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How to Assess Bootstrapped Startups

Over the past nine years, $20.6 billion has been invested into insurtech startups (data below as of March 21).

In 2016 and 2017 alone, this figure amounts to $10.7 billion.

I love it. There is nothing better than reading about a newly funded startup from a large VC firm.

It takes a ton of blood, sweat and tears to get an investment from a high-profile VC, and it is extremely rewarding for the startup that is able to secure funds from one.

These transactions tend to generate a lot of press (as they should). The money allows the startup to say, “We have proven ourselves by gaining some traction, have passed the intense due diligence of a VC firm and now have the runway to serve you.” “You” in this sense typically means a carrier (in the case of a B2B insurtech startup).

There is another group of startups out there that do not get any funding press because they are self-funded.

These firms sometimes fall under the radar of carrier innovation teams that are scanning the market for meaningful solutions.

This article is NOT to take away from the funded companies. The majority of startups I work with are well-funded by VCs.

This article IS to educate on what a self-funded (i.e. bootstrapped) startup is, some advantages and challenges of working with one as well as how a carrier should assess a bootstrapped startup vs. a VC-funded one.

To help with this, I had the pleasure of interviewing Nick Mair, CEO and co-founder of Atticus DQPro. Atticus DQPro is a data monitoring platform designed specifically for the operational and regulatory needs of the insurance market. Atticus DQ Pro was bootstrapped from Nick’s first business, Atticus Associates, a consulting service to the London and specialty Insurance market.

What is a bootstrapped startup?

The self-funding can either come from a founder’s personal finances or another revenue stream, such as consulting. A third approach is to fund a company based on the revenue from a product that you are building, though this can be harder to get off the ground. There are also circumstances whereby a company will bootstrap for a period of time to obtain more attractive fundraising terms (more on this later).

For Atticus DQPro, Nick had an established consulting business in the U.K. insurance market. The focus was on technological implementation and transformational change for carriers.

See also: Where Are the Insurtech Start-Ups?  

By gaining on-the-ground understanding of how carriers work and what their problems were, Nick and his team were able to identify a solution for the specific need their clients were facing.

They got the idea and the funding from their consulting business.

What are some of the advantages to working with a bootstrapped insurtech startup?

“When you are bootstrapping, you are living on very limited amount of cash, and this means you are forced to solve a problem faster than a VC-funded outfit.”

I found Nick’s statement to be quite interesting. Whether a startup is bootstrapped or VC funded, it must have a solution that is relevant to the carriers it is trying to work with. For those that have VC funding, their runway may be a bit longer. VCs are typically looking for a total return/liquidity event five to seven years from time of investment and good traction within one to three years. Bootstrappers do not have this same luxury.

“Many bootstrappers are looking to solve a real problem now rather than something truly disruptive,” Nick said.

Nick explained that, from his experience, bootstrappers must get to product/market fit and real revenues faster. If they don’t (unless they have very deep pockets), then they could be out of business in less than a year.

Nick said bootstrappers are pushed to solve problems faster with the carriers they work with and then scale quickly after that.

Bootstrappers can mine opportunities that are not of interest to VCs because they’re sub-scale; e.g it’s a $5 million to $30 million opportunity rather than $100 million-plus. That window leaves a lot of niche problems for bootstrappers to fix without competition from funded startups. Nick said: “We can argue revolutionary change is required for our industry, but evolution can happen in parallel to solve real business problems now.”

Lastly is the area of domain expertise. Many bootstrappers (as in the case with Nick) are industry specialists who have found a need within the domain and want to fix it. By contrast, many of the VC-funded startups come with founders with deep technology backgrounds. They have built great solutions that they believe can enhance or disrupt insurance yet lack the insurance industry domain expertise.

I do see this dynamic shifting. There are many more VC-funded startups with founders who come from within the insurance industry.

What are some of the challenges to working with a bootstrapped insurtech startup?

Not all VC-funded startups are looking for long-term disruptive solutions. Many have product/market fit solutions that solve the existing problems of today’s insurers.

These VC-funded startups can scale their teams (specifically in sales/business development) much more quickly than a bootstrapped model allows. Nick shared that this problem typically comes when the bootstrapper has around 10 clients and needs more resources to continue to market and deliver their product. This is typically the time that a bootstrapper needs to try to secure outside funding.

Nick’s view is that bootstrappers that can generate a decent annual recurring revenue (of roughly $1 million to $2 million) will be in a better position to get additional funding on more favorable terms (i.e. the startup already knows it has something that works and can be more confident when/if seeking additional funding to scale, through a VC, small private equity firm or carrier). Getting to that point and knowing when to make that call can be hard for a bootstrapper.

