Three startups and four investors active in insurtech. All very different, but they agreed on one thing. Raising money is hard. So what advice did they have?
A few companies are able to bootstrap their way to growth, but fundraising is essential to the survival of most insurtech startups. Many of our guest speakers at Instech London have raised funds in the last 12 months, from a few hundred thousand pounds to tens of millions, others are still looking. With over $19bn of funds raised globally for insurtech, Robin, Paolo and I are often asked what it takes to tap into this growing stream of investment capital.
It was no surprise then that we were at full capacity for our Instech London evening on 19th March. Over 150 people packed out the Steelyard to hear what it takes to raise investment capital.
Our three founders on stage: Niall Barton of Wrisk, Janthana Kaenprakhamroy of Tapolyand Matt Peterman of Insurepal had all recently completed early stage fundraising rounds. The investors (Sam Evans of EOS Venture Partners, Jeff Lynn of Seedrs, Puneet Raj Bhatia of London Co-Investment Fund and David Macmillian of QBE) represented some of the major sources of funds available in the UK. Presenting on stage, answering questions on the panel and mingling with the crowd, they treated us to a masterclass in essential techniques for successful fundraising.
Videos of the speakers are at Instech London/videos, average six minutes each and well worth a look.
Despite the differences in the companies they represented, I noticed six distinct themes emerging from the speakers’ experience of successful fund-raising. Here they are.
1. London Is Not The US
According to Sam Evans of Eos, London has the highest concentration of startups globally. Within Europe we have produced forty percent of the unicorns (companies valued in excess of $1bn) and raised twice the amount of funding of any other city. Seventy percent of the insurance market is based here. As we heard last month, the UK government is trying hard to help startups including offering tax breaks for investors, speeding up regulation with the FCA sandbox and making funding available through the British Business Bank. Yet it’s easier to raise funding earlier and higher in the US. Janthana and Naill share the experience of many in finding that raising funds in the UK is tough, even for relatively low (by US standards) levels of investment and often requires overcoming major setbacks along the way.
Matt Peterman, CEO and Founder of Slovenia based Insurepal chose a different way to raise funds and had a dramatically different experience. He raised $18 million in 80 seconds at Insurepal’s ICO earlier this year. The company’s first product will be a peer-to-peer motor insurance platform, running on blockchain. Fundraising through ICO operates in a parallel world to the more common seed, angel and VC rounds that tend to occupy most insurtech startups. Insurepal spent half a million dollars on marketing prior to its ICO, and according to Matt the company received offers of an additional $120m after it had hit its cap. There have been a handful of insurtech ICO offerings recently, but it’s still an edge case for most startups. InsureX halted its fundraising in July last year when it came under attack from hackers during its funding round.
2. Don’t Rely On One Source Of Funding
Niall lost his first major investor at a critical stage, then almost lost his second due to complications with EIS eligibility. Having been told aged 16 that the best career she could hope for was as a waitress in Sweden Janthana has proved her naysayers wrong by becoming a director at UBS in London and then launching Tapoly as an insurance company servicing freelancers and SMEs. She recently got funding from the London Capital Investment Fund (LCIF). Along the way Janthana and her co-founder almost parted company before finding the £250,000 to get FCA regulated and set up an MGA. She’s now supported by Beazley in London. Tapoly will soon be part of Lloyds and is expanding into France and Germany. All in the last 18 months.
Not content with £3m of the funding he finally raised from his ‘superseed’ investor, Naill tapped into the Seedrs crowdfunding network to raise another £600,000 and expand Wrisk’s network of supporters. Jeff Lynn, founder of Seedrs in 2009, attributes some of the company’s success to discovering that crowdfunding wasn’t just for the sub-£1,000 investors. Jeff realised that many people who would otherwise have been angels – investing £25,000 and above into a business – were choosing to use Seedrs rather than invest directly in startups. There are many smart people working in financial services with money to invest, but they lack the time to research companies or talk to founders and so choose to invest via Seedrs instead. Sam Evans noticed that companies were struggling to get the funds to build a product to generate the revenue that traditional VC firms want to see before investing. He formed EOS Venture Partners to fit in the gap between early-stage funding, and the Series A VC round.
There are now over 40 insurance companies with venture arms but QBE stood out last year when it announced a $50m fund to support companies where it could also be a strategic partner, with active board support. So far QBE, which generates premium income of $14bn, has only invested $5m of its funds (in Cytora and Cover Genius) but it too is filling a gap between seed and major VC funding.
3. Don’t Get Greedy With Valuation
Sam Evans hears a lot of pitches and believes valuations are getting out of touch with fundamentals. Recently people have been turning up to his office with little more than a powerpoint deck and expecting $10 million. At some point companies need to deliver, and reality catches up with inflated valuations. We’re starting to see down-rounds in funding in Europe and some of the earlier insurtech companies have quietly closed their doors. David Macmillan commented that the number of startups launched in the US had increased by 5 times in the last 10 years, yet the number of those that went on to be successful has stayed flat. For those of us that have been around a while this is starting to look like the dot-com boom pre-2000.
