Anthemis is one of the most well known investors in technology start-ups and scale-ups supporting insurance and financial services. Portfolio companies include: Goji, Flock, Hokodo, Insurdata, Quantemplate, Stable, Trov, Tremor and Yulife.
Matthew Grant caught up with Anthemis partner and former lead investor at Allianz, Ruth Foxe Blader, to learn about how and why Anthemis invests. The discussion covers life before and during the pandemic, as well as a look to the future state of fintech and insurtech.
A great discussion with another InsTech London member company.
Investing to create new opportunities - Episode 76 highlights
What do you focus on when you’re evaluating companies for the fund?
Insurtech is a very important sub-sector of insurance. We are thesis driven. We’re very focused on searching for and identifying companies that we believe are going to together create positive change in financial services. We believe, as an investment house, that happens when incumbent institutions work together with start-ups.
You've released a white paper on “embedded finance”. What does that mean and which industries do you see that being most relevant for?
A fundamental part of our thesis at Anthemis is the concept that finance is the nervous system of the economy. Insurance and risk management particularly is fundamental to every industry and every sub-sector of the economy.
We look at start-ups that address, supply chain and logistics, urban planning and real estate, education, health and wellness, food and agriculture, mobility and energy, because we feel that there are insurance products that already exist in those sub-sectors and addressing those economic sectors. But also that there are new products that haven't yet been developed in those sectors, and which start-up technology can help to develop.
It sounds like you're looking for organisations that might not themselves necessarily have thought about going into insurance.
Anthemis has had a really good track record of finding companies that don't necessarily identify themselves as financial services companies or fintech start-ups and helping them to see the finance angle and what the opportunities are there.
One example of that is your investment in Stable. What are they doing in the agricultural business?
Stable looks at helping the food sector with its exposure to volatile prices. They've used a lot of very complex math to understand price volatility and to create protection products that allow businesses of all sizes, whether those are small farmers in the UK or large food giants to hedge without using derivatives products, but using an insurance product against price risk.
They figured out how to do this even for products where there is no liquid derivatives market. So anywhere that there is a reliable index, we can create a protection product against price volatility.
Climate Corp was one of the early investments for Anthemis before it was sold to Monsanto in 2013. It's been very difficult for companies to build products or build businesses directly linking insurance to climate change, but that seems to be changing now with the recent floods and wildfires.
The climate topic is incredibly impactful for insurance companies. It's one of the first industries that really took a stand because of its massive potential for economic impact.
We have so much more data than we ever had before, and we also have the capabilities to process that data more quickly. Therefore, we like companies that are creating very simple products much like Stable, where the end product to the end customer is a very simple proposition that can be sold at any time of the year.
New companies can use new technologies to create products that are quite interesting to traditional risk cat providers, which is essential for risk transfer and essential to launch a product in the market.
Are you looking at more parametric type triggers?
There's something incredibly interesting about parametric products today. The clarity of the product and the ability to agree the loss with the customer. For example, if the insured experiences an agreed amount of snowfall, they get a pre-agreed payment.
That is a type of product is going to increase based on advances in data science and the ubiquity of sensors that we're now able to create and which can address climate risk.
People have realised that it's hard to disrupt an incumbent industry. How do you see a balance between the requirement for some kind of external shock to drive change versus the ability to improve incrementally?
It's very difficult to build a full-stack challenger company, whether it's a bank or an insurance company because it requires so many different components. There's a capital layer, which is extremely challenging to build by equity alone as a start-up. There's a risk or underwriting layer, and there's a distribution layer.
That said, I love entrepreneurs. I am a strong believer in innovation, and I believe that we will see some disruptive companies succeed.
What we look at are companies that understand what they're good at and focus on it. If they can expand that over time, great, but I would say expertise in one core areas is essential to make a start-up a viable competitor in the financial services landscape.
What characteristics do you look for when you meet companies?
Flock’s an interesting example. There is an incredibly dynamic team and it’s a new business in a new space. It's a bit easier in this very traditional industry to be addressing a segment of the market, which maybe is too small for traditional, incumbent companies to be interested in.
A dynamic team always helps a concept, a new way of thinking and a really deep understanding of the problem space. Then the ability to take this new thing, and perhaps apply it to other large addressable markets, is very attractive.
Most start-ups who are successful launch in a very focused way. It’s sometimes difficult to see that enormous market from the first activities, but that strategy has to be there, that ability to grow into a really big company has to be there.
Start-ups need to have the confidence that there's a big opportunity out there, but they need to be grounded in reality. The European approach to this is to be quite conservative about what the future is going to be. Do you see a difference between the US and Europe?
There is a stylistic difference depending on where the entrepreneur hails from and how they talk about things that you would think would be sort of undeniable or empirical, like the size of the market. What interests me is the go-to-market strategy, the real assessment of the approach from going from zero to one.
It's less European versus US entrepreneurs, but mature entrepreneurs to first-time entrepreneurs. Often, first-time entrepreneurs will be excited about the opportunity, but there won't be a really clear strategy such as first targetting small target segment, using a certain type of advertising because that's where the customer lives, and these channels will be really performative.
We're a few weeks into the coronavirus pandemic. Have you seen an example of that leading to innovation in insurance?
As an investor, I'm focused on supporting my portfolio, analysing the kind of capital needs and the potential impacts for each of the portfolio companies of an economic slowdown. It’s really difficult because we're not sure where we're going to be next week or in two months.
it is a time of great uncertainty, the long-term impacts of which are still very much unknown. That said, we all know that volatility presents lots and lots of opportunities. So, I think it's about studying a lot and assessing where the opportunities lie.
Do you think it is becoming easier for innovation teams to get buy-in now?
Often, those are the people in organisations who can be the champion for new projects. Also, there are a lot of folks coming out of the insurance industry who are innovating and involved with start-ups.
I don't blame insurance companies for not wanting to talk to a bunch of people who don't really understand their business. The industry and the start-up, insurtech sector has got much better at talking to each other over the past five years.
Do you see more requirements for technology companies to sell through platforms as opposed to trying to sell to insurers independently?
I think about distribution from a customer need perspective. If a company is creating an amazing product that either doesn't exist or it's difficult to access traditionally, and its delivering it to customers where they need it, I think they’ll be successful. Whether delivering it through a traditional insurance broker, an online marketplace for an accounting platform, or at a car dealership.
This again is the concept of embedded finance. People have financial needs that they might not fully understand until they're in a situation where they need to access a financial product.
You've announced a $90 million first close on a discretionary fund, the Anthemis Insurance and Venture Growth Fund. Can you explain what you’re looking for?
We're in the process of building an awesome syndicate of like-minded insurance companies who want to use venture investing to access the innovation ecosystem. We are working together with our partners on identifying growth stage venture growth stage opportunities, which is pretty new for Anthemis.
We do believe that there are some emerging opportunities in that later stage pocket which are going to be impactful to the industry. I'm looking forward to getting started on that project.
Continuing Professional Development - Learning Objectives
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After listening to Episode 76 you will know:
- What Anthemis Group mean by "embedded finance"
- How they evaluate companies for the fund
- What characteristics they look for when meeting companies
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