When insurtech company Metromile went public via a special purpose acquisition company (SPAC) in February last year, it was valued at over $1 billion. A year and five months later, Lemonade acquired the company for less than $145 million.
As the markets turned early this year, insurtech left most generalist investors' playbooks almost as fast as Metromile and its peers' plummeting valuations. Yet, the sector is very much alive, and the "correction" of these companies' valuations presents an opportunity for those who have cash left on their balance sheets, investors told TechCrunch.
The insurtech market has been through a rough time this past year, so we reached out to eight active investors in the space to get a read of what's been cooking as the markets aggressively recalibrated what an insurtech startup is worth.
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"From an M&A perspective, it's a matter of price versus positioning," Graillot said. "If you are solving a real pain point as an enterprise software company, tech providers or insurers might be interested in acquiring you. For DTC players offering personal or commercial insurance policies, if you've cracked the online acquisition challenge, you are worth something, and corporates might be interested in you to boost their own internal initiatives," he said.
The players involved in these deals might go beyond the usual suspects, too. On one hand, private equity funds won't be interested in companies that don't have a clear path to profitability. On the other, "the growing interest and value of embedded insurance may bring nontraditional companies into the acquisition arena," David Wechsler, principal at OMERS Ventures, said.
The bulk of the buyers, however, would likely be companies involved in insurance themselves - either insurtechs acquiring some of their peers or legacy players. For Clarisse Lam, associate at New Alpha Asset Management, this makes sense: "The repricing represents a great opportunity for incumbents to make strategic acquisitions and accelerate their digital transformation. This may actually be a great moment for insurtechs to nurture their relationship with incumbents to work on synergies and potential trade sales."
VC money is definitely drying up for some, such as neo-insurers whose unit economics are under scrutiny. But other insurtech business models are seeing increasing interest.
"I see investor enthusiasm for B2B insurtechs with a recurring revenue model," Martha Notaras, a general partner at Brewer Lane Ventures, told TechCrunch. "Many of these startups are delivering efficiency and cost savings to traditional insurers, and those existing insurers have become more receptive to bringing in startups to solve difficult operating problems."
Read the full survey to understand where insurtech-focused venture capitalists are placing their bets, how to pitch to them, and where they expect startups to innovate next.