David also feels that the market for new propositions in personal lines has reached maturity. QBE generates 80% of its business in commercial speciality lines and he sees a lot more scope for innovation here. Janthana is in no doubt that the reason she was able to raise funding for Tapoly from LCIF was because she didn’t argue about the valuation. She’d rather own 50% of a company that is funded, than 100% of a company that’s not.
4. Seek Inspiration Outside Of Insurance, But Don’t Neglect The Benefit Of Experience
One of Niall Barton’s favourite apps is the journey planner Citymapper. His developers love the design and usability of banking apps Revolut and Monzo. Seedrs has raised £339 million in over 600 deals, but until last year had never offered an insurtech crowdfunding opportunity. Looking outside of insurance and the geography of EC3 has been a big influence on the design and application of Wrisk. Insurepal built up 250,000 followers on Facebook before launching its ICO. Janathana came from an audit background to found Tapoly. Most founders today no longer expect to be able to drop in and radically disrupt the traditional insurance market, but many of the most interesting propositions in the last couple of years have been heavily influenced by technology and opportunities from outside the conventional market.
That being said, Sam does like to see at least one person in the founding team with insurance experience. EOS has invested in 8 companies since starting 18 months ago but he still sees many startups too focussed on their technology, neglecting the actual needs of the insurance market. A consistent theme amongst all the investors we hear from is the search for companies that can identify the pain points of insurers, and apply their solution to that.
5. Your Investors Make The Best Clients
The money provided by investors is vital to the success of the business. But investment is only one part of the solution. Startups need to be able to generate revenue, and at some point become profitable. Funding rounds are well publicised but it’s harder to get the data on how much money companies are bringing in as cash by selling their products or services.
Wrisk had already raised most of its investment before it went for a funding round through Seedrs. The process was hard work, requiring far greater transparency than more traditional business transactions. Niall had to be prepared to share Wrisk’s 70 page business plan with anyone prepared to invest £10. But working with Seedrs was not just about raising funds. Niall realised he had the potential to create a large pool of early adopters for Wrisk’s contents insurance product from people that were vested in his success through the crowdfunding. Following the successful round on Seedrs, Wrisk now has a motivated pool of potential clients and people willing to help beta test the product, provide introductions and even join the company as employees. QBE is investing where it sees a meaningful opportunity to benefit from the companies’ products (better underwriting in commercial lines with Cytora and digitally enable contract assessment with Risk Genius). The upfront investment Insurepal made in promoting its ICO funding round has now created a large pool of potential clients for its future insurance offering.
6. Never Give Up
Some of the best speakers we’ve had at Instech London are those with personal stories of overcoming multiple setbacks on the road to raising funds, like Niall and Janthana. Not every company will or should succeed but no company becomes successful without a founding team able to push on through at times when progress seems illusory, promises broken or co-founders are disheartened. And it takes time to get accepted by mainstream insurers. Wrisk, Tapoly and Insurepal are at the start of their lives. Most insurance companies today are open to running Proof of Concepts (POC) with startups. Only a few have made a deliberate choice to look for companies to embed deep within the business in the way that QBE has. Cytora and Kansas based RiskGenius are generally recognised as two of the strongest recent startups active in the insurance technology space. At four and three years old respectively, both of them are relatively mature in insurtech terms and pre-date the heady days of funding in the spring of 2015 that fuelled so much of the interest in this space. Working on a POC is a good start for a startup but the first real success metric is convincing an insurer to sign up as a client for an annually recurring fee. With a few notable exceptions, it takes five years or more for most startups in any industry to get properly established.
Friends With Benefits
One final theme which stood out from the evening, and clearly underpins much of the success of many our speakers is the extent to which people working in and around the insurance market in London and the UK are personally interested in helping startups succeed. The loose network of informal advisors, investors, friends and collaborators, many of whom we are delighted to have as members, have helped founders through difficult times sourcing funds and partners.
Our thanks to QBE for sponsoring this event and our growing list of corporate members. Inspiring presentations from our seven scheduled speakers and a hint of the future from our seven bonus presenters who took the chance of the Instech London ‘open mike’ to spend sixty seconds pitching their businesses. All available on the Instech London video page.
We’re building out our plans for 2018’s monthly events. Let us know if you’d like to present. Sign up here to be kept updated on Instech London’s future events >> yes, sign me up!
Matthew Grant is the founder of Abernite and a partner at Instech London. He’s an investor, advisor and strategy consultant to technology companies and insurers in Europe and the US.