Gateway Australia April Investment Update

Zig or Zag? Navigating the downturn

On the back of an unprecedented bull ride, a downturn was overdue. But, unless you’re the organisers of Wimbledon, you were unlikely to be prepared for a global pandemic, or the severity.

There are understandably many questions floating around the already-busy minds of insurtech founders.

  • Are VCs still open for business?
  • Should I aggressively reduce my cost base to extend my runway?
  • With growth metrics down, how can we show performance?
  • What impacts will the current downturn have on my capital raise in 12 months

As if being an insurtech founder is not difficult enough!

But first, here are the stats on global, early-stage investments through April

  • 40% of deal count fell into early-stage (Pre-Seed, Seed, Series A).
  • Deal count for early-stage deals continues to slow, down 33% Oct – Dec quarter.
  • Of those, 42% are based in the US, 45% based in the UK.
  •  45% MGA business model, 30% Pricing & Underwriting (SaaS).

Funding volumes pre-downturn were rising at record levels, up 52% Oct – Dec quarter. This shift reflects the maturing of the insurtech market as investors, including XL Innovate and AllianzX consolidate their strategy to target later stage insurtechs.

We eagerly anticipated the Jan – March quarter data but expected it to be mostly unimpacted by the downturn.  April – June will be a different story and until then, we can really only guess at the true impact on our market.

Where is the money going?

Let us take a look at some of the exciting ‘early-stage’ insurtech investments that closed throughout April.

Honcho UK
£1.2m Seed Round
Honcho is the reverse auction marketplace for financial services. Bringing buyers and sellers of insurance together into a competitive marketplace in order to win consumers’ business.

Arturo US
$8m (USD) Series A Round
The Chicago-based startup spun out of American Family Insurance in 2018 and specializes in providing predictive analysis for residential and commercial properties. UK
$2.5m (USD) Seed Round
‘Lemonade style claims for every insurer’. Founded in 2018, has developed AI-based software that it says enables insurance claims to be settled within “just 24 hours”.

Loadsure UK
£1.1m Seed Round
Led by founder and CEO Johnny McCord, Loadsure is an international Insurtech Managing General Agent (MGA), which provides an end-to-end, cloud-based insurance solution that leverages predictive analytics and a tech stack to provide the spot freight community with a full-service insurtech solution, integrated with digital transportation management platforms.
Loadsure is a coverholder at Lloyds.

Source: Crunchbase

Yes, the reality of a downturn is that capital will be harder to come-by, valuations will take a hit, and start-ups will fold, with some predictions as high as 25 – 35%.

I have heard one VC explicitly state that their doors are shut – do not bother calling. However, founders by nature are fundamentally optimistic and pragmatic, which is a great combination when navigating an economic downturn. There are also many toolkits emerging to help guide founders.

We have a few suggestions as well:

  1. The measure of ‘good performance’ has consequently changed as a result of the environment we are in and by now you should have a better feel for the impact your business can sustain. Consider reviewing the metrics that will demonstrate performance through this period. Your growth metrics will likely take (have already taken) a hit. What other metrics can you introduce or bring into focus?
  2. Consider reducing your cost base/ burn-rate to extend runway. What costs can be reduced? Our friends at Legal Vision have produced a 4 step guide to help founders consider options before laying off staff.
  3.  Know thy runway, intimately. Typically, as the dust settles on an economic downturn, capital providers can be more conservative. It may take more meetings than usual to close a deal. Plan early and start dialogue 6-12 months in advance.
  4.  Keep an eye on government incentives. If you ask an Israeli, Australia is the envy of the startup world on the measure of government support. Insurtech Australia, Fintech Australia and other start-up peak bodies are advocating for the Aus government to introduce a scheme similar to that introduced in the UK.

In essence, a start-up is a new business that is designed to grow rapidly, and as such, founders do not usually find themselves deploying their scarce capital on risk mitigation measures or building fat reserves for a long winter, yet here we find ourselves. Economic downturns are where resilience it tested, and founders generally have resilience in spades.

If you’d like to discuss your needs further, we encourage you to reach out to our close partner Insurtech Australia. It is your local not-for-profit peak body advocating for your needs, and Rita and the team go into bat for insurtech founders each day.

The level of local connectedness within our ecosystem will determine our collective success. Please reach out.

Insurtech Gateway Australia remains open for business too. We have recently backed 2 undisclosed insurtechs, both of whom are in stealth mode. We will be announcing them to the local ecosystem in due course.

Insurtech Gateway Australia is about action that will lead to disruptive innovation. While some are busy talking, we are testing new ideas in the market. While many are zagging, we are zigging! Insurtech Gateway Australia has just started, and we are empowering Australian founders to make a difference in all periods of the macrocycles.

If you’re an early-stage founder, and want to come and play with us, please get in touch.
Simon O’Dell
+61 401 100 606