In Real Life Litigation: Dual Fiduciary Duty and the D&O Risk for VCs

By Steven Barge-Siever, Esq.

In the world of venture-backed startups, failures aren’t rare. But what happened to Get Together Inc. (operating as IRL) wasn’t a typical collapse. It was a collision of founder misconduct, investor pressure, board-level control, and regulatory scrutiny - all of which converged into one of the most high-stakes D&O cases in recent memory.

This wasn’t a matter of one party clearly at fault. It was an alleged failure across multiple fronts.

And if you're a venture capital firm, a board member, or a founder in today’s market, it's the kind of case you need to study closely - not just for its drama, but how dual fiduciary roles can turn from boardroom formality to personal liability, how to protect yourself and where insurance is designed to fail.

The Collapse of IRL: Dual Fiduciary Liability and A Multi-Front Litigation Storm

IRL, short for "In Real Life," was a social app launched to help users discover and coordinate real-world events with friends - promising to counter digital isolation by promoting real human connection. The company attracted over $170 million in funding from prominent VC firms including SoftBank, Goodwater Capital, and Floodgate, positioning itself as a breakout contender in the post-Facebook social platform era.

But behind the scenes, that growth was allegedly propped up by paid downloads and inflated user metrics. The app's claims of 12 million users were called into question, culminating in a public admission - possibly orchestrated by new leadership - that 95% of accounts were fake or bots.

In July 2024, the SEC charged IRL’s founder and former CEO, Abraham Shafi, with defrauding investors. The complaint alleges that Shafi misled investors about user growth, routed advertising payments through third parties to conceal spending, and used company credit cards for personal expenses. These are serious allegations, and if proven, they would invalidate most D&O coverage via standard fraud exclusions.

But just as that regulatory storm was brewing, a different kind of lawsuit emerged. In March 2025, the Delaware Court of Chancery allowed a separate suit to proceed against three major IRL backers: Goodwater Capital, SoftBank, and Floodgate.

That lawsuit doesn’t accuse them of fraud. Instead, it alleges that their board representatives breached fiduciary duties by orchestrating a shutdown that benefitted preferred shareholders (including their own funds) at the expense of common shareholders. The claims include:

• Breach of fiduciary duty

• Tortious interference

• Improper removal of the founder

• Bylaw violations and voting control abuse

  
  

The court allowed most claims to proceed, citing credible allegations that the VC board members prioritized investor recovery over the company's best interest.

The Dual Fiduciary Duty Dilemma

Venture firms often install partners or principals on the boards of portfolio companies. That makes sense. But it also creates a structural tension: these directors owe duties both to the company and to their fund.

That’s fine in periods of growth. But in distress? Dual fiduciary duties often become incompatible.

In IRL, the plaintiffs allege that VC directors prioritized their funds by forcing a shutdown, declaring most users were bots (a statement they claim was knowingly false), and redirecting remaining cash to preferred holders. Whether or not those claims prove true, the case highlights how easily governance decisions can turn into litigation.

And it raises a critical question: when these roles conflict, which insurance policy responds?

Which Policies Are Triggered?

In a situation like IRL, there isn’t one policy in play - there are several, each with its own terms, exclusions, and priorities. Each party may be relying on different (or the same) towers of coverage:

• The company’s D&O policy, likely purchased by IRL itself

• The founder’s access to Side A coverage under that policy

• VC directors’ reliance on Side B or Side A coverage through the company

• Fund-level D&O/E&O policies at Goodwater, SoftBank, and Floodgate

• Any tail policies in place post-termination

Understanding which of these policies applies, and how they interact, is key.

For the Founder:

• D&O Insurance (Side A coverage) may have initially responded to cover regulatory defense costs against the SEC charges.

• However, the SEC’s allegations of fraud and personal enrichment likely trigger the personal conduct and fraud exclusions, which may allow the insurer to deny or rescind coverage if those claims are proven.

• If Shafi used corporate funds for personal expenses, as the SEC claims, that would be grounds for denial under most D&O policies. That means he might have initially had coverage, only to lose it retroactively once conduct is adjudicated.