Another disadvantage of working with one is that the team is primarily the management team and advisory board. Having a VC-funded startup brings the experience of the firm that invested. A VC firm has massive skin in the game for the startups to succeed.

If the VCs are with a reputable firm, they have dealt with startups for a long time and likely had some good exits. They will be able to bring a perspective that the founders may not have and may not have access to within their own management team/advisory board.

What does this mean for carriers? Should they partner with a bootstrapped insurtech startup or a VC-funded one?

A few months ago, I wrote An insurance carrier’s guide to working with an insurtech startup. The first point is to “understand and prioritize your organization’s needs.” I would like to reiterate this. A carrier must have a problem/area that needs to be addressed. If the startup fills this need, then I said to move to the next, which is due diligence.

If the startup is VC-funded, this is a good first step.

VCs have ridiculous due diligence processes (just ask any founder what the process is like). If a startup has secured a Series A or higher from a reputable VC firm, it has passed a certain test. The VC will have looked at the business plan, legal entity setup and founding team to the nth degree (among other things). A carrier must perform its own due diligence but has the assurance that someone else has also done a fair amount.

For a bootstrapped one, it is important to know where the funding is coming from and what sort of runway the startup has.

For both, it is important to know what sort of engagements they have done. If they are only in pilot stage with the carriers they are working with, this is OK. Ask what sort of results they can share with you from the pilots they have done/are doing to indicate whether that is the sort of result you are looking for.

Additionally, when looking at the team of the startup, it is extremely valuable if some of the founders/team members have actual insurance industry experience. This will add another element of understanding of the carrier’s business while working together.

Lastly, carriers should start with a pilot when working with a startup (whether funded or bootstrapped). This is a good way to validate the work the startup says it is going to do with you before going fully commercial.


There are tons of startups out there. It’s such an exciting time to be in this business and to be working with such smart and energetic people who are trying to make insurance better for consumers.

I have deep admiration and respect for all startups, whether they are funded by VCs or bootstrapped. It takes a lot of courage and perseverance to start a business, especially in one as highly regulated as ours.

See also: What’s Your Game Plan for Insurtech?  

There are many reasons why a startup would be bootstrapped vs. raising funds.

The last point Nick made to me was that “self-funded can mean bootstrapped by design/choice rather than trying to get funded. Founder reasons can be keeping control, better work/life balance or greater freedom.”

For those thinking about starting an insurtech startup, have a look at this article that Nick shared with me.

And for those carriers looking to partner with a startup, do your due diligence and make sure you are filling a need and putting the carrier in a better place as a result. VC-funded startups and bootstrapped ones are both good options, and you should consider both for your innovation efforts.

This article first appeared at Daily Fintech

How Is Insurtech Different in Asia?

A few weeks ago, for my work outside of Daily Fintech, I attended the InsurTech Asia Association Roadshow in Japan and Singapore. During the roadshow, Pivot Ventures (the company I work with), together with the association, brought together 15 startups with 15 insurer/reinsurers.

This was my first trip back to Asia since moving back to the U.S.  It got me thinking: What are some similarities and differences between Asia and the U.S. when it comes to insurtech?

At a high level, I found two clear similarities between Asia and the U.S:

  • Incumbents are trying to find the right balance between upgrading legacy systems/other operational efficiencies with innovative solutions (both in terms of identifying the right corporate strategy plus prioritization)
  • They are also trying to identify how to do innovation when it comes to distribution (in Asia, many have issues expanding D2C because of large captive agency and exclusive bancassurance tie-ups)

When you get a bit deeper, though, there are some very clear differences between the two continents, which lead to differences in terms of pace of change/adoption of insurtech solutions as well as the actual solutions that are being put in place:

1.  Many times people talk about Asia as one place.  Yes it is one continent, but with many countries. I have grouped some of the countries below based on my experience in the region:
a.  Northeast Asia – Korea, Japan and Taiwan
b.  Emerging Southeast Asia (ASEAN less Singapore) – Malaysia, Indonesia, Cambodia,  Vietnam, Laos, Myanmar, Thailand, Philippines, Brunei
c.  Mature Southeast Asia – Hong Kong, Singapore
d.  India
e.  China
f.  Central Asia (Mongolia, Kazakhstan, etc.)

I group these countries based on where I believe they are in terms of insurance/insurtech innovation as well as similarities in culture. India and China are kept on their own because they are so big and so different. “Others” would include Central Asia and some other parts of Asia not specified in a-e.

