Stonybrook: Investors hone in on early-stage insurtechs amid flight to quality

Insurtech funding is set to return to pre-2021 levels this year with capital still keen to engage with the sector, according to Stonybrook Capital.

In a joint interview with The Insurer TV, Stonybrook Capital’s Joe Scheerer and Adam Clay explain that the exceptionally favourable environment for raising capital in 2021 represented the market anomaly, rather than the reduction that followed in 2022.

Scheerer, Stonybrook’s founder, CEO and principal, described the post-2021 insurtech investment environment as a “regression to normalcy” following the boom which took place that year.

“People often refer to 2022 as a slump or an anomaly, but if you look back through time it was the frothiness of 2021 that was, in fact, the anomaly,” he explained.

“We’re really now just back to 2020 and historic times – the anomaly was the huge uptick, not the downtick from the huge uptick.

“The capital is still all very, very there. It's a bit like a property retro writer, where you have to be doing something. So, if you're a portfolio manager, bad returns are bad, but doing nothing is even worse, so capital is going to be deployed.”

The capital that is being deployed is seeing a “flight to quality”. According to Clay, senior vice president at Stonybrook, earlier stage insurtechs – those seeking Series A and Series B funding – are most attractive to investors.

“If you look at 2021, it was an exceptionally favourable environment for raising capital. And if you take that out as an anomaly, there are still billions of dollars being deployed into the insurtech market at large,” he said.

Early-stage insurtechs possess many of the characteristics that appeal to this capital, Clay noted.

“You have product/market fit, a few million dollars in revenues, a strong leadership team, and you're poised to grow exponentially,” he said.

“Getting in early is a very attractive opportunity, rather than paying up and getting in later. There is a unique balance of catching a rising star. And I think that there's a lot of opportunities right now, now that valuations have snapped back a bit.”

Watch the 11-minute interview with Stonybrook Capital’s Joe Scheerer and Adam Clay to hear their thoughts on:

– Current dynamics in the insurtech space

– The impact of the banking crisis on insurtech funding

– Anticipated funding levels in 2023