VC Roundtable: What were you expecting from 2020?

January 21, 2021 5:45 AM

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

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

Sam Evans, EOS

At the start of 2020 there was a general level of optimism about the positive impact of innovation on the insurance sector. The immediate impact of the pandemic was a negative one, with insurers forced to focus on moving to a remote working environment and stabilising operations, resulting in lost time and a pause on activity. However, at the same time it is has created a much more positive medium-term outlook, with insurers forced to prioritise innovation and accelerate digital capabilities. The consensus view is that the pandemic has accelerated the innovation agenda by between five and 10 years.

Martha Notaras, Brewer Lane Ventures

When I produced my 2020 predictions, I highlighted:
1. Divide between winners and the rest will become clearer.
Came true: Lemonade, Root IPOs; Bold Penguin sale to AmFam - all these exits demonstrate the value that investors and incumbents are seeing in the winning insurtechs.

2. Brokers and other intermediaries will leverage tech to stay relevant
Came true: Agent & broker- focused insurtechs prospered in 2020, including Broker Buddha, Tower IQ, AgentSync (had successful back-to-back fundraises in 2020), and Newfront, a broker insurtech, came out of stealth.

3. Valuations continue to stay strong, given the supply of capital
Came true and then some: insurtech valuations skyrocketed in 2020. Absolutely, one component is the abundant capital, including from large multi-stage venture funds. In addition, insurtechs are increasingly looking to solve bigger parts of the problem, so the total addressable market they are going after is huge. Insurtechs that demonstrate revenue growth are being rewarded with valuations that reflect the confidence in their ability to sustain that growth, given the market size.

Ryan Helon, Rev1 Ventures

As we looked at insurtech at the beginning of 2020, we were seeing tremendous investment interest in the space, looking poised to build on the record number of dollars and deals in 2019. We thought that the large number of established and new corporate venture funds would continue to play a big role in new financings, and we were looking forward to many of the seed-stage b-to-b businesses funded in earlier years getting traction with carriers and moving into larger, Series A and later-stage funding rounds. Beyond that, our focus was primarily on digitization and improvement of internal processes and customer experience.

With the onset of the pandemic, we expected investment activity to decline in 2020; however, investors (including corporate venture capital funds) maintained a fairly aggressive pace of investment activity – doubling down and protecting existing portfolio companies, providing runway to sustain through the pandemic. Full-stack and distribution-focused startups successfully raised large rounds well into the months following the onset of the pandemic. The result was 2020 proving to be yet another record for insurtech investments.

Kyle Beatty, American Family Ventures

Harrison Steg

Perhaps surprisingly, rewinding a year we'd find ourselves with a high degree of optimism for the insurtech market, much as we do today. The capital providers behind venture funds like ours, for example, had a high degree of confidence that the P&C, life and healthcare insurance industries would be digitally transformed.

Erik Ross, Nationwide

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.

Eric Emmons, MassMutual Ventures

Eric Emmons, MassMutual Ventures

The pandemic dramatically accelerated the timeframe by which incumbents need to achieve their digital transformation efforts, because face-to-face interaction has dropped off so significantly. Plans that were intended to be implemented over a 3 year period suddenly had to be implemented within a couple of quarters, and this translated into an increased rate of new technology spending in the market.

On the consumer demand side, the story is more complicated – Americans are understandably showing more interest in life and disability protection products, but the outcomes for P&C is more varied. We are driving less and sitting in our homes more, and commuter travel and office work may not quickly revert to pre-pandemic norms. Similarly, there has been a surge in new home purchasing spurred by low mortgage rates, which has driven some volume in new home insurance policy sales.

Ben Bergsma, Munich Re Ventures

Richard Morgenstein

For the insurtech market specifically, 2020 felt like a bit of a roller coaster. It started with very high expectations given that 2019 was a record year for total VC dollars invested in insurtech startups. Once Covid-19 hit in March, expectations around new money flowing into the sector dropped significantly, and we just focused on our current portfolio. The initial thought was that a global pandemic would halt a lot of funding to startups and push out liquidation events such as IPO’s. Fortunately, this expectation was short lived, especially once everyone involved in insurtech saw how digitally-native insurance had a competitive advantage in our new reality.