Why We Invested in Cowbell Cyber

By: Victoria Cheng, Partner at PruVen Capital & Adi Sivaraman, Investor at PruVen Capital

We recently announced our investment in Cowbell Cyber’s $100M Series B. We wanted to share some insights about why we made this investment and why we’re so excited about Cowbell’s vision to insure and protect businesses from cybersecurity attacks.

One of our main themes at PruVen is to invest in companies that represent the inevitable future state of insurance: underwriting policies based on granular, customer-specific data and real-time risk mitigation. We refer to this trend as the shift from Actuarial to Actual — a movement away from pricing risk based on historical aggregate cohort calculations toward writing policies that are specifically tailored for the policyholder with an ever-evolving perspective of the future. We think Cowbell is signaling a new era in commercial insurance, harnessing technology and data to provide policyholders and partners with advanced warning of cyber risk exposure and customized coverage to intelligently and proactively mitigate cyber risk. We wanted to share a few insights from our deal memo to highlight why we think Cowbell’s opportunity is so compelling.

Cyber insurance is one of the largest growing categories of commercial insurance and inadequately served by traditional insurers

Purchasing cyber insurance today is cumbersome, manual, can takes up to weeks to issue, and does not always accurately reflect the risk in the businesses that are being covered. The typical process consists of a lengthy (often paper-based) questionnaire of over a hundred questions and a period of up to 90 days. Cyber insurance is distributed largely through licensed brokers, and today the process of quoting, binding, and accepting payments is extremely painful. Additionally, cyber insurance requires different types of risk assessment and management than traditional P&C policies, including ongoing risk assessment, risk mitigation, and exposure management. The combination of these factors makes cyber insurance uniquely suitable for startups to enter and succeed in with a new approach.

Meanwhile, market demand for cyber insurance policies is robust and growing. According to Standard and Poor’s research, the cyber insurance market premiums total $5 Billion annually and is expected to continue to increase 20–30% per year for the foreseeable future. The continued development of and increased business reliance across all industries and size of businesses on technology and the internet creates more exposure to cyber risk. At the same time, increased regulations around data privacy put more onus on companies to be able to manage their cyber exposure. The recent prevalence of ransomware (and the media coverage of attacks) has increased awareness of the cybersecurity threat to small- and medium-sized businesses. As a result of these factors, we expect that the number of companies that purchase cyber insurance will increase and the individual policies will also increase in size over time.

Our perspective on the future of the cyber insurance market was further validated by our discussions with leading reinsurers. From the vantage point of the reinsurance ecosystem, “there is now little question about the criticality of cyber insurance for businesses of all sizes.” While the category is still maturing, we believe a company, like Cowbell, that can get risk and pricing right and manage cyber insurance policies effectively will establish itself as the leader in a new and growing insurance market.

We believe Cowbell is positioned to be the market leader by combining cybersecurity and insurance expertise to offer robust coverage, precise risk pricing, and ongoing real-time risk mitigation strategies

Cowbell is a next-generation cyber insurance provider that sells policies to small and medium-sized businesses. The company’s success to date can be attributed to a few factors:

• A focus on the broker ecosystem and building technology specifically to make the process of selling Cowbell policies seamless for brokers. Cowbell offers brokers the ability to transform the buying experience by reducing the normally weeks-long process of selling a cyber insurance policy to anywhere from a few minutes to a handful of days at most. The company can quote, bind, issue, enroll, and accept payments instantaneously through their brokers for many of their products. The response to this ease of delivery has been a strong partnership from the broker community, and Cowbell continues to focus on supporting their brokers in being successful and delivering the best customer experience possible to clients.
• Cowbell takes a highly data-driven approach to underwriting and mitigating risk, including continuous real-time risk assessments using technology and proactive notifications to policyholders about emerging threats and the steps to take to mitigate cybersecurity exposure and protect their businesses.
• Moving from Actuarial to Actual: The Cowbell team’s cybersecurity expertise allows them to understand a potential policyholder’s risk profile on a granular basis and offer risk mitigation advice that’s germane to the individual policyholder, and also to price risk accurately. Other cyber insurance providers (especially legacy P&C providers) have historically struggled with cyber insurance because they lack the technical infrastructure to assess and price risk quickly and accurately, leading to high loss ratios, and, eventually, pulling out of the market. Cowbell’s ability to monitor the risk posture of individual policyholders in the portfolio in real time means that the company has longitudinal data as well as the ability to intervene in real time if policyholders are at increased risk of a cybersecurity incident and avoid attacks when feasible.

Finally, one of the main reasons we’re so excited about our investment in Cowbell is the phenomenal leadership team. When we first met Jack, Trent, Rajeev, and Prab in early 2021 we could already tell that this was a world-class team with incredibly deep expertise and domain knowledge. When we first saw that they were projecting 40x+ YoY growth, we thought that these were typical venture fundraising optimistic projections. But they actually did it. Not only did they achieve the numbers they showed us in January, Cowbell beat their own plan. The Cowbell team impressed us over and over the course of more than a year, and we can’t wait to see what’s next for Jack and the team. We look forward to leveraging PruVen’s expertise and network in the insurance industry to support Cowbell as they continue building what we think could be a category-defining company in cyber insurance.

Onwards!