VC Roundtable: Erik Ross, Nationwide

January 26, 2021 3:10 PM

Nationwide Plaza One in Columbus, Ohio.

Editor's note: Due to an editing error, Nationwide's Erik Ross was inadvertently left out of our insurtech venture capital roundtable. We're posting his answers here and adding them to our full piece, which you can find here. Thanks to Erik and everyone who contributed.

Bio: Erik Ross, Nationwide

Erik Ross leads Nationwide’s venture capital team and M&A. His background is primarily technology startups and large financial institutions. Prior to leading the venture capital team at Nationwide, he led the disruptive innovation group focused on developing and incubating novel concepts with the potential to disrupt the financial services ecosystem.

Prior to joining Nationwide, Erik worked in the public sector as North Carolina's first Chief Digital Officer and has held several strategy and executive roles at tech startups and Fortune 500 companies. He was also an Executive-in Residence at the MIT Media Lab.

Erik earned a BSBA from Bloomsburg University with a minor in Philosophy and a MBA from Penn State University. On the weekends, you’ll find him on the field coaching youth soccer. Erik has 50 issued patents with over 100 pending, but, more importantly, he likes to relate nearly any situation to an episode of Seinfeld, or some 80s/90s comedy.

Let's start with the beginning of 2020, before the pandemic. What do you think was the major expectation for the insurtech sector at that time, and how did it evolve over the year as the pandemic progressed?

Looking back at discussions with the team, we anticipated private market valuation/funding environment would become more rational as investors consider growth against a renewed focus on profitability.

In the current and future “lower for longer” interest rate environment, it appears capital will continue to flow to and reward fast-growing companies in alternative asset classes, like venture capital. With the success of recent insurtech IPOs and SPACs in the public markets and the current economic environment, we should see more entrepreneurs come to the space like we did in the global financial crisis (GFC). Some of the best companies were started during that time like Credit Karma and Square. Silicon Valley Bank stated that ~40% of today’s unicorns were started during the GFC. We see that happening during this time as well.

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Covid is clearly an inflection point for all industries, but specific to insurtech, how is that playing out? How is it influencing the choice of target companies to invest in? Is it a better time to be an established company or a fresh face right now?

It’s an interesting time for insurtech and fintech. The continued maturation of private companies in these sectors will likely result in both increased IPO and M&A activity. Incumbents will continue the trend of using M&A as a capital-efficient R&D strategy and hedge as software eats the industry, finding it more efficient to acquire capabilities versus building them, acquiring not only technology but also distribution, talent, and brand for the growing digitally native consumer and business. We also believe later stage companies will continue to focus on getting to an IPO or a SPAC as the public markets continue to seek growth and perceived disruptive technology companies.

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Where is there still room for growth in insurtech? The industry is far from “fully digitalized,” but given the situation around Covid, how should incumbents and startups look to be working together to continue progressing insurance’s digital transformation?

Insurtech as a standalone sector from Fintech is a little over five 6 years old, and the pandemic has been the main driver of digitization of the incumbents, so we are in the early innings of both. The insurance industry has been one of the last digital holdouts so it will take some time to really get the transformation flywheel truly moving, but all signs point to this being well underway. Insuretechs, for their part, are rapidly gaining in number and sophistication, and look no further than the public insurtechs as evidence that there is plenty of room to run for startups focused on insurance.

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How has Covid impacted, if it has, the way you measure success or ROI of a company you invest in?

The pandemic hasn’t changed our success metrics or our ROI targets, but it has prompted deeper diligence and focus in some areas. All investors are prudently asking covid-related questions right now because there are almost always positive and negative updates to an early-stage business when a large externality like a global pandemic happens. In insurance, many lines of coverage have seen fewer claims activity in the past year (fewer elective surgeries, fewer miles driven) but depending on the insurtech’s business model and whether they are taking a risk, this could be advantageous or detrimental. Buying behavior for many companies and consumers has also changed since the pandemic started and we are certainly evaluating how well startups have adjusted to this new sales reality. The ultimate metric for a startup is still survival.

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What is a technology area you think is over-invested in? Under-invested? Has the crisis impacted your view of these techs?

In terms of overinvested, we think high visibility insurance sectors, like auto, have probably received an unfair share of investment dollars, especially relative to the quality of the incumbents. There are so many untapped opportunities in less popular lines of insurance/coverage types that still have large markets. We particularly believe the areas of silvertech (technology, products, and services for older adults) is a huge opportunity space that includes insurance and financial services that is in need of great founders and companies.

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How can insurtech VCs do more to find, elevate and support companies founded by women and BIPOC?

We’ve been spending time on this as a team. We are focused on expanding our deal-sourcing network and contributing sponsorship dollars to high-quality organizations uplifting underrepresented founders across insurtech and fintech.

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