VC Roundtable: Has coronavirus changed targets?

January 21, 2021 4:45 AM

We asked our VC panelists six questions. The second: 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?

Go back to our VC roundtable homepage, with bios for participants and more.

Ben Bergsma, Munich Re Ventures

Richard Morgenstein

It is an excellent time to be an insurtech startup. Consumers are stuck at home and adapting to the new normal. A state-of-the-art user experience is table stakes now for any technology company, insurance included. But it’s not just the direct-to-consumer insurtechs with fancy apps that are experiencing growth. Established carriers recognize the importance of – and are becoming more open to – the adoption of digital solutions, so insurtechs offering enabling technologies to these carriers are also experiencing growth.

In terms of stage, there’s definitely no lack of downstream capital available to the leaders in the market right now. Growth funds made eye-popping investments in 2020 in companies like Hippo, Next, Pie and Unqork. These established startups also have the benefit of analyzing different exit paths – the IPO route (Lemonade, Root, Duck Creek) or the SPAC route (MetroMile, Clover). But these successful exits also benefit new insurtech companies, since VCs now have a set of comps to utilize when making early stage investments. Insurtech exits were somewhat lacking historically, so it was a very positive development for everyone in the industry.

Ryan Helon, Rev1 Ventures

Some insurtech companies seemed to thrive in a fully virtual environment, while others really began to struggle. When Rev1 is evaluating an investment, we focus on supporting companies that are scalable, capital efficient, and delivering value propositions that position them well for long-term growth. At the same time, many established insurtech companies benefited from the wave of carriers that suddenly needed to operate in a digital environment. One other thing that changed is how we look at cash runway – we prefer to see companies planning for 18 to 24 months in downside scenarios with their current rounds whereas before the pandemic we would typically be comfortable with 15 to 18 months of runway.

Sam Evans, Eos

From a funding perspective, the pandemic has caused a flight to quality. The level of funding has returned to pre-crisis levels but it is concentrated in a smaller number of companies. It is better to be an established company and new entrants are going to face a very tough funding environment. The crisis will also drive many companies out of business and force consolidation. This would have happened naturally as the sector matured but the timeframe has been shortened by the pandemic.

Kyle Beatty, American Family Ventures

Harrison Steg

I think of COVID-19 as less of an inflection point and more of a jolt of acceleration. In response to the shift in consumer expectations, the changing needs of employees, and the macro economic environment, there was a demand for insurance companies to digitally transform with greater haste. Rather than distinguishing between established and new entrants, I focus on those insurers that are truly digital and those that are not. Those that are truly digital have an advantage when the market requires rapid adaptation.

Eric Emmons, MassMutual Ventures

Eric Emmons, MassMutual Ventures

MMV looks for an early track record of a growing number of customers paying for the product. The offering may not be fully mature and the average selling price may not have reached its ultimate peak, but we do want to see that the teams we back are addressing real industry pain points and successfully conveying the value of their solution to customers who are willing to pay.

Martha Notaras, Brewer Lane

It's a good time to be a fresh face. And fresh faces that delivering enabling technology to incumbents are prospering right now. Fresh faces that are serving consumers, who are spending even more time online, are doing well now. Startups were relatively well-positioned to go remote, relying on their established use of high-tech tools, and building on the fact that many teams already had remote members. What has changed more is the view of incumbents, and their realization that a remote workforce calls for changes to their coretech, their need to be in the cloud, and their customer interface, including remote access and support for call center employees.

Erik Ross, Nationwide

A: 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.