2.  Coupled with the differences in culture of the different countries above is that of the consumer. This can be two-fold – 1) in terms of their preferences/needs and 2) in terms of their disposable income.  In general, there are some similarities in terms of income/earning of consumers in the countries/groupings that I label above, but there will be some big differences in terms of what customers need/want when it comes to Insurance in each market.

3.  Regulation is different in each country. This means, for an insurtech startup wanting to expand to Asia, it will need to deal with multiple regulators (which could be entirely different regulations, language, cultural dynamics). U.S. startups have to deal with different state regulators, but, on the whole, it is the same language and overarching national guidelines (though the dynamics of each state could make it just as difficult as launching in multiple countries across Asia).

See also: My 4 Ps for Investing in InsurTech  

Also, on regulation, there seem to be more regulatory sandboxes in Asia (HK, Singapore and Malaysia all have one), which allow for startups to try their solution in a market without having to go through all approvals. I believe the U.S. could really value something like this.

Any specific examples?

A whole paper could be written on the differences between each country in Asia, especially as it relates to insurance and insurtech. So, I will include the top question/comment that I received/heard in each market, which may help to shed some light on some of the key differences (though I only attended Singapore and Japan, we had one colleague with us from China, and I have also included one from my experience in Malaysia):

  • Singapore – “Who else is using this solution? We’d like to know that it works, but we want to adopt a solution that will be new and exciting to the market.”
  • Japan – “Who else is using this solution, in Japan? By the way, who is using you guys in Japan?”
  • China – “Many times, the Chinese firms will have startups present to them just so they can learn the technology and then build it themselves.”
  • Malaysia – “What can we do to make our agents/banks happy while also doing something to expand our direct capabilities?”

Willis Towers Watson/CB Insights Quarterly Briefing

Two weeks ago, Willis Towers Watson and CB Insights released their Quarterly Insurtech Briefing. This quarter’s focus was on Asia, primarily China, and the “shifting global balance of power” as it relates to insurtech. There are a lot of great things with the report and I encourage you to read the whole report when you have time.

A few key themes/figures resonated with me from my recent trip to Asia and my experience working in Malaysia. All graphs/pictures below have been taken from the Quarterly Briefing.

1) Insurance penetration is low and populations are growing, meaning there are tons of opportunities in insurtech.

Looking at the picture above highlights two interesting things:

  • For countries like China and India, the two biggest countries in the world, the insurance penetration is one of the lowest, meaning there are hundreds of millions of people who need to be served/provided insurance
  • In contrast, Japan and Korea are among the top countries in terms of insurance penetration. Hence, the needs for insurtech may be a bit more specialized, as the focus will not be as much on distribution/reach as it will be for China and India

2)  Products and distribution need an upgrade

On the product front, just like everywhere in the world, there are opportunities for innovation. The products in each market in Asia will be primarily driven based on customer need and affordability. Hence, the offerings in each market will vary widely from country to country. Additionally, due to the massive amount of e-commerce in Asia, particularly in China, there are a lot of opportunities for new products in this space as well as insurance as a bolt-on (API) to web-purchased products.

On the distribution front, things become a bit more interesting. I have mentioned this a few times above.

In Asia, when it comes to agency distribution, in most countries, the incumbents operate on a captive agency model. Some of the agents/agencies will have been with the company for upward of 20/30 years, only representing that incumbent. On the partnership distribution side, many of the agreements with banks in Asia are exclusive agreements (particularly on the life side), whereby banks are the exclusive distributor of an insurer’s products.

What does this mean?

The potential for channel conflict for incumbents, when it comes to new direct channel (i.e. online) sales, is very high. Both agents and banks will want the new digital tools/investment to be made in them, and will see any other distribution channel as a threat.

Just look at the graph above. This is quite telling.

This, however, means that there are lots of opportunity for new full-stack players that come into Asia (that doesn’t exist as much in the U.S. because the agents/financial advisers in the U.S. typically represent more than one carrier). Because of these captive agents/exclusive bancassurance deals, full-stack startups can offer a different proposition because they are not encumbered by legacy system or legacy distribution.

3)  Enter tech giants and APIs

Leveraging partnership platforms is what has made Zhong An so successful. It has also opened the door for a lot of new types of products based on the needs and offerings from the e-commerce platforms that Zhong An partners with.

This trend will not go away. Not in China, not anywhere else. There will be tons of opportunities for insurtechs to partner with insurers and non-insurers alike to find new ways to offer insurance directly to a consumer. I like the three points below that were in the briefing:

There have been some write-ups recently about Apple and Amazon potentially entering the insurance space. How can you read Bullet B&C and not think of these two companies?


