Jamie and Ahmed co-founded a B2B software company in Seattle that helps logistics companies track shipments. After eighteen months of building with angel money, they signed a term sheet for a priced seed round. The lead investor would take a board seat.
Buried in the term sheet: the company must carry directors and officers insurance of at least $1 million, naming the investor's board designee, before closing. Closing was two weeks out.
What they asked for
D&O coverage by the closing date.
What the review found
They needed D&O, and they needed it structured correctly. Directors and officers coverage protects the company's leaders personally, and the company itself, against claims alleging mismanagement: from investors, creditors, competitors, or regulators. Investors require it because their board designee faces personal exposure by sitting on the board.
Side A mattered to the board member. The investor's counsel specifically asked about Side A coverage, which protects directors personally when the company cannot indemnify them, for example if it runs out of money.
Their first enterprise customer would ask for more. A large freight company was in a pilot with them and had sent a security questionnaire. Enterprise SaaS contracts almost always require cyber liability and technology E&O, which is professional liability for software. They had neither.
Nothing else was in place. No general liability, no EPLI. They had four employees.
What we put in place
We placed a private company management liability policy with $1 million of D&O, including Side A, B, and C coverage, a separate limit for employment practices liability, and fiduciary coverage for their future benefits plan. Buying the package at the seed stage cost less than adding each piece later.
We named the investor's board designee as the policy requires and sent the binder to investor's counsel five days before closing.
We placed a combined technology E&O and cyber policy, since the freight company's pilot would convert to a contract within months. The policy covers errors in the software, breach response, and liability for customer data at $2 million, the limit the enterprise contract required.
We added a small general liability policy for their shared office space.
Why it mattered
The round closed on time. Four months later, the freight company's contract arrived with an insurance exhibit, and the founders answered it the same day. The D&O was never tested, which is how it usually goes at the seed stage. What it did was let an experienced investor join the board without taking on personal risk, which is exactly why investors require it.
If you are raising a priced round
- Expect D&O as a closing condition once an investor takes a board seat
- Buy a management liability package; D&O, EPLI, and fiduciary together cost less
- Ask about Side A coverage; board members and their counsel will
- Line up tech E&O and cyber before your first enterprise contract arrives
See how we work with technology companies and startups. Term sheet in hand? Get a free policy review today.