The Three “Ts” of InsurTech investing: 1. Team, 2. Team, 3. Team
As a VC investing in InsurTech companies, I often get asked the following two questions:
- Which sub-sectors in InsurTech do you find most attractive?
- What is the hottest technology in insurance in the next twelve months?
I am looking into astonished faces when I am giving my answer, which is always the same: “I don’t know, and neither do I care!”
The truth is: Insurance is such an enormous industry ($4 trillion p.a.), and it is still so much behind when it comes to leveraging technology, that almost any sub-sector or technology represents a substantial long-term opportunity.
Time and again I am looking at InsurTech companies that at first glance seem to address a tiny niche of the market, which at second glance turns out a multi-billion $ niche!
The challenge in insurance is not finding a big enough market opportunity, the challenge is unlocking that opportunity.
Yet despite their enormous size, insurance markets are notoriously hard to unlock — no matter if B2C, B2B, B2B2C, or selling enabling technologies to incumbents, be it AI, data analytics, omnichannel distribution, or cyber risk platforms.
Why? — At its core, the problem is customer inertia.
Again, it does not matter if you sell to consumers or if your customers are insurance companies themselves, it does not matter how strong your value proposition is — in insurance you will always face a high degree of inertia. (What causes this high degree of inertia is the subject of another article…)
Therefore, the billion $ question (literally!) is: What is the key to overcoming this inertia?
It can only be overcome by the right Teams. While this answer seems obvious, finding these teams is anything but!
To illustrate that point: At CommerzVentures, we have been actively scouting the InsurTech space for more than four years and seen several hundred companies across Europe, the US and Israel. To date, we only made two investments in the space: Bought By Many and Getsafe.
To help inform my view of InsurTech founder teams, I am using an analytical framework, which for the lack of a catchier title, I call
“The Seven Levels of Founder Fit”
These levels are:
- Founder/ Startup Fit: Are the founders fast learners and able to persevere through the ups and downs of the startup journey?
- Founder/ Product Fit: Do the founders have the necessary skills and expertise to build an InsurTech product?
- Founder/ Market Fit: Do the founders “live” in the market, intimately understanding the priorities of their customers?
- Founder/ Distribution Fit: Are the founders passionate about distribution and know how to do it?
- Founder/ Founder Fit: Do the founders complement each other and have common values and mutual respect?
- Founder/ People Fit: Are the founders able to attract star employees and build a culture that allows them to flourish?
- Founder/ Investor Fit: Are the founders great at selling their equity story and able to build high-trust relationships with investors?
The sequence of these levels is no indication of their relative importance, and I would not expect that all founders in a founding team are equally strong on all of these levels. There will always be members of founding teams who are stronger on the product side, while others are “sales animals” or natural-born leaders. These strengths should of course be reflected in how they allocate responsibilities.
If a founding team is strong on all of these levels of fit, their startup will get off the ground faster, acquire more customers cheaper, raise more funding, and persevere through challenges and adversity.
Once an InsurTech startup reaches a certain threshold of customer adoption, customer inertia will actually start working in its favor. Customers default to providers they know and trust, and with relevant references. However, getting to this point takes time and only the “fittest” teams make it.
