Brian Anderson, Nationwide: DI M&A VC Roundtable

For international and some emerging markets like South America and pieces of Asia, it's still doing really well. When you start dropping down into North America and Europe, there's still a lot of excitement, but there are questions which have yet to be answered. Will the direct consumer-oriented companies thrive in a rising interest rate environment being scrutinized by capital markets? Insurtechs have to answer that question.

The amount of money that's gone into insurtech over the last five years has driven up acquisition costs dramatically. That may change a little bit. But for folks who are direct consumer acquiring business at scale, the scrutiny's gone way up. Insurtech has slowed down in the US and in Europe because of some of those elements. There are still fantastic businesses that are in direct to consumer that continue to grow really well both here and abroad, and those businesses continue to track capital. It's hard to judge the cohort, but is the excitement coming down for some of these strategies? Absolutely.

You have to break out the age of the company and the amount of progress. The total number of companies formed in insurtech in 2021 and 2022 equals less than the amount of companies founded in 2020. The pace of new company formation is dropping, which is not a huge surprise. The companies who were founded in 2016, 2017 and maybe 2018 had more capital available to them to grow. It depends on what stage of maturation these companies are in and how much capital access they have.

The market's still in good shape. We're just seeing fewer new companies. 2023 looks a lot like this year. The total amount of funding this year will probably net to about $5 billion in invested capital, which looks like 2020, which is again, around $5 billion. In 2021, it was around $10 billion. 2023 will probably look a little bit like 2022 and maybe a little bit down from there. There will be less capital availability and certainly a lot less growth equity checks available for companies. There will be a lot of consolidation of companies who were founded from 2016 to 2018 that decide they're better together. There's going to be some bankruptcy, some consolidation and some unexpected winners. I hope we see more new companies formed, which is the predecessor of a healthy market.

The insurtech market has set a standard for how to deliver a seamless experience for businesses or consumers. That has dramatically shifted a lot of big companies, not just Nationwide. Many substantial organizations, already working hard on such experiences, decided to prioritize that effort and go harder after that prize. Nationwide is definitely working very hard on that technology infrastructure to make for really good experiences. How that manifests in terms of build/buy/partner is a open question because valuations, at least from a M&A perspective, have been very high over the last two years.

Some companies who would never have considered M&A are probably thinking about it pretty hard now, as to whether they can get a soft landing with an acquirer. For incumbents, there's probably no better time from a valuation standpoint to take on acquisition for the purpose of digital technology and reinventing digital technology product services experience. It's probably a pretty good time to be a buyer in the market. Valuations are down and opportunity's high. When the opportunity is really good, most people are very risk averse. It takes a lot more effort to get an acquisition done when there's a lot of risk in the capital markets environment, but this is a great time to be a net buyer if you can find the right things and build a business plan around those.

There are many ways to influence digital technology and build/buy/partner. Buy was historically not really an option. Now it probably is, but they're all equally good strategies as long as they can be executed well.