The Black Swan Event for investment

WHY MACRO DOWNTURNS BRING LIFE TO MORE UNICORNS

The 2008-09 downturn created some of today’s most valuable companies. So how can founders prevail through a black swan event?

As part of the reaction to the macro downturn, investors are reportedly narrowing their appetite.

In fact, data shows that late-stage investment fell off a cliff in April but early-stage fared better. According to Crunchbase;

  • 50% of deals through May were early stage (Pre-Seed, Seed, Series A), up from 40% in April.
  • 15% increase in the number of early-stage deals in APAC
  • 55% B2B, SaaS, 45% Distribution
  • 70/30 in favour of P&C, over Life

The Jan – March quarter was up 10% on early-stage funding volume compared to the corresponding quarter in 2019 and the majority of these were B2B SaaS solutions with MGA B2C models coming in as the second-highest category.

Many players who started out as B2C, who have realised the sobering reality of competing on CAC with established incumbents, have since pivoted to offer a SaaS or PaaS solution to their ex-competitors.

Here are some of the ‘early-stage’ insurtech investments that closed throughout May covering key themes of social impact, SaaS for brokers, renters, and usage based insurance;

Omocom (EU)
€3.7m Seed
Everything indicates that we must change how we use our resources. Omocom is part of a global development aimed at promoting a more circular and resource-efficient consumption. Omocom delivers simple and safe insurance, tailored to all types of sharing, whether it be a carpool or a drill.

Covered by Sage (US)
$6m (USD) Seed
Home of the modern agent, Covered by Sage was started to make brokerage fair by giving agents better economics and greater experience. That required building a brokerage from ground-up.

Urban Jungle Insurance (UK)
£2.5m Seed
Contents insurance designed for renters from £5 a month. Urban Jungle offers a flexible, pay as you go monthly policy designed specially for renters.

Bikmo (UK)
£1.8m Series A
Bikmo provides simple, brilliant and inclusive bicycle insurance for road, MTB, triathlon and e-bike riders.

Source: Crunchbase

So why would riskier, early-stage investments outperform their more conservative counterparts in a macro downturn?

It’s only early days and anything could happen from here, though historically this is not unusual. We know that many later-stage startups (Series B and beyond) are currently stagnant or linear in their growth which makes it tough to attract scarce capital.

It is common for investment capital during a downturn to shift focus to new product ideas at the pre-seed or seed stage. And it is not a stretch to say that conditions during a macro downturn are fertile.

The 2008-09 downturn generated startup ideas that have developed into the world’s most valuable companies; Whatsapp, Dropbox, Slack, Kickstarter, Uber, AirBnB, Pinterest, Stripe, the list goes on.

How do macro downturns create fertile ground for successful new product ideas?

The answer lies in a theory on how the best new product ideas come to life. Mike Maples, Co-founder & Partner at Floodgate (VC), and host of the Starting Greatness podcast offers coaching to founders that helps explain the theory.

He says successful new product ideas are born from unique insights.

Unique insights are, by definition not obvious to the world. Unique insights are best achieved when putting yourself outside the present and into the future, and imagining what is missing, preferably before someone else notices.

These insights are often based on a technology inflection point or a technology adoption inflection point.

Why are macro downturns suitable for creating unique insights?

The 2008-09 downturn and the current COVID pandemic, created a sudden onset of a ‘new reality’ and a paradigm shift. Both events forced people to reflect and ask fundamental questions about life and the way we chose to live it.

When these “black swan” events happen, within a single moment in time, the future changes. A clever founder will identify the immediate shift in the future, and see an opportunity to create unique insights.

With change comes the opportunity. The opportunity to reimagine the future, determine what is missing, and generate ideas for new products.

The Gateway backs founders with new product ideas through de-risked live pilots.

ByMiles had a unique insight into the future of mobility. They imagined a world where consumers would only pay for what they use. They imaged a world of connected cars, less ownership, more leasing & shared economies.

In 2018, the ByMiles founders backed their new product idea and launched a usage-based motor insurance pilot into the UK market. Within 2 years, as announced this month, they have closed a £15m Series B raise after placing 20,000 policies and covering 39 million miles for UK customers. A big congrats to the ByMiles team.

If you’re a founder with a unique insight, we’d love to help you explore product ideas.

Simon O’Dell
+61 401 100 606
simon@insurtechgateway.com.au