What’s in this Article
Your Series A term sheet arrives. Commercial terms are agreed. You’re ready to close. Then legal sends the draft investment agreement with Section 8.4: “The Company shall maintain Directors and Officers liability insurance with limits of not less than £5,000,000, effective from Closing and for the duration of the Investors’ investment.”
This isn’t a suggestion—it’s a condition precedent. Without D&O in place, the round doesn’t close. You have four weeks to arrange cover, provide proof to investors, and satisfy the requirement alongside all other closing mechanics.
This article explains what D&O insurance venture capital requirements actually look like, why investors mandate cover, typical limits by funding stage, and the practical workflow for arranging D&O that satisfies investor expectations without delaying closes.
Why Investors Require D&O Insurance
Venture capital and private equity investors mandate D&O insurance for three interconnected reasons.
They’re appointing board members who assume personal liability. When investors take board seats, their appointees become directors with full statutory duties under the Companies Act. Those directors face personal liability for management decisions, fiduciary duty breaches, and regulatory violations.
Institutional investors won’t allow their partners or principals to serve on boards without D&O protection. The personal financial risk isn’t worth the board seat, regardless of how promising the investment.
They want governance infrastructure in place as companies scale. D&O insurance signals that the company takes governance seriously. It’s part of institutional maturity alongside proper board processes, financial controls, and compliance frameworks.
Investors view D&O as evidence that founders understand director liability risk and have appropriate risk management in place. Companies without D&O look naive or reckless—not attributes investors want in portfolio companies.
They’re protecting their investment from governance crises. If directors face personal liability claims without insurance protection, the company often steps in to indemnify them (articles of association usually require this). That consumes company cash that should be funding growth.
D&O insurance transfers that liability risk to insurers, protecting the company’s balance sheet and preserving capital for operations rather than defending governance claims.
According to the British Private Equity & Venture Capital Association, approximately 95% of Series A and later funding rounds in the UK now include explicit D&O insurance requirements in investment documentation, up from approximately 65% prior to 2018—indicating that D&O has transitioned from occasional investor preference to universal funding requirement.
D&O Insurance UK: What Founders and Boards Actually Need →
What Investors Actually Require: The Term Sheet Language
Investor D&O requirements in the UK appear in term sheets, investment agreements, or shareholders’ agreements. The language varies but follows common patterns.
Typical term sheet provision:
“The Company shall obtain and maintain Directors and Officers liability insurance with reputable insurers in amounts and on terms customary for companies of similar size and stage, with minimum coverage of [£2-5 million], covering all directors and officers including Investor appointees, for the duration of the Investors’ holdings and for [6-7 years] thereafter.”
Key elements to understand:
Minimum limits specified. Investors state explicit minimums—typically £2 million at Series A, £5 million at Series B, potentially £10 million+ at later stages. These aren’t suggestions; they’re contractual minimums.
“Reputable insurers” or rating requirements. Some investors specify that insurers must be rated A- or better by A.M. Best or equivalent. This restricts which insurers you can use—many Lloyd’s syndicates and major insurers meet this threshold, but smaller or non-rated insurers don’t.
Coverage for investor appointees. The policy must explicitly cover directors appointed by investors, not just founder-directors. This is standard in D&O policies but worth confirming.
Duration requirements. Coverage must remain in place “for the duration of the investment” and often for 6-7 years after exit to protect directors from claims arising during the investment period that emerge post-exit.
Run-off or tail coverage provisions. If the company is acquired, investors often require that D&O run-off coverage is arranged, protecting directors from pre-acquisition claims that arise post-acquisition.
Proof required before closing. You must provide certificates of insurance evidencing coverage before the investment closes. The round doesn’t proceed until investors have verified D&O is in place.
Typical D&O Insurance Limits by Funding Stage
Clear patterns emerge across funding stages for D&O insurance Series A requirements and beyond.
Seed stage (typically £500k-£2m rounds): £1-2 million is common if investors require D&O at all. Many seed investors don’t mandate cover, viewing it as premature. But institutional seed funds increasingly require £1-2 million as standard.
Cost: £2,000-£4,000 annually. Affordable for companies post-seed funding and represents basic director protection.
Series A (£2m-£10m rounds): £2-5 million is standard. Most Series A term sheets explicitly require £2 million minimum; some specify £5 million depending on sector and investor preferences.
FinTech, healthcare, and regulated businesses face higher requirements (£5 million more common). General SaaS or e-commerce typically see £2-3 million requirements.
Cost: £5,000-£12,000 annually depending on limits, sector, and company specifics.
