Why should you consider boosting your D&O cover when you raise capital?

Each time your business raises capital, your risk profile changes. Directors’ & Officers’ (D&O) liability insurance protects your leadership team against personal liability from claims made by shareholders, investors, employees and the regulator.

When you seek investment or raise funds, it’s important to make sure that your D&O cover limits reflect your risk exposure.

Why is D&O insurance required?

Directors and officers of a company operating in any industry sector face a range of risks – and this includes personal assets if you were held responsible for an error made within the course of your business activities.

When you’re seeking investment or raising funds, investors usually insist that D&O insurance is in place before completing on a deal to protect their investment.

Why does raising capital for your business change your D&O exposure?

Each time you seek funding or raise capital:

• The number of people who can sue directors and officers increases
• The size of potential claims increases
• The scrutiny on management decisions increases

D&O limits before the fund-raising round are almost always misaligned with post-investment reality. Here are three reasons why:

1. More investors = more potential claimants
Each new funding round has the potential to add:

• New shareholders
• Different investor classes (VCs, strategic investors, sometimes overseas funds)
• Investors with different expectations and legal resources

If performance disappoints, strategy changes, or the company exits below expectations, shareholder claims are one of the most common D&O loss drivers.

You may not be more likely to be sued—but there are more people who can sue you.

2. Higher valuation = higher severity of claims
D&O claims scale with the value of your business. As the value rises:

• Alleged losses become larger
• Defence costs rise (specialist securities counsel, experts)
• Settlements/judgments increase proportionally

A £5m D&O limit that felt sensible at a £20m valuation can be clearly inadequate at £80m or £150m.

D&O responds to allegations, not just proven wrongdoing.

3. Increased risk exposure

As capital increases, so does operational complexity, with more employees, more jurisdictions as well as the potential for more outsourcing and regulatory requirements.

D&O claims often follow:

• Down rounds (when a company offers new shares at a lower price than in previous funding rounds)
• Failed clinical or product trials
• Strategic pivots
• M&A disputes
• Insolvency scenarios

Most D&O claims don’t arise because management did something wrong—they arise because expectations weren’t met.

Even without a settlement, D&O claims can result in significant legal fees. Multi-defendant claims drain limits faster, and insurance limits are often shared across multiple insured persons. D&O policyholders are not always aware that defence costs are paid first, reducing what’s left to settle the actual claims.

Questions your business should consider following a funding round:

• How do our current D&O liability insurance limits compare with our new valuation?
• Should we align/realign our D&O limits with what our investors and board members would reasonably expect?
• How certain are we that the Board is personally protected if something goes wrong post-raise?

Put simply, D&O limits usually need to increase in line with your company’s valuation, investor profile, and stage of your business journey.

Talk to us to find out how we can help protect your business and its directors and officers.