CVP’s Jonathan Crystal: Current insurtech funding environment “a tale of two cities”

Crystal Venture Partners’ Jonathan Crystal said the current insurtech funding landscape is “a tale of two cities” between start-ups that are performing well and those that are having challenges, with the former cohort finding it much easier to raise capital.

The retail broking executive turned venture investor shared his outlook on the insurtech space in an interview with The Insurer TV at last month’s InsurTech NY Spring Conference, where he said investors are more closely scrutinising whether insurtech firms are creating value.

“You've got one group of companies that raised, let's say a couple of years ago, in a very advantageous funding environment, at high valuations, as they're coming to a stage where they need to kind of put up or shut up with their results,” Crystal said in the interview.

“They're finding it a little tough to figure out what the next step is going to look like, and whether there's going to be capital available to them to really realise their vision,” he continued.

Crystal also said there is a group of “spectacular companies” with “great founders” coming out of the first or second crop of early stage companies that VC investors “couldn't be more excited about”.

“And those companies are finding it much easier to find capital available to them,” Crystal said, adding that seed stage and other early-stage companies are finding a “much more receptive audience” than firms that raised at a higher valuation that is no longer justified.

“[They] are having tougher conversations with the growth stage investors that may not be as interested in supporting them,” Crystal explained, describing later-stage firms.

Crystal looking for “transformational businesses”

Crystal acknowledged that in some circles the term “insurtech” has become a dirty word associated with MGAs that “don’t produce profitable business” and instead, the venture executive said his firm looks for “transformational businesses” at the nexus of insurance and technology.

“What we're seeing, number one, is people solving real problems. Sometimes, things like compliance, and financial operations and payments. So, core infrastructure issues that people know need to be addressed,” he said of the better opportunities his firm is seeing.

Secondly, he said a key theme is firms looking to effectively leverage AI in insurance.

“Within the venture capital world, I think there's less of an interest in supporting MGAs than there was a few years ago. In a no-longer zero-interest rate environment, there's a sense that capital has a real cost to it and that capacity is a real constraint,” he also said.

The investor noted that “pure software business” are continuing to attract interest, while saying that Crystal Venture Partners’ main focus is on distribution businesses and the opportunity to deploy technology into those firms.

“The market will tell you what you're worth”

Crystal was asked to comment on the perception that amid tough funding conditions, a fair number of firms at risk of running out of runway will have to shut down.

“The market will tell you what you're worth,” Crystal said.

“As we're getting to the end stages [for] a number of companies, they're getting a sense of, ‘Did they create something of real value? Did you have customers that are going to stick around for [the] tools, software or products that you're offering? Are you underwriting business that is profitable, that is of interest to somebody who's got capacity?’” he continued.

Crystal made the comment that at last year’s InsureTech Connect event in Las Vegas, he noticed seeing more private equity representation than he had during previous trips.

To that end, the working theory of PE’s interest in the space is the potential to roll multiple software assets into a single business.

“I haven't seen a lot of deals announced yet and so that suggests it's been tough for them to find businesses that they feel like they can turn into profit-making businesses that generate real cash flow,” Crystal commented.

In November Travelers announced it was buying Corvus, and last month The Insurer broke the news that Hiscox invested in Coterie, which comes after Allianz tightened its relationship with Coalition, which has led many to speculate strategics will take a more active role in insurtech.

Strategics expected to be “pretty disciplined” in deployment of capital

Crystal – an investor in Corvus – hailed the Travelers deal, but said he expects strategics “to be pretty disciplined in how they deploy their capital”.

“Yes, they're going to have a little bit more of the leverage when it comes to acquiring but I think it'll be an interesting conversation,” Crystal said, saying that he expects corporate development teams to become more active in sourcing deals than corporate venture arms.

Crystal Venture Partners is an early-stage investor largely focusing on seed stage companies where it can invest “as early as we can, where we've got conviction with a team”, with investments including AI firm Sixfold and workers comp-focused CompScience.

The firm has also invested in wildfire MGA Delos Insurance Services, youth sports MGA PlayersHealth and embedded-focused London platform MIC Global.

“We see some pretty interesting opportunities at the very early stage of the company formation stage, almost. And then there's a number of VCs that are specialists in the insurance space that generally are like Series A and B stage, later stages,” Crystal noted.

Watch the full interview with Crystal Venture Partners’ Jonathan Crystal to hear more on:

  • The difficulties later-stage venture firms face in finding opportunities to deploy capital at a good valuation
  • The value of specialist versus generalist investors
  • Guiding insurtech strategies as an investor