First Insurance for Pre-Seed and Seed Life Sciences

Pre-seed and seed stage life sciences founders typically encounter insurance for the first time when an investor side letter requires D&O, a landlord requires general liability on the office lease, or a B2B customer’s procurement form requires a cyber policy. The encounter is unplanned and the response is often reactive: buy what the document demands and address the rest later. The reactive approach produces a program that meets contract requirements without addressing the actual exposures the company is accumulating.

This is the article we wish every founder had access to before the first placement. The substance is calibrated to the actual exposures of a pre-seed or seed stage life sciences company, not to the standard commercial insurance heuristics that fit a generic small business. Most of those heuristics produce over-purchase or under-purchase when applied to a regulated-segment startup.

This walks through which insurance lines actually matter at this stage, what investors expect and why, what can responsibly be deferred until later rounds, the specific differences across the three life sciences segments, and the placement mistakes that founders make most consistently in the first 18 months.

What Matters at Pre-Seed and Seed Stage

The exposures that warrant insurance at this stage are narrower than later. The lines below are the ones to engage with first.

Directors and Officers (D&O). Typically required at first institutional round (Series Seed or later). Some angel rounds proceed without D&O; some seed term sheets require it from close. D&O protects the founders and any non-founder directors against personal liability for management decisions, with side A coverage as the structural backstop where the company is insolvent or refuses indemnification. For the full stage-by-stage D&O framing across the life sciences segment, the companion piece walks through how the program evolves from pre-seed through pre-exit. At pre-seed and seed, D&O is the line where personal financial exposure for the founders is highest, and where investors care most about whether coverage is in place.

General Liability (GL). Required by virtually all office lease landlords. Required by event venues and certain early-customer contracts. The line covers third-party bodily injury and property damage arising from premises and operations. Low-cost, broadly available. The decision is not whether to carry GL but what limit to carry and which endorsements to add.

Workers Compensation. State-required from the first W-2 employee in most states (Texas is the notable exception). Independent contractors typically not covered. The line is a regulatory necessity, not a strategic decision. Penalties for operating without it where required are meaningful.

Cyber Liability. Increasingly required at seed stage for digital health companies processing PHI, for clinical labs handling test results, and for medical device companies with any connected-device function. Even where not contractually required, the data exposure surfaces early in most life sciences companies. The decision is when to place it, not whether.

Professional Liability / Errors and Omissions. Required where the company is rendering professional services (clinical lab testing, telehealth provider services, software interpretation services). The line responds to errors in those services. Not required for a pre-product company; required from the moment services are rendered.

Tech E&O. For digital health and SaMD companies, the line responds to financial loss from technology product or service failures. Often required by enterprise customers in early B2B contracts. May be combined with cyber in the early-stage program structure.

What Investors Actually Expect

Investor expectations at seed stage are typically narrower than founders assume.

D&O is the universal expectation at first institutional round. Side letters routinely require D&O within 60 to 90 days of close. The minimum limit expectations vary; the requirement to have a real D&O policy is consistent.

Specific limit expectations are stage-calibrated. Seed rounds typically expect coverage scaled to the round size, board composition, and the company’s risk profile. Series A expectations are materially higher. Specific dollar requirements are negotiation points, not industry standards.

ODL coverage and side letter compliance. Most institutional investors require Outside Directorship Liability (ODL) coverage for the investor partner who joins the board. The ODL grant on the company’s D&O is the structural mechanism. Some side letters also require the company to maintain D&O with specified limits through specified events.

Cyber where data is in play. Investors increasingly ask about cyber posture at seed for HIPAA-regulated companies. The question is rarely a hard requirement at seed; it is more often a diligence item that affects the round-close process if not addressed.

No specific products or clinical trial requirements at this stage. For pre-IND and pre-clearance companies, the products and clinical trial lines are not typically required at seed. They become required at the operational events that trigger them (first IRB-approved protocol, first commercial shipment).

The reps in the round documents matter more than the certificates. Most term sheets and stock purchase agreements include a representation that the company maintains industry-standard insurance. The rep is what creates ongoing investor expectation; the certificates document compliance.

What Can Responsibly Be Deferred

Several lines that show up in mature commercial programs can be deferred at pre-seed and seed without material exposure.

Products Liability for medical device companies pre-clearance and pre-IND. Until the device is in commercial distribution or in a clinical trial requiring sponsor coverage, products liability is not an active exposure. The line should be placed before first commercial shipment, not earlier.

Clinical Trial Liability for medical device companies pre-IND. Once an IND or IDE is approved and the first IRB-approved protocol is active, sponsor coverage is required. Before that point, the line is not active.

EPLI at headcount under 10 to 15. Some carriers will write EPLI at low headcount and some will not. The exposure begins to scale with headcount and state distribution. A company under 10 employees can responsibly defer EPLI to the headcount or operational milestone that triggers it.

Fiduciary until the company sponsors a benefit plan. Fiduciary liability responds to claims by plan participants against plan fiduciaries (directors, officers, trustees). Pre-ERISA-plan companies do not have the exposure.

Crime / Fidelity at very early stage. The line responds to employee theft, social engineering fraud, and similar exposures. The exposure scales with revenue, transaction volume, and the number of people with financial system access. Pre-revenue companies typically defer.

International extensions for companies operating only in one US state. International coverage extensions become relevant when international activity begins.

