Cyber Insurance for Startups: When to Buy, What to Get, How Much to Pay

By Jason Park - Startup Insurance Advisor & Former VC Associate

“We’re pre-revenue. We have 4 employees. Do we really need cyber insurance?”

I hear this question at least twice a week. After spending three years as an associate at a Series A-focused VC fund—where I reviewed insurance requirements for every portfolio company—and now advising over 200 startups on their coverage, I can tell you: the answer is more nuanced than most founders think.

Last month, a YC-backed startup I advise got hit with a $180,000 wire fraud attack. Three employees, pre-Series A, building developer tools. The attackers compromised their bookkeeper’s email and redirected a vendor payment. Without cyber insurance, that loss would have eaten 40% of their runway.

Here’s what every founder needs to know about cyber insurance—including when you actually need it, what investors expect, and how to get covered when you’re still figuring out product-market fit.

Quick Assessment: Do You Need Cyber Insurance Now?

The Startup Cyber Insurance Timeline

Based on my work with 200+ startups, here’s when companies typically need coverage:

Pre-Seed / Bootstrapped (0-5 employees)

Usually optional, but consider if:

• You’re handling customer data
• You have significant cash reserves attackers could target
• You’re in a regulated industry

Typical cost: $400-800/year for $1M coverage

Seed Stage ($500K-$3M raised)

Strongly recommended. At this point:

• You’re a more attractive target (money in the bank)
• VCs may require it as a closing condition
• Enterprise prospects will ask for certificates

Typical cost: $800-1,500/year for $1M-2M coverage

Series A+ ($3M+ raised)

Required. Every Series A term sheet I’ve seen in the past two years includes insurance requirements. You’ll need:

• Cyber liability coverage
• D&O insurance
• Often E&O if you’re B2B SaaS

Typical cost: $1,500-4,000/year for $2M-5M coverage

What VCs Actually Look For

After reviewing insurance for 50+ portfolio companies at my former fund, here’s what investors actually check:

The Basics (Every VC Expects These)

• Cyber liability: $1M minimum, $2M preferred
• D&O insurance: Required for board members
• General liability: Standard business coverage

The Details That Signal Sophistication

• Social engineering coverage: Shows you understand modern threats
• Retroactive date: Should be your founding date or earlier
• Claims-made vs. occurrence: You should know the difference
• Sublimits: Understand what’s capped vs. full limit

Getting Insured Pre-Revenue: It’s Easier Than You Think

One of the biggest misconceptions: “We can’t get cyber insurance because we don’t have revenue yet.”

False. I’ve helped dozens of pre-revenue startups get coverage. Here’s how:

Startup-Friendly Carriers

These insurers specialize in early-stage companies:

What They’ll Ask (And How to Answer)

“What’s your annual revenue?”

• Answer honestly: “$0 - we’re pre-revenue” is fine
• They’ll price based on projected revenue or funding raised

“How many records do you store?”

• Estimate conservatively
• Include: user accounts, email addresses, any PII

“Do you have MFA enabled?”

• This is increasingly required
• If no: implement it before applying (takes 1 day)

“Have you had any prior incidents?”

• Be honest—lying voids your policy
• Minor incidents usually don’t disqualify you

Startup-Specific Coverage Considerations

Social Engineering / Wire Fraud

Critical for startups. This is how most startup losses actually happen:

• Fake vendor invoices
• Compromised email requesting wire transfers
• Impersonation of founders/executives

Make sure you have at least $100K in social engineering coverage. Some policies bury this in sublimits.

Business Interruption

Less critical for pre-revenue startups, more important post-product launch. Covers lost revenue if you’re down due to a cyber incident.

Technology E&O

If you’re B2B SaaS, you may need this combined with cyber liability. Covers claims that your software caused a customer harm.

→ Read more: Tech E&O vs Cyber Insurance

Retroactive Coverage

Your policy should cover incidents that occurred before the policy start date (but discovered during the policy period). Push for a retroactive date of your company’s founding.

