Judging by the number of requests we have had for introductions, we seem to have let loose a small tsunami of discussion between startups and investors since the last InsTech.London investor evening on 20 March. There is no shortage of ideas from those hoping to break free from regular employment to launch their own business, but building a business requires money.
This is the third in a series of four posts that builds on the theme from our last monthly event at which we presented nine different organisations with access to early stage funding. I've previously provided some context in my article entitled "Where money meets Insurtech. How our startups are being funded". This gives an overview to the different stages of funding and covers Nick Martin of Polar Capital’s personal views on the Insurtech space. I followed up with a review of Angels Den, exploring the story behind this long-established angel network, now making it’s first moves into Insurtech.
We’re now looking at a couple of the other early stage investment funds that also spoke that night, EOS Venture Partners and Firestartr. I’ll be back soon for the final instalment to talk about Instech.VC and True Global Ventures.
EOS Venture Partners
Sam Evans founded EOS Venture Partners in August 2016. Previously Sam was a partner at KPMG for 13 years, running insurance M&A transactions and restructuring around the world. Today he is based out of the UK and EOS Venture Partners is one of only a few independent and specialist Insurtech investors in the world.
Sam decided to start EOS to bridge the divide he was seeing between the traditional world of insurance and the new ecosystem developing around Insurtech. For insurers, he describes a 20:20 opportunity:
“The insurers which don’t embrace innovation, risk losing at least 20% of their business to Insurtechs. On the flip side those that embrace the new opportunities have the ability to grow their businesses by an additional 20%.”
The growth of interest in Insurtech companies will inevitably follow the Technology Hype Cycle described by Gartner. Today we are on the journey from Innovation, climbing up to the Peak of Inflated Expectations. At some point we will fall into the Trough of Disillusionment. Sam is choosing his investments carefully to avoid getting caught up in the dramatic failures that typically characterize the peak. He describes his different approach from some of the other early investors in this space:
“We are moving away from the direct to consumer, distribution play and the clever apps. Instead we are interested in how profit pools are going to innovate and change over the next 5 years based on the new technology and approach. EOS structures its investment strategy to take advantage of that.”
He is also interested in platforms, looking at how clusters of technologies can be used to augment, drive and enhance individual stand-alone opportunities. Gartner also cites the platform revolution as one of the three drivers of technology trends they see developing in the near future:
“Emerging technologies are revolutionizing the concepts of how platforms are defined and used. The shift from technical infrastructure to ecosystem-enabling platforms is laying the foundations for entirely new business models that are forming the bridge between humans and technology.”
Three areas of focus for EOS
EOS search for investments that use platforms and create incremental value give them three specific areas of key focus. The first is in claims. They already have a strategic partnership with RightIndem, the end-to-end claims solution which came out of Startup BootCamp in 2016. EOS is now looking for investments for other parts of the value chain around claims in order to provide insurers with an end-to-end strategic solution.
The second area of focus is what Sam calls the digital front office. EOS already has a strategic relationship with a company that has the underlying technology in place. Sam and his team are now looking for start-ups that can be integrated into this front-end system and so bring new products and new risk classes to consumer and insurer.
And finally artificial intelligence. EOS is working with Silicon Valley and Hong Kong based Gen.Life. This new entrant is taking artificial intelligence and applying it to Life and Health supported by distributed ledgers. Sam gave the example of recent research that Microsoft conducted using queries posted on its Bing search engine. The data suggested that it is possible to tell with 99.99% accuracy whether a person has pancreatic cancer based on their search history. Voice technology can now determine whether someone has schizophrenia, depression and certain heart disease conditions. Today analytics are used to measure and price risk. Sam believes there will be major opportunities to invest in companies using technology to aid prevention, fundamentally shifting the role of insurers.
EOS Venture Partners announced in September last year that it was making up to £1 million pounds of funding available to the 2017 Cohort for Startup Bootcamp. No specific funding announcements have been made yet. In addition to the investment in RightIndem in September 2016 of £500,000, DigitalFinePrint (talking at InsTech. London on 24 April) signed EOS as lead investor in a seed investment of an approximate £300,000 round, led by EOS in December.
Firestatr: well-established investor but no Insurtech investments yet
Firestatr is another seed stage investment platform based in London. Axel Wehr, cofounder and COO, previously at Bain Capital, was on the stage at the Steel Yard.
Firestarter was created in 2012 when the founders realised that whilst Europe had all the ingredients to create leading global internet businesses there were not the proportionate number of high-value technology companies being started here as in the United States. Europe had the talent, appetite for entrepreneurship, the ecosystem and the infrastructure to build great companies. What was lacking was access to funds. The Firestartr team reckoned they could help restore the balance in two ways. First, offer capital at the seed stage, and then complement this with advice, support and mentorship to help companies get from seed funding to Series A.
A typical investment for Firestartr is between £100,000 and £400,000, in companies that are looking to raise from £500,000 to £1,500,000. They have acted both as lead investor and as follower to other investors. The focus is on technology businesses: enterprise software; digital media, fintech and consumer market places.
Their approach seems to be paying off. Over the last three years Firestartr has deployed funds at about 30 different companies, 15 of which have gone on to raise funding at Series A, B and beyond.
The team at Firestartr have had a variety of careers and experiences. In addition to starting companies themselves, the founders bring operational experience with later stage technology in companies such as Ebay and Google. Investing experience has come from time spent at venture capital and later stage private equity.
Insurtech is a greenfield for Firestartr and they’ve made no investments in insurance related companies yet. The last year has been spent getting to know the market, looking for the opportunities to follow other investors and find great companies they could support in the future. Firestartr is particularly interested where there are themes that build on their experience in different verticals, such as selling enterprise software to large insurers to help them manage their cost base or advising on how to manage the long sales cycles. Their portfolio includes peer-to-peer businesses in Fintech and they are interested in where this experience could be applied in InsurTech.
I think we will be hearing a lot more from Firestatr and EOS soon. The insurance world, despite it’s many challenges, is a highly connected and collaborative place, with more of a focused heartbeat than Fintech. The threat of disruption for the incumbents provides the motivation for an increasing number of insurers to get actively involved in this space as investors or partners, or follow the DIY approach of in-house innovation labs. As Sam Evans points out this will drive some major successes and some disappointments for incumbent insurers. The areas where real opportunities exist to build a new business of sufficient scale to justify the personal and investment risk are becoming clearer but narrower in scope. Competition is increasing amongst the start ups chasing after similar ideas in increasingly niche markets. Those that move too slowly with too limited a choice of offerings will fall by the wayside. Investors that can make intelligent selection and deploy patient capital are the most likely to be successful in the medium and long term.
I’ll be back shortly to cover the final two investors that spoke in March, Insurtech.vc and True Global Ventures. For those in London next week interested in discovering some more startups and no doubt a handful of investors, there are still, at the time of writing, a few places left at our next InsTech.London Monday event on the use of Social Media in Insurance. To be the first to hear about future InsTech London events, sign up here.
Matthew Grant is the founder of Abernite and a partner with InsTech.London. Abernite is working with a range of fast-growing technology companies offering services to the global insurance market, helping them grow through client acquisition and investment funding. Abernite also provides support and analytics to investors interested in learning more about the European Insurtech market.