Insurance Tech in Q2/Q3 2020: Where Smart Money Investors Are Placing Their Bets

Venture investors have been pouring money into the insurance space for the past 10 years. Since 2010, we’ve seen ~$134b pour into insurtech startups, with 2019 hitting the max with $33.2b funneled into the system.

With Lemonade’s recent IPO (which ended its first day 139% above its listing price), we’ve seen new-age insurance companies go the distance. Novel incentive structures, distribution methods, and technological advances in AI and ML have opened up the doors for numerous new-age insurance products: Metromile (pay-per-mile car insurance) to Clyde (point-of-sale warranties) to Shift Technology (insurance fraud detection and claims automation).

Since the U.S. lockdowns began at the end of Q1, founder and investor perspectives have changed dramatically. Externally, there seems to be less overall optimism around startups. Internally, we’ve been wondering how data can help answer investing questions: What insurance startups, if any, are getting funding during this time? Are smart money investors backing startups during this time? Are the historically active insurance investors investing during this time?

The short answer: Yes, to all of the above.

The caveat: Comparatively, like the entire venture market right now, the insurance space is in a slump.

A Brief Background on our Methodology: The Investor Quality Score

We use our Investor Quality score to rank all the insurtech funding rounds since the onset of COVID-19 in the U.S. Our Investor Quality score measures the historical success of an investor weighted by the amount of risk they take on. From there, we’re able to score a startup’s cap table and specific funding rounds.

We calculated the most active insurance investors since 2010, bucketed into four categories:

• Active Early Stage Players: Techstars (66), Plug and Play (60), 500 Startups (57), Y Combinator (56), Startupbootcamp (29)
• Insurtech- and Fintech-Focused Players: Plug and Play Insurtech (26), Startupbootcamp InsurTech London (20), Global Insurance Accelerator (18), Anthemis Group (17), IA Capital Group (10), Insurtech Gateway (9).
• Institutional Later-Stage Players: Right Side Capital Management (19), Anthemis Group (17), Bessemer Venture Partners (17), Accel (16), Kleiner Perkins (15), Goldman Sachs (15)
• Active Corporate Players: MetLife Digital Accelerator (11), American Family Ventures (10), GV (10), Munich Re Ventures (9)

Additionally, worth noting, the EU Executive Agency for SMEs, which doesn’t quite fit into the four above buckets, popped into this list with 23 unique (grant) investments.

From here, we started on the below analysis.

Post-Lockdown Insurtech Activity

COVID-19 hasn’t stopped top insurtech startups from being funded, but it certainly has dampened the total funding volume. Over the past ~5 months, we’ve seen a dip in the total funding and the number of funding rounds.

Taking Q2 as representative, the number of funding rounds has dropped 34% YoY (from 122 in 2019 to 80 in 2020). From a smart money perspective, however, these rounds have similar levels of investor quality: the average investor quality score has remained at 6.4 throughout Q2 2020 (the 83rd percentile).

While the downtrend in Q2 seems gradual, Q3 downtrend data indicates a steeper slope. The average investor quality score sits at 4.7 going into late August, the lowest since Q2 2012. The current pace of funding rounds puts insurtech on track for its lowest total funding round activity since 2012 (Q3 is on track for 69 funding rounds).

It’s worth noting that the type of rounds being funded has shifted. Since April 1st, 2020, there were 33 Seed and Pre-seed investments, a decrease from 2019 (55 Seed and Pre-seed rounds) and 2018 (76 Seed and Pre-seed rounds). Two possible explanations for this decrease could be venture capitalists’ preferences for doubling down on safer, existing relationships or founder hesitancy in a frothy market. It’s a thread worth pulling on, which we’re actively trying to figure out.

Although Q2 and Q3 data tells a story of relatively lower funding activity, several high-quality insurtech startups closed rounds since the start of Q2. These include:

• Bestow ($50m Series B, 96th percentile) is a tech-enabled life insurance provider. Notable investors include: New Enterprise Associates and Valar Ventures.
• The Helper Bees ($6m Series A, 95th percentile) works with insurers to offer in-home treatment and caregiving services to the elderly. The Helper Bees is backed by Techstars among others.
• Alan ($54.3m Series C, 93th percentile) is a Paris-based health insurance startup, backed by Index Ventures.
• Brightside ($35.1m Series A, 91th percentile) is an employer-provided financial health platform, enabling employees to track and better manage their financial health, backed by Andreessen Horowitz and Comcast Ventures.
• Spruce Holdings ($29m Series B, 90th percentile) provides title insurance and offers tools that improve the title and settlement process. Spruce is backed by Bessemer Venture Partners.
• Clever Care Health Plan Inc ($20m Series A, 90th percentile) offers medicare advantage health plans, connecting patients to a mix of eastern and western medicine providers. Notable investors include: Norwest Venture Partners and Global Founders Capital.
• Sprout.ai ($3.1m Seed, 89th percentile) offers claims automation and fraud detection solutions and is backed by Techstars.
• Angle Health ($4m Seed, 89th percentile) provides health insurance plans aimed at startups, trying to ease the process for small-group health insurance plans. Angle Health is backed by Blumberg Capital and Y Combinator.
• Clyde ($14m Series A, 87th percentile) offers point-of-sale product warranties for e-commerce retailers. Notable investors: Spark Capital and RRE Ventures.
• Tomorrow Health ($7.5m Seed, 87th percentile) works with insurance carriers to provide in-home product-based solutions (e.g. wound care, respiratory devices), similar to The Helper Bees. Tomorrow Health is backed by Andreessen Horowitz and BoxGroup.
• Oscar Health ($422.5m Venture Round, 86th percentile) is a tech-enabled health insurance provider. Oscar is backed by Thrive Capital, General Catalyst, and Khosla Ventures.
• Kin Insurance ($35m Series B, 85th percentile) is a tech-enabled home insurance agency, backed by Commerce Ventures and QED.

Other high-quality investments include: Tower IQ, Hippo Insurance, and States Title.

Interestingly, the most historically active insurance investors lack participation in the above deals. Only 28 of the top 50 insurtech investors have made an investment since April 1st, 2020. Plug and Play was the most active investor during this time, investing across Monk.ai, Aniline, Just Auto Insurance, and Evertas. The next most active investors during this time were Alma Mundi Ventures (Omocom, agentero, Fixico) and Global Founders Capital (Clever Care Health Plan, SingularCover, Lingxi).

As for the more institutional players, we saw American Family Ventures back Branch Financial (an online home insurance agency), Insurtech Gateway back By Miles (pay-per-mile car insurance) and honcho (reverse auctioned car insurance), and Munich Re Ventures back Bought By Many (pet insurance).

At Radicle, we’re actively monitoring the insurance space. Questions like How are investors and founders approaching the insurance landscape in this new environment? are those that we seek to answer. In the coming weeks, we’ll have interviews with investors and founders in the space to get insights into the shifting insurance landscape.

If you’re interested in learning more about how the Investor Quality Score can help you prioritize where to focus or about our work in insurance, contact harry@radicleinsights.com.