Where money meets Insurtech. How our startups are being funded.

Our members have heard from over forty startups at our Instech London evenings in the last couple of years but we haven't talked much about funding. So for the most recent on the 20 March we turned the tables and invited a selection of nine professional leading Insurtech investors to give their pitch to the audience about what they could offer to startups, and lessons for other investors.

I will be exploring in more detail the options for startups and what these early stage investors are thinking over a series of articles in the next few weeks, but first, some context.

With all the interest in Insurtech, and headline-hitting funding rounds, it may at times seem to those watching from the sidelines that investors are lining up to dole out large chunks of cash for anyone that can offer the faint promise of disrupting the main insurance incumbents.

In reality, as anyone who has been on the road pitching their business ideas to investors, working every other free hour to build the business knows, fund raising is tough. Particularly at the first, vitally important seed round.

For very few people are able create a scalable business that can entirely fund its growth only from revenue. There are companies that provide a reasonable income for the founders and a couple of associates with no ambition to grow or sell out at large multiples - the so called “lifestyle businesses” - but these are becoming increasingly rare for insurance technology companies. Buyers are looking for global scale, long term commitments and an ability to evolve rapidly in a changing market.

So what happens when personal funding - bootstrapping - needs a bit of extra juice to achieve escape velocity?

Initial funding typically comes from four areas: friends and family; incubators or accelerators; grants, awards or competitions and angel investors. Traditionally most angel investors have preferred startups with a very strong business proposition, a founding team with proven experience and businesses that are starting to generate revenue. Yet some investors, keen to get in early, are showing more flexibility around some of these criteria if a couple of the key elements of the proposition look strong enough. Lemonade raised its first $26m in two rounds of funding whilst still in stealth mode because Dan Schreiber and his team had already built companies and knew insurance. And the profile of angel investors is changing. Not so long ago being an angel investor often meant committing sums of between £50,000 to above £200,000 to a single business. Today there is far wider scope for investors to get personally involved in the success of startups at significantly lower levels.

Instech London was conceived to provide startups with a means of showcasing their ideas to the London insurance community in an informal setting, removed from the pressure of pitching to investors or selling to buyers. Membership is growing fast. We have attracted over 2,000 people in less than two years, drawn from a well balanced mix of startups, insurers and investors.

The monthly get-togethers combine the social side, with a chance to hear short, snappy stories from the founders and their teams. To date, the emphasis has been mostly on having startups present their ideas in the by now familiar 5-6 minutes alone on stage (no Powerpoint) followed by a similar amount of time for Q & A from a generally engaged and lively audience.

With a capacity of only 200 in our now signature venue, The Steel Yard, it was no surprise that demand for tickets quickly exceeded our capacity for our Angel investing event. The investor to startup ratio on the night was impressive: 33 investors, 92 people from startups or describing themselves as innovators, with the rest of the audience representing carriers, brokers, mature technology companies, professional services and media.

Nick Martin from Polar Capital kicked off the evening bringing some old school investment experience to modern day Insurtech investing. The Polar Capital Global Insurance Fund comprises a circa £800m* diversified portfolio invested in the specialist non-life insurance industry. After hours Nick is a keen follower of Insurtech startups and so is very well positioned to see how the old world of insurance is embracing the new.

Nick highlighted for anyone in investing in Insurtech not to get dazzled by the latest distribution app, but to look more broadly across the whole value chain. He, like many close to the industry, sees a lot of inefficiency in the current systems and processes. Technology that can reduce this inefficiency and create cost savings still offers many areas of great opportunity for startups and investors. In his experience, successful investors stick within their circle of competence. As he told the audience “everybody in this room has more knowledge about the insurance industry than the average professional investor out there, you are all potential angel investors.” 

The baton was then picked up by the principals and founders from a cross-section of investors from across Europe, representing the full range of third party fund raising options available for early stage investment.

In the first half of the evening we heard from Beth Li of Wharton Angels Network, Chris Wheatcroft from Angels Den, David Holbrook of Cambridge Enterprise, and Sam Evans from Eos Ventures Partners.

After the break, and still with barely a seat free in the room, we had Dušan Stojanović from True Global Ventures, Mehrdad Piroozam from Insurtech.VC, Axel Wehr of Firestartr and Jannat Shah representing Axa Strategic Ventures

Over the next couple of weeks we’ll be digging into what we heard from each investor and what they are up to, and give you a chance to see each of them give their pitch live on the Instech.London video channel.

In the meantime, we continue to hear great feedback about the connections people made on the evening, particularly from those founders with new companies that took the chance of the open mic to give a 60 second pitch to the room about their company and the funding they are seeking. I’ve no doubt we’ll see some of them back on stage soon as one of our presenters, having secured their angel investors.

Our next event will be on 24 April, back at the Steel Yard, this time with a focus on some leading companies that are leading the way in the use of social media for insurance analytics and marketing. Priority notification for the event goes to members. Membership (sign up here) is still free.

Finally, our thanks to TigerRisk and SAS as our first two gold sponsors for Instech London this year.