Series B (£10m-£30m rounds): £5-10 million becomes standard. Companies at this scale have material revenue, significant employee bases, complex shareholder structures, and heightened regulatory exposure.
Cost: £12,000-£25,000 annually for £5-10 million cover.
Series C and growth stage (£30m+ rounds): £10-25 million or higher depending on sector, international operations (especially US exposure), and regulatory complexity.
Companies with US operations or US investors often face requirements for £25-50 million due to US litigation environment and higher damages awards.
Cost: £25,000-£75,000+ annually, increasing significantly with limits and complexity.
The sector variable: FinTech, financial services, healthcare, and life sciences companies face higher limit requirements across all stages. Technology platforms serving regulated industries (banking, insurance, healthcare) also see elevated requirements.
Conversely, consumer apps, e-commerce, and non-regulated B2B SaaS typically see lower limit requirements.
Do Startup Founders Need D&O Insurance? →
The Practical Timeline: Arranging D&O for Fundraising
Investor D&O requirements create time pressure alongside closing mechanics. Understanding the workflow prevents delays.
Week 1-2: Term sheet signature to D&O initiation. Once the term sheet is signed, initiate D&O arrangements immediately. Don’t wait until final investment documentation is drafted—you’ll need 3-4 weeks minimum to complete the process.
Contact your insurance broker (or engage one if you don’t have D&O expertise available) with the term sheet D&O provisions. They’ll assess what coverage is needed and begin market approach.
Week 2-3: Proposal and underwriting. Complete the D&O proposal form—detailed questions about company structure, financials, board composition, shareholder structure, prior claims, and business activities.
Be accurate and complete. Misrepresentations can void coverage when claims arise years later.
Underwriters review proposals and issue quotations. For straightforward risks (no prior claims, clean business model, standard structure), quotes arrive within 1-2 weeks. Complex situations take longer.
Week 3-4: Quote review, negotiation, binding. Review quotes with your broker. Compare policy wordings, not just price—coverage differences matter more than premium variations of a few thousand pounds.
Once you select an insurer, bind coverage and arrange payment. Policies are typically paid annually upfront, though some insurers offer quarterly payment plans.
Week 4-5: Certificate issuance and investor delivery. Once bound, request a certificate of insurance specifically addressing investor requirements—naming investor board appointees, confirming limits, stating policy period.
Deliver the certificate to investors’ legal counsel as evidence of compliance with D&O requirements. This typically happens in the final week before closing alongside all other closing deliverables.
The critical mistake: Starting D&O arrangements in the final two weeks before closing. This creates avoidable stress and potential delays. If underwriting reveals issues (prior disputes, complex structures requiring manual underwriting), you may need 4-6 weeks, not 2-3.
Start immediately after term sheet signature to ensure D&O doesn’t become the bottleneck that delays closing.
Special Investor Requirements and Negotiation Points
Beyond basic coverage and limits, some investors impose additional requirements that create complexity.
Named insured provisions. Some investment agreements require that investors or their appointees be named explicitly as insureds on the D&O policy.
This is usually unnecessary—standard D&O policies cover all directors and officers by definition, including investor appointees. But if investors insist, insurers will typically add specific named insured endorsements.
Advance notice of cancellation. Investors may require 30 or 60 days’ advance notice if the D&O policy is cancelled or not renewed.
Insurers generally agree to provide this notice. Your broker includes the requirement in placement submissions, and insurers issue endorsements confirming direct notice to investors.
Limits dedicated to investor appointees. Rarely, investors request dedicated limits for their appointees separate from general director coverage.
This is uncommon and most insurers resist it—D&O policies have single shared limits for all directors. If investors insist, you may need to arrange separate excess or specific coverage for investor appointees at additional cost.
Run-off coverage mandates. Investment agreements often require that if the company is acquired or ceases operations, you must arrange run-off (extended reporting period) coverage for 6-7 years post-exit.
This is standard practice and should be agreed. Run-off coverage costs 150-300% of annual premium for extended periods (6-7 years) and is typically paid at exit from transaction proceeds.
Insurer rating requirements. Some institutional investors specify minimum insurer ratings (A- or better from A.M. Best). This restricts the market but is generally achievable—most reputable D&O insurers meet these thresholds.
If your existing insurer doesn’t meet rating requirements, you’ll need to switch insurers to satisfy investors. Factor this into timing—switching insurers requires new underwriting and can add 2-3 weeks.