Property beyond what is required by the lease. Office property is usually adequately covered through the GL placement and the landlord’s policy. Standalone property is rarely meaningful at seed.

Specific Differences Across the Three Segments

The three life sciences segments differ at the early stage in which lines are active.

Digital Health pre-seed and seed. Cyber and Tech E&O are the active lines beyond D&O and the foundational placements (GL, WC). Where the product processes PHI or sits in a clinical workflow, cyber should be in place from the first production deployment, not from the first enterprise customer. Tech E&O often gets bundled with cyber at this stage in a combined “tech + cyber” placement.

Medical Device pre-seed and seed. Most operations are pre-clearance and pre-clinical-trial. The active lines are D&O, GL, WC. Clinical trial liability and products liability become active at IND/IDE submission and first commercial shipment respectively. International activity around CE marking or other foreign regulatory submissions can introduce earlier exposure.

Clinical Labs pre-seed and seed. Most labs are pre-CLIA application or in early validation work. Once testing on patient specimens begins, professional liability is required immediately. Pre-testing operations carry the foundational placements but not E&O. The CAP-pursuing or LDT-pursuing lab introduces additional exposure as the regulatory posture builds out.

What to Look For in a First Broker

The first broker decision shapes the next several years of the company’s insurance program. Founders consistently underweight this decision.

Life sciences specialty experience. Generalist brokers struggle with regulated-segment placements. They produce submissions that read like generic small-business applications with FDA or HIPAA inserted, and they place with markets that do not specialize in the segment. Specialty brokers carry direct appointments with markets that write the life sciences segment.

Stage-calibrated guidance. A first broker should be able to tell the founder what to place now, what to defer, and what to revisit at the next round. A broker who pitches a comprehensive program at seed is selling, not advising.

Carrier relationships rather than wholesaler routing. Specialty markets are direct-appointment markets for brokers who have the relationships. Generalist brokers without those appointments route through wholesalers, which adds cost and reduces the broker’s leverage on the placement.

Wording-level engagement. The broker should be able to discuss policy wording, sub-limits, and structural choices, not only headline price. A broker who only competes on premium is producing a degraded program over time.

Renewal and growth cadence. First brokers who treat the seed placement as transactional often produce friction at Series A when the program needs to restructure. The relationship-building work begins at first placement.

The Mistakes Founders Make Most Often

Buying only what the contract requires. Investor side letters and landlord leases produce a minimum-viable program that meets contract requirements without addressing actual exposure. The contract-driven approach should be the floor, not the ceiling.

Treating “founder protection” products as substitutes for D&O. A handful of products are marketed to founders as personal-liability protection. These are typically narrower than real D&O and may not satisfy investor side-letter requirements. Real D&O is the structural answer; founder-specific products are at best supplements.

Skipping ODL coverage on D&O. Most investor directors require ODL grants. Placing D&O without confirming the ODL grant produces a side-letter compliance gap that surfaces at the first board meeting.

Underestimating the cyber exposure at HIPAA-regulated startups. A pre-revenue digital health or clinical lab company can already be processing PHI through validation studies, pilot programs, or early customer engagements. The cyber and HIPAA exposure begins at first PHI touch, not at first revenue.

Buying too much general liability. Standard GL placements at seed are routinely over-purchased for the actual exposure. Office-occupier exposure does not require enterprise-level GL limits. The limit should be sized to the actual exposure, not to a generic benchmark.

Deferring the broker relationship-building work until renewal. A first broker who hears from the company only at renewal cannot calibrate the program to the company’s operational reality. Founders who treat the broker as a transactional vendor produce a placement that does not improve year over year.

Reaching out for the first placement at 14 days. Seed-stage placements assembled in two weeks usually go to whichever markets respond fastest, not to the markets best suited to the company. Starting at 60 to 90 days produces better placement outcomes even at this stage.

When to Revisit the Program

The program should be revisited at predictable inflection points.

At each financing round. Limits, structure, and lines should be reviewed against the round size, the new investor requirements, and the operational scale post-round. For digital health specifically, the Series A diligence framing walks through what the lead investor’s counsel will examine.

At first commercial revenue. Revenue activates several lines that were dormant pre-revenue (products, professional liability, expanded cyber depending on data scale).

At first regulated milestone. IND or IDE approval, 510(k) submission, CLIA application, first BAA execution, first SOC 2 audit. Each triggers an exposure shift that the program should reflect.

At headcount thresholds. EPLI typically activates around 10 to 15 employees. Multi-state expansion changes the EPLI and workers compensation profile. Crossing 50 employees adds further employment-law exposure.

At first international activity. EU customer, EU clinical trial, CE marking submission. Each introduces non-US jurisdictional exposure.

At any acquisition discussion. The diligence process surfaces insurance items that need to be cleaned up before the data room opens.

A Note on Placement

MedTech Coverage works with pre-seed and seed stage life sciences companies on first placements structured around stage, segment, and the actual exposure profile of the company. Coverage is placed through Tower Street Insurance’s appointments with the specialty markets that write the life sciences segment at every stage.

If a first placement is approaching, an investor side letter has introduced a requirement, or the company is approaching a milestone (first commercial revenue, first clinical trial, first regulatory submission) that warrants program review, a structured coverage review produces a working document calibrated to the company’s actual stage, segment, and operational profile.