Real Startup Incident Costs

Here’s what I’ve seen startups actually pay out-of-pocket after incidents:

Case 1: Seed-Stage Fintech (8 employees)

Incident: Business email compromise, fake wire transfer
Loss: $127,000
Insurance: None
Outcome: Burned 4 months of runway, had to do a bridge round

Case 2: Series A SaaS (22 employees)

Incident: Ransomware via phishing
Loss: $340,000 (ransom + recovery + business interruption)
Insurance: $2M cyber policy
Out of pocket: $10,000 deductible
Outcome: Back online in 6 days, minimal long-term impact

Case 3: Pre-Seed Developer Tools (4 employees)

Incident: Customer data exposed via misconfigured S3 bucket
Loss: $85,000 (legal, notifications, forensics)
Insurance: $1M cyber policy
Out of pocket: $5,000 deductible
Outcome: Handled professionally, no customer churn

How Much Coverage Do You Need?

The Simple Formula

For most startups, I recommend:

Coverage = MAX($1M, Annual Revenue × 1.5, Funding Raised × 0.5)

Examples:

• Pre-revenue, $500K raised → $1M coverage (minimum)
• $2M ARR, $5M raised → $3M coverage
• $10M ARR, $20M raised → $15M coverage

Coverage by Stage

The Application Process: What to Expect

Timeline

• Simple applications (pre-revenue): 15-30 minutes online, quote same day
• Standard applications (seed-series A): 1-2 hours, quote in 2-5 days
• Complex applications (fintech, healthcare): Multiple calls, 2-4 weeks

Documents You’ll Need

• Certificate of incorporation
• Cap table (sometimes)
• Description of your product/service
• Data handling practices
• Security questionnaire responses

Security Questions You’ll Face

Most applications ask about:

• MFA implementation
• Backup procedures
• Employee security training
• Encryption practices
• Vendor management

Common Founder Mistakes

Mistake 1: Waiting Until a VC Requires It

By then, you’re negotiating from weakness. Get covered before fundraising—it’s one less thing on the closing checklist.

Mistake 2: Buying the Cheapest Policy

A $300/year policy with $25K sublimits on everything isn’t protecting you. Read the sublimits.

Mistake 3: Not Understanding What’s Covered

“Cyber insurance” isn’t one thing. Know whether you have:

• First-party coverage (your losses)
• Third-party coverage (lawsuits against you)
• Social engineering coverage
• Business interruption coverage

Mistake 4: Ignoring the Deductible

A $50K deductible might seem fine until you have a $60K incident and realize you’re only getting $10K.

Mistake 5: Letting the Policy Lapse

Claims-made policies require continuous coverage. A gap means prior incidents aren’t covered.

Action Items for Founders

This Week

1. Check your current coverage (if any) for sublimits and exclusions
2. Enable MFA everywhere if you haven’t already
3. Get quotes from 2-3 startup-friendly carriers

Before Your Next Fundraise

1. Have cyber insurance in place with appropriate limits
2. Know your policy details (retroactive date, sublimits, exclusions)
3. Document your security practices for due diligence

Ongoing

1. Review coverage annually as you scale
2. Update your policy after significant funding rounds
3. Train employees on security basics (helps with premiums too)

Getting Started

Ready to get covered? Here’s my recommended process:

1. Get quotes from multiple carriers (takes 30 min total)
2. Compare coverage, not just price (use my checklist below)
3. Choose based on fit, not brand (startup specialists often better)
4. Review annually as your risk profile changes

Comparison Checklist

When evaluating policies, check:

• Aggregate limit (total available)
• Per-occurrence limit
• Retroactive date
• Social engineering sublimit
• Business interruption waiting period
• Deductible amount
• Exclusions list
• Claims process / breach hotline

Related Reading

• Cyber Insurance Buying Guide - Comprehensive selection process
• Cyber Insurance Cost 2025 - Detailed pricing data
• Tech E&O vs Cyber Insurance - Which do you need?
• MFA Matters - Why this is non-negotiable for coverage

Have questions about startup cyber insurance? I help founders navigate coverage decisions every day. The key is getting protected before you need it—not after.