Anthemis on public InsurTech woes, backing female founders and the sector’s future

Anthemis Group, a cultivator of change in the financial system, was the most active InsurTech investor in 2021, participating in a total of 11 transactions. FinTech Global sits down with the prolific VC to discuss what exactly it sees in the InsurTech industry.

Ruth Foxe Blader, a partner at Anthemis, said the firm has been following the InsurTech space since the very beginning. “We’ve always felt like the insurance industry holds a lot of potential value for investors in the sense that it’s pretty non-technological. And there’s a lot of opportunity to create value through technology at basically every part of the value chain.”

Becoming the most active InsurTech investor is testament to the VC’s long-term commitment to the industry. Anthemis has several funds dedicated to looking at insurance risk management generally, believing that not only is it an enormous industry, but one where technology can play a pivotal role in significant innovation.

However, it has recently been observed that InsurTechs that have gone public are underperforming relative to other sectors. Blader said although this is undeniable, it is not, in fact, a cause for concern.

“We are not really surprised by this trend,” she said. “These early InsurTech experiments getting out and going public early and seeing that public market scrutiny is really important for the sector.” She added that her observation would be that a lot of the innovation in the insurance industry early on has been around digitalisation, the distribution process and the customer acquisition process, with perhaps less attention paid to the actual fundamental unit economics of running an insurance business, in addition to other important metrics that make an insurance business work.

What we are seeing public markets react to, Blader continued, is probably businesses that are subscale with high loss ratios. “We actually think it’s very positive for the next wave of InsurTechs, where we see innovation up and down the value chain and real attention being paid to the fundamentals of what makes an insurance business successful. Such as underwriting and reduced customer acquisition costs; the kinds of efficiencies that can be created using technology.”

When asked if there was a potential overvaluation problem in the industry, Blader said that if there are such overvaluations, they will be problematic for certain companies, but not across the board. “If you look across the venture capital market, you’re going to see that valuations became quite stratospheric across the board in 2021,” Blader said. “There was a lot of capital that entered the private markets, chasing a smaller number of deals probably proportionally to the amount of capital that’s entered.

“I think we will see a kind of bifurcation and a flight to quality. Some companies will be able to defend the valuations they’ve commanded, because of their strong businesses, and others will have more difficulty.”

She acknowledged that although there is a consensus view that some of the companies that performed poorly went public too early, she is sceptical that this is a funding issue. “I think what the need is, is less around raising more capital and more around ensuring efficient ability to scale and attractive unit economics: the fundamentals of an insurance business prior to going public.”

Levelling the playing field

Nearly one quarter (24%) of Anthemis’ portfolio of companies are founded by women. However, although the investment firm promotes values of diversity and inclusion, Blader stressed that the gender makeup of a company does not influence Anthemis’ decision to invest, the company is simply looking to invest in the best companies.

Blader said Anthemis is not challenged to find excellent female-founded companies. “Excellence is evenly distributed; it is not challenging to find companies that are founded or led by underrepresented founders and founding teams.”

The same applies to the racial makeup of a company. 45% of Anthemis’ portfolio companies are led by women or executives who are Black, Indigenous, or People of Colour. “We look carefully at every business, and we see excellent opportunities being brought to us by people from diverse backgrounds. We’re looking to back the best founders working on the best projects. Frequently we find that those criteria are also matched by people from underrepresented backgrounds.”

However, the stark reality is that female founders secured only 2% of venture capital funding in 2021, according to data from PitchBook. “This is actually shocking when you think that we [women] represent more than 50% of the global population,” Blader said.

There are a myriad of forces at play here. Blader said for some women, they may be making a rational choice to avoid seeking venture capital funding in the first place, knowing the likelihood of success is historically low. More concerning though, is the systemic discrimination that is socially embedded in the fabric of society. “Women’s very early experiences may prevent them from viewing themselves as viable candidates for careers in science and technology.”

There is also a lack of imagination, Blader said, whereby investors like to back companies they can relate to. “So, if problems, challenges, or opportunities that focus on a group that the investor is not involved with are presented, they don’t necessarily see the interest of the business.” Having more female decision makers in venture capital could go some way to improving this, Blader continued, but from the roots of the problem all the way to the pitch process and beyond, there are things we can do as a society to enable more women to have the opportunity to found great businesses.

The gender funding gap is particularly puzzling when there is clear evidence to demonstrate the value women bring to businesses. A Credit Suisse Research Institute report revealed that companies with at least one woman on board perform 26% better than those with a male only board. According to Blader, there are a couple factors at play here.

Firstly, boards at their best are problem solving mechanisms, and the more perspectives you have, the more attentive the mechanism will be to what is happening in the business. The other reason, Blader said, is that in order to be a successful fund manager or female founder, you must be so much more successful on many different fronts. “It doesn’t surprise me that there is this outsized shine and performance.” As a result of this, Blader continued, levelling the playing field may mean more women who launch businesses will fail, “and that will be okay. Because that means more people have opportunities, and those opportunities are more evenly distributed.”

Moving forward, Blader said she would love to see InsurTechs pioneer better gender equality in what has traditionally been a male-dominated space. “These technology businesses and venture-backed startups should be inherently challenging in some way, and so, having a challenger-type person running it, maybe a woman, is maybe quite suitable.” Generally, we need to see more women in leadership across the board, she added. “I think there are some fantastic women working in the insurance industry, we just need to ask, how do we help to promote them in exploring ideas or projects that they might have?”

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