Bodily injury or property damage (GL)
- Professional mistakes in your technical work (Tech E&O)
- Contract disputes (though breach of fiduciary duty is different)
- Prior known claims and circumstances (a critical exclusion — get covered before you know of a potential claim)
How Much Does Startup D&O Cost?
Pre-revenue through early seed: - $1M–$3M limits - $2,000–$6,000/year
Post-seed through Series A: - $3M–$10M limits - $5,000–$15,000/year
Series B through Series C: - $10M–$25M limits - $15,000–$50,000/year
Factors that increase D&O pricing: fintech/health tech sector, prior regulatory issues, large board (more people to insure), and high ARR relative to headcount.
What Investors Actually Look For
When a VC sends you a D&O requirement checklist, they typically want to see:
- Policy from an A-rated carrier (Chubb, AIG, Hartford, Beazley, etc.)
- Limits of at least $1M–$3M for seed, $5M for Series A
- No material exclusions that would prevent coverage in obvious scenarios
- Company and the lead investor fund named as covered entities
Some sophisticated seed funds have pre-negotiated D&O form requirements they'll hand you at term sheet. We can review those and match you to compliant coverage quickly.
The Side A Only vs. ABC Decision
You'll sometimes see D&O policies marketed as "Side A only." For startups, you almost always want ABC coverage, because:
- Side B protects the company when it indemnifies you
- Side C protects against securities claims that can hit both you and the entity
- ABC is often not much more expensive at startup scale
Side A-only policies are designed for public companies where the entity already has its own board coverage at the corporate level. Private startup? Get ABC.
How to Close a Round with D&O Quickly
Two weeks is plenty of time — if you know what you're doing. Here's the process:
1. Get the investor's specific coverage requirements (usually 1 page in their legal docs) 2. Submit a startup D&O application (15–20 minutes) 3. Receive a quote (same day for standard startup profiles) 4. Bind coverage + get the policy number 5. Send the declarations page to the investor's counsel
We've helped dozens of founders complete this in 48 hours when needed. The time killer is usually the founder not starting until the last minute.
One More Thing: Don't Let It Lapse
D&O is claims-made coverage. If your policy lapses between funding rounds — common when a bridge takes longer than expected — you lose coverage for incidents that occurred while the policy was active but are claimed after the lapse.
If you need a coverage bridge between rounds, talk to us about tail coverage or a short-term extension. The cost is worth it.