For the Company:

• Entity coverage (Side C) might be triggered in the event of securities-related litigation (e.g., by investors or regulators), but the SEC’s involvement typically falls under regulatory exclusions or regulatory defense sublimits, often capped at $250K–$500K.

• If IRL faced any private shareholder derivative suits or parallel claims, Side C could help, but would likely be limited by allocation disputes.

For the VCs and Their Directors:

• Named directors (Chi-Hua Chien, Serena Dayal, Mike Maples) may have initially expected indemnification from the company, triggering Side B coverage under IRL’s D&O.

• However, if the company became insolvent or conflicted out (unable to fairly indemnify directors in a suit about their own conduct), directors would need to rely on Side A coverage, which could be limited or contested.

• If company-level coverage is exhausted, they may turn to fund-level D&O or E&O policies, which often don’t cleanly cover portfolio board seats unless specifically endorsed. Even if those policies respond, questions around other insurance (IRL's), excess layers, allocation, and priority of payments arise quickly.

These overlapping layers raise practical questions:

• Who notifies the insurer?

• Who controls defense?

• Whose policy pays first?

This complexity is why litigation over the coverage itself is not uncommon.

The Most Common Gaps in Complex D&O Claims

1. Regulatory Sublimits: In a case like IRL's SEC complaint, coverage for regulatory investigations is often limited to a small sublimit - typically between $250K–$500K. That may sound reasonable, until you realize that federal securities defense often burns through that in a matter of weeks to months. Indeed partner rates for regulatory attorneys are hover around $2,000/hr. If the company or individual expects full defense under a $5M tower, they’ll be surprised to find most of it unavailable once the sublimit kicks in.

2. Duty to Defend - can IRL even select their own counsel? If this is a standard, off the shelf policy, then IRL probably cannot select their counsel, or will have rates capped at around $350 - $500 / hour. This is especially common when working with digital insurance brokers or insuers where coverage was not negotiated.

3. Insured vs. Insured Exclusion: Most D&O policies exclude lawsuits brought by one insured person against another. This becomes a critical issue when a former executive - like Shafi - is suing current directors. Without a proper carve-back for derivative claims, whistleblower actions, or suits brought after a change in control, coverage may not respond.

4. Derivative Demand Coverage: Many policies omit or underwrite poorly the costs of investigating and responding to a shareholder demand. If IRL’s common shareholders had issued a demand before filing suit, and the policy lacked this coverage, board members could be left paying out-of-pocket for early-stage legal advice and governance review.

5. Personal Conduct Exclusion: Nearly all D&O policies exclude coverage for fraud, criminal conduct, or personal profit - but only after final adjudication. If Shafi is ultimately found liable for intentional misconduct, his insurer can seek to claw back previously paid defense costs. Until that ruling, they may still advance funds (unless rescinded).

6. Policy Allocation Disputes: When multiple parties are sued - like a founder, VC-appointed directors, and the entity itself - there’s often no agreement about how defense costs or settlement funds should be allocated between them. Carriers may delay or underpay while pushing responsibility across other policies, creating costly delays in reimbursement.

What Sophisticated Firms and Boards Should Do

• Audit Coverage Structures Across Portfolio Companies: Ensure policies clearly address dual fiduciary roles, have Side A-DIC capacity, and include proper carve-backs for shareholder suits.

• Review Fund-Level Coverage: Don’t assume company-level D&O will protect your board seats. Your own fund’s D&O/E&O policy must be structured to catch spillover.

• Scrutinize Sublimits and Definitions: Words like "claim," "loss," and "insured" are where most disputes begin.

• Plan for Multi-Carrier Coordination: If your director sits on five boards, each with its own insurer, you need someone coordinating response before the lawsuit arrives.

Upward Risk Management

We founded Upward Risk Management because most insurance programs in venture aren’t built to withstand real conflict.

We bring public company and private equity experience to the venture and growth stage - translating governance complexity, litigation trends, and investor dynamics into tailored insurance strategies that actually perform under pressure.

We operate as your outsourced risk department. That means you get structured, negotiated, board-ready insurance coverage - without adding friction to your team.

By the time most firms reach their Series B, the stakes are too high for boilerplate policies.

That’s where we come in.

Because in venture capital, your influence is your liability. And in complex claims, the first thing challenged is your coverage.