While the coronavirus pandemic is widely expected to force a big drop in InsurTech venture capital investment, some experts suggest the industry will still see plenty of startups. This time, however, they might bootstrap their own debuts.
“There is no doubt about the point that there will be less money that will be invested in the next 12 months on new initiatives,” said Matteo Carbone, founder and director of the IoT Insurance Observatory. “All the layoffs in the other sectors, even in the insurance sector…I think that will stimulate more people who bootstrap their own initiatives.”
Carbone’s remarks are excerpted from a panel discussion pre-taped for Carrier Management’s “InsurTech Summit 2020: The Future of InsurTech in 2020 and Beyond.” The free virtual event is scheduled for Wednesday, May 6, 2020, and can be accessed at this link.
Carbone said that bootstrapped InsurTech startups are likely to be smaller than venture-funded ones, maybe with one or two people focused on “trying to solve a problem they see in the market.” This will contrast, he said, with the last year in particular, where larger InsurTechs received significant venture funding levels and had grander plans in terms of employment and more immediate expansion.
Panelist Erik Ross, head of Venture Capital and Open Innovation at Nationwide Insurance, said that being able to bootstrap a company and make “traction and headway” can often be a good strategy to consider “versus taking venture dollars.” At the same time, bootstrapping isn’t always feasible, he noted, especially during times such as economic uncertainty created by COVID-19.
“The effects of the pandemic on everyone are still unclear,” Ross said. “So not to say I would disagree with Matteo, but I think it is unclear” whether people have the means to bootstrap their own startups.”
Still, Ross didn’t discard the idea of developing a bootstrapped InsurTech startup during tough times.
“Some of the biggest innovations came out of the financial crisis [11 years ago],” Ross said. “And if you have time and you can create something that has value, yeah, I could see lots of companies being created that could address some of the more immediate concerns across the board—not just…about InsurTech.”
He predicted more bootstrapped startups but said their growth trajectory will be uncertain, depending on when they get to a point where they pursue outside investment to enable larger growth.
Tim Attia, a panelist and co-founder of InsurTech Startup Slice Labs, said that entrepreneurs can still take advantage of opportunities during a period of disruption such as the coronavirus pandemic.
“It’s a tough time, but it’s an exciting time,” Attia said during the discussion. “It’s a time where there is significant disruption because of what’s going on…Insurance carriers will have new needs. There will be a new need for product, and there will be a new need for technology.”
Entrepreneurs seeking to launch a startup in the coming months can succeed as long as they take time to understand what potential customers need, Attia added.
“There is an opportunity to bootstrap if you can get inside of a company, understand what their challenges are and try to formulate how to help them,” Attia said. “Carriers are going to figure things out and they’re going to get through this and they’re going to adapt products. They’re going to adapt processes and technology, and that’s going to create an opportunity for people who want to bootstrap.”
To sign up for Carrier Management’s InsurTech virtual summit on May 6, click here.