Insurtech Investments: What investors are looking for
The investment climate has changed significantly. Dropping valuations and closing a new round seems more difficult than ever before. So, what are investors looking for now? What sectors, technologies, and innovations are attractive to investors in the future?
At ITC DIA Europe 2023 in Barcelona, Max Chee, Partner & Head of Aquiline Technology Growth at Aquiline, hosted the Talk Show ‘What Investors are Looking for Now’, discussing the questions above. He was joined by Juliette Souliman, Principal at Portage Ventures, Florian Graillot, Founding Partner at astorya.vc, and Rodolfo Pambianco, Director FIG EMEA at Barclays Investment Bank.
Max: The investing climate has changed pretty dramatically in the last few years. Florian, could you tell us, what you are looking for in investments today and how that has changed compared to two years ago?
Florian: “What is probably different right now is that we see more and more entrepreneurs embracing technology-based value propositions, and that’s where the market has shifted. More and more, we see a need for a real value proposition. As an entrepreneur, we invest when there is a product and we usually go after the first customers, so basically we are kind of financing the first customers. There is a very strong focus right now on the market. It’s related to how insurance companies are looking at tech solutions. When they are looking at the market and startups, insurance companies think: How can we benefit from working and teaming up together with that company? So, that’s how the market has changed.”
Juliette, I’ll ask you the same question. What do you think about the current investment climate and what are you looking at these days?
Juliette: “I think it’s fair to say that regardless of the year you’ve been fundraising, it’s difficult to fundraise. In venture capital, we look for the team, we look for a big market opportunity, and we look for products and business models that make sense. I think we’ve been protected to a certain extent from the pressures that we’ve seen at a later stage of valuation and opportunity for fundraising. But, one key question that we’re starting to ask ourselves is: Who is going to fund the next round, and will there be an appetite to fund the next round?” And what does a successful Series B and series C look like in today’s macro environment?”
Rodolfo, let’s talk about valuations. What’s been happening in the market? What are you thinking about the funding environment today from your perspective in investment banking?
Rodolfo: “When discussing valuations there are two macro elements. One is qualitative elements, and the other one is quantitative and more financial kind of elements. What has changed since the past is the relative weight between qualitative and quantitative elements. When you value a company, you can value your company as an investor being sort of a large insurance company, a strategic investor. And if you are a strategic investor, even in today’s environment, you are still assigning a lot of weight to the qualitative elements. So I’m going to invest in a company because it has a technology that can be used within my group. I can invest in a company because it addresses a certain cluster of customers that I do not address today and therefore will be beneficial to me. I think all of this still applies when looking at valuations for insurtechs today.”
What sectors are really exciting to you right now and what kind of trends are you seeing in sectors within insurance technology that you think will create the next big company?
Florian: “I would go for what we call ‘new risks’. That’s the kind of risk that is not commoditized yet, meaning that not every insurance carrier or reinsurance provider is covering it yet. The best example is the weather damage or climate change-related risks. I could put cybersecurity in that space as well. I think digital assets and crypto are another important topic, just like the new way of working the gig economy. I think that for all these kinds of risks, there is always the same challenge. So that’s where we need to spot new datasets.”
Juliette: “I think we are really into several verticals at the moment. One of them is full-stack insurers versus an MGA. We are lucky to be quite comfortable with the capital requirements that are under those types of business models. The other one that is locked is cybersecurity. I do think that nobody has cracked down on the pricing of this one. There is this challenge around the capacity that I think is a bottleneck today for investors to truly deploy a lot of capital.”
Rodolfo: “I think cyber security always comes up at the top. The second one is embedded insurance, so anything that is a little bit more indirect in terms of distribution, that is proven to be sort of a more sustainable kind of business model. The third one is B2C. Whenever we see investors investing in B2C kind of businesses, they do a lot of due diligence on the unit economics. So that’s what we see in direct-to-customer that we were not seeing previously.”
Who is Aquiline?
Aquiline Capital Partners LP (“Aquiline”) is a private investment specialist based in New York, London, Philadelphia, and Greenwich, Connecticut, that invests across financial services and related technologies. Aquiline Technology Growth seeks to invest in early and growth-stage technology companies that are bringing innovation to the insurance and financial services ecosystems. The firm has $10.1 billion in assets under management as of September 30, 2023 across all strategies.