The negotiation reality: Most investor D&O requirements in the UK are reasonable and market-standard. Founders can and should push back on unusual or onerous provisions (dedicated limits, excessive run-off requirements, unrealistic minimums for early-stage companies).
But the core requirement—arrange D&O with reasonable limits from reputable insurers—is non-negotiable. Don’t waste negotiating capital fighting standard D&O provisions; focus on commercial terms that matter more.
According to research from the UK Venture Capital Association, approximately 12% of Series A and Series B funding rounds experience closing delays directly attributable to insurance requirements (primarily D&O and cyber), with average delays of 2-3 weeks when insurance is initiated late in the closing process—demonstrating the importance of early attention to investor insurance requirements.
What Does D&O Insurance Actually Cover? →
Cost Allocation and Budgeting
D&O insurance fundraising costs affect the company’s operational budget and should be factored into fundraising use-of-funds planning.
Who pays? The company pays D&O premiums as a business expense. This isn’t negotiable—investors won’t pay for portfolio company insurance, and individual directors don’t pay (that would undermine the protection).
Typical annual costs post-fundraising:
Post-seed: £2,000-£4,000 for £1-2 million cover Post-Series A: £5,000-£12,000 for £2-5 million cover
Post-Series B: £12,000-£25,000 for £5-10 million cover Post-Series C: £25,000-£75,000+ for £10-25 million+ cover
These are material expenses but modest relative to total operational spend at each stage. A company raising £5 million at Series A and spending £8,000 annually on D&O is allocating 0.16% of raised capital to director protection—entirely reasonable.
Tax treatment. D&O premiums are typically tax-deductible business expenses, reducing net cost. Consult your accountant for specific treatment, but generally insurance for business purposes is deductible.
Budget for increases. D&O premiums increase as companies grow (higher revenue, more employees, more complex structures). Budget for 20-40% annual premium increases as you scale, not flat costs.
If you experience claims or regulatory issues, renewal premiums can increase significantly (50-100%+). Factor this into longer-term financial planning.
The Interaction with Other Investor Insurance Requirements
D&O is usually one of several insurance requirements investors impose.
Cyber liability insurance. Often required alongside D&O, particularly for technology companies handling data. Typical minimums: £1-5 million depending on stage and data sensitivity.
Key person insurance. Some investors require life insurance on founders with proceeds payable to the company. Less common in UK venture deals than D&O but occasionally appears.
Professional indemnity / Tech E&O. If the company provides services to clients, investors may require PI/E&O alongside D&O. The two policies cover different risks—PI for client claims, D&O for governance claims.
Property and general liability. Standard commercial insurance if the company has offices, equipment, or physical operations.
The coordination requirement: When arranging multiple policies simultaneously for fundraising, work with a broker who can coordinate placement and ensure policies interact properly without gaps or overlaps.
The Bottom Line
D&O insurance fundraising requirements appear in 95%+ of institutional funding rounds at Series A and beyond. Investors specify minimum limits (£2-5 million at Series A, £5-10 million at Series B, higher for later stages), require coverage from reputable insurers, and make D&O a condition precedent to closing.
The practical timeline requires 3-4 weeks minimum from term sheet signature to certificate delivery. Starting immediately after term sheet signature prevents D&O from becoming a closing bottleneck.
Typical costs range from £5,000-£12,000 annually for Series A requirements to £25,000-£75,000+ for growth-stage cover. These are material expenses but modest relative to operational budgets and essential for satisfying investor governance expectations.
Investor requirements beyond basic coverage—named insureds, cancellation notice, run-off provisions—are usually reasonable and market-standard. Don’t waste negotiating capital fighting standard D&O provisions.
The strategic insight: Investors require D&O not as bureaucratic compliance but as essential governance infrastructure. They’re appointing directors who assume personal liability, and they expect appropriate protection. Companies that treat D&O as afterthought or administrative checkbox create unnecessary friction during fundraising—arrange cover proactively, understand investor expectations, and eliminate insurance as a potential closing obstacle.
External Resources
British Private Equity & Venture Capital Association (BVCA). https://www.bvca.co.uk/research. UK trade body for private equity and venture capital, publishes research on investment practices and market standards.
UK Venture Capital Association (UKVA). Search for Investment Process Research. https://www.ukbaa.org.uk/resources/. UK angel and venture capital association, conducts research on early-stage investment processes and closing mechanics.
Simplify Stream provides educational content about business insurance for UK companies, especially those with high growth business models that require specialist insurance market knowledge. We don't sell policies or provide regulated advice, just clear explanations from people who've worked on the underwriting and broking side.
