Key Person Coverage and SBIR/OSC-Recipient Risk Profiles: Why Funders Care About Named Personnel
As deep-tech and defense startups scale past early awards, the questions about “what happens if you lose your technical lead” get sharper.
Why This Risk Profile Is Different
A typical early-stage software company can often replace a departing engineer without threatening the business. A defense-focused deep-tech company is a different case: the core technology may exist largely in the head of one founder or technical lead, that person may hold a security clearance that can’t simply be transferred, and government relationships built over years of program engagement don’t move to a new hire overnight. Funders underwriting these companies know this, and it shows up in how they evaluate risk.
What the DoD Office of Strategic Capital Changes
The DoD’s Office of Strategic Capital (OSC) offers direct loans and loan guarantees — generally in the range of $10 million to $150 million — aimed at expanding manufacturing and production capacity in critical technology areas tied to national security. At that scale of financing, continuity risk gets real scrutiny. A company seeking OSC-scale capital, or private capital positioning itself for that path, should expect key person questions to come up as part of the broader risk-mitigation package a lender or investor wants to see.
What to Have Ready
Rather than waiting for a funder to ask, it’s worth getting ahead of the conversation:
- Identify which individuals are genuinely “key” — not just senior, but functionally irreplaceable in the near term
- Have a rough sense of what it would cost and how long it would take to recruit and train a replacement
- Get key person coverage in place sized to that realistic transition cost, not an arbitrary round number
- Keep the policy and beneficiary structure current as the company’s funding stage changes
Scaling Past SBIR Into Larger Federal or Private Capital?
We’ll help you size key person coverage appropriately for where your company is headed, not just where it is today.
Learn About Key Person & Buy-Sell CoverageFrequently Asked Questions
What is the DoD Office of Strategic Capital?
The DoD Office of Strategic Capital (OSC) offers direct loans and loan guarantees, generally in the range of $10 million to $150 million, to support manufacturing and production capacity in critical technology areas important to national security.
Do SBIR awards require key person insurance?
SBIR awards themselves typically don’t mandate it, but as companies scale past SBIR into larger institutional funding, venture debt, or OSC-scale financing, key person coverage tends to become an expectation of those later-stage funders rather than the SBIR program itself.
Why do funders focus on named individuals rather than the company as a whole?
In early-stage deep-tech and defense companies, the technical expertise, security clearances, and government relationships often sit with one or two specific people. Funders treat the loss of that person as a material risk to the company’s ability to deliver, separate from general business risk.