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I spent quite a bit of time lately looking at the latest in insurtech. What’s great about zooming in on a sector is that I hear things that I didn’t expect. Talking to investors has also helped me confirm some of my intuition on topics like cash diversification and M&As. — Anna
Insurtech faceoff: B2B vs. B2C
When I reached out to investors recently for our latest insurtech survey, I was curious to know how the economy was affecting insurance purchase decisions and whether this made B2B companies more appealing to VCs than their B2C peers.
My reasoning was that inflation could be weighing so heavily on family budgets that they may decide to cut down spending on expenses such as insurance. Perhaps not the best call, but if it’s either food or better insurance, the choice becomes easier.
While businesses have also been looking to cut costs, they are less likely to forgo insurance, especially for the risks they are more exposed to. For insurtech startups, this would create an environment in which it is easier to sell B2B products than B2C ones. But is it actually the case?
As usual, it turns out that the answer is more complicated than a simple yes or no — but also more interesting.
B2C: More resilient than you may think
Insurtech Gateway co-founder Stephen Brittain added some historical perspective to my hypothesis, saying that “B2C has always been more challenging to sell to.”
“Insurance is normally thought of as being a grudge purchase, and therefore, a ‘sell’ to a business is always going to be simpler but will have a more lengthy sales cycle,” he said.
Earlybird principal Nina Mayer also pushed back on my theory, arguing that insurance demand might be less volatile than other budget items. “In general, consumers seek more security and stability in times of crisis. So the demand for insurance products is not necessarily impacted as much as in other markets, such as e-commerce,” she told me.
If anything, the current context might actually create tailwinds for a specific type of B2C player: comparison and broker platforms. These challengers already helped drive prices down when they emerged. In a high-rate environment, they could be “a relief for family households who face tighter budgets due to the rising cost of living,” Mayer said.
A caveat here is that low bids are rarely the best market opportunity. According to David Wechsler, principal at OMERS Ventures, “many insurance products are compulsory (home, auto, renters, health, etc.), and a lot of the first-gen insurtechs tried to compete on price. Unfortunately, this approach often resulted in adverse selection, because the most price-sensitive are often the most at risk.”
“Ironically,” Wechsler said, “as the economy gets more constrained, there may be a stronger case for B2C, because higher-quality insurance customers are price shopping. Voluntary coverages that are seen as discretionary spending may experience more pressure with inflation. Either way, B2C has seen a lot of investment and a lot of hiccups along the way. For right or wrong, the market is lukewarm on B2C.”
This takes us back to square one: Is my hunch right that VCs now prefer B2B insurtech startups over B2C ones?
B2B: Now reinforced
There’s a broader trend at play: “The switch from B2C to B2B is quite obvious in the investment space, whatever the industry,” Florian Graillot, the founding partner at Astorya.vc, told me. He said he’s never been very excited about B2C insurtech in the first place, which also hints at factors that are specific to this sector.
For instance, Wechsler argued that B2B insurtech “has a lot more whitespace.” For this reason and others, he expects “that B2B will draw far more VC attention over the next few years.”
Paradoxically, B2C struggles might also create new tailwinds for a particular flavor of B2B insurtech, and that’s the part I found particularly interesting. According to Graillot:
“Back to your point ‘could make insurance a harder sell,’ that opens an opportunity for B2B solutions that could boost existing distribution channel operations. We have invested in such a startup — Zelros — offering a recommendation engine to brokers and agents [that] basically boosts their sales efforts. And more broadly, we see more and more tools targeting these players to make their operations more effective.”
Portage partner Hélène Falchier told TechCrunch+ that finding efficient distribution channels is key to staying lean. She sees opportunities to achieve this in both B2B and B2C, as we are in “an interesting time for all types of insurtech startups, from brokers to full-stack carriers, that have designed good products at reasonable prices and benefit from lean structural costs as digital players.”
Perhaps B2B vs. B2C wasn’t the right framing anyway, at least from an investor standpoint. Mayer and Earlybird, for instance, “remain interested in all innovative insurtech models, if in B2C or B2B, as long as they can show efficient and sustainable growth.” It’s the latter, and not the target audience, that might be the main question insurtech founders need to answer.
A startup to help you secure your cash
Startup founders might want to keep some of their cash in treasury bills, also known as T-Bills. And now there’s a well-funded startup to facilitate that process: Zamp Finance. Its $21.7 million seed round was actually closed last year, but there is no doubt that it will enjoy new tailwinds in light of the SVB crash.
Why we might see more M&A in 2023 than last year
You may know American Israeli VC firm YL Ventures from the annual look at Israel’s cybersecurity startup scene its team guest-writes for TechCrunch+. But when I talked to its managing partner, Yoav Leitersdorf, our conversation veered toward a more global topic: M&As.
If acquisitions haven’t been happening massively yet, it’s because parties couldn’t agree on price. “An M&A does not happen when there’s a big gap in expectations — or valuation — between buyers and sellers.”
What happened in 2022, Leitersdorf said, was that buyers had already gone through a reset and expected lower valuations. But startups that had raised large rounds had other expectations.” Their investors and boards of directors “were not ready to take a valuation haircut.”
But as more startups struggle to raise their next round and start running out of cash, they might become more open to exit options, even at a lower valuation than their last fundraise. As time goes by, “more and more sellers [will] realize that they’d better sell, even at a loss.”
“By the fourth quarter, I think we’ll be at a pretty decent cliff in terms of M&A,” he predicted.