Asia is a fascinating place with different people, cultures and topographies. Aside from the similarities and differences outlined above, one thing for sure is that Asia is “always on.” Every time I go there, I feel a certain buzz around me. It doesn’t matter what country I am in, I always feel that buzz, because almost everywhere in the continent is growing (albeit some places moreso than others).

China is one market that is so intriguing. Geographically, it is so big. This means that each area is so diverse, as well. Things happen there at a pace much faster than anywhere else in the region.

See also: Innovation: ‘Where Do We Start?’  

As I’ve mentioned in a few articles before, cross-border collaboration and best-practice sharing is what is going to help make insurance and insurtech thrive.

What is your experience of the difference between insurtech in Asia and the U.S.? Please share your knowledge in comments  or on the Fintech Genome.

This article first appeared at Daily Fintech.

Lemonade: Insurance Is Changed Forever

On Sept. 21, 2016, at 7 a.m. EDT in New York, Lemonade issued a press release. Paraphrased, it said: We’re open for business!

Only time will tell the true impact that Lemonade can have on the insurance industry. Or if we will look back at 2016 in the same way we trace the origins of insurance to 1688 and the birth of underwriting in London.

I’m convinced. The launch of Lemonade will go down as a defining moment in the history of insurance. And, after today, this industry will never be the same! 

This week's article from InsurTech Weekly is Lemonade are here - And Insurance will never be the same again!. Rick Huckstep leads The Digital Insurer in Europe and produces Insurtech Weekly.

I trust you, you trust me.

Insurance didn’t start out badly. When you look back in history, there are many examples of civilizations and societies supporting each other. Looking out for each other is natural behavior.

This is what insurance is meant to be: mutuality in the pooling of shared risk.

Sadly, the industry has lost its way with the evolution of mass scale personal lines in the 20th century. The profit motive has gotten in the way of trust; the insured and the insurer are both chasing the same dollars.

And now, their interests are no longer mutual but are misaligned. The insured wants a helping hand and to be “made whole.” The insurer wants to satisfy its duty to shareholders.

With a very high cost of sale and administration overhead (and little that can be done to reduce it), the insurer is motivated to minimize the amount it pays in claims.

See also: Be Afraid of These 4 Startups

It’s an unfair relationship from the customer’s perspective. The customer has paid the premium and yet has to prove a claim to get what is rightfully hers. No amount of technology can obviate this fundamental failing of today’s insurance business model.

And that is why the launch of Lemonade is so significant!


Insurance reinvented   

About a month ago, it was my privilege to have some time with Daniel Schreiber, the CEO and co-founder of Lemonade. We talked about the launch of Lemonade and the reasons for taking the hardest route to get a license in New York. We discussed the things that needed to change in the industry, and Daniel explained the philosophy and motivation behind Lemonade.

Next month, I plan to write a longer piece with Daniel on the company’s business model and tech. With his permission, I will share some of the detail behind Lemonade, which is, quite frankly, awesome, mind-blowing and game-changing!

And if that doesn’t whet your appetite, take a look at these videos on YouTube:

The thing to know about Lemonade is that it has built a full-stack insurance model from the ground up.

This is NOT a mobile app sitting on top of traditional insurance. That’s what you get when you ask a bunch of people to find a new way to drive a nail into a piece of wood. If those people have only ever used a hammer, the chances are their solution will be kind of like a hammer.

See also: The Insurance Renaissance (Part 1)  

This innovation dilemma is not a problem unique to insurance. The incumbents in all industries have shown it’s difficult to innovate from within. That’s why it took an Amazon to reinvent shopping, PayPal to change the game on payments and AirBnB and Uber to disrupt in their respective markets. (See this great article on Daily Fintech about the seven acts in the creative destruction play.)


Lemonade is truly different

Here’s why:

  • It’s a platform.

The way Lemonade has addressed conflict of interest between insured and insurer is inspiring — the company has simply eliminated it! Operating as a platform that enables the insurance engagement, Lemonade doesn’t make any gain from the non-payment of claims. It takes a flat fee for running the platform. It makes its profit from the fee. If Lemonade doesn’t pay any claims, it doesn’t increase its bottom line.

Lemonade has taken out the “winners and losers” dynamic that today’s insurance model is built around. Like all great ideas, it’s simple and bleeding obvious.

  • It’s peer-to-peer insurance.

Unspent premiums are put to good use. As a signed-up member of B-Corp, Lemonade groups its customers by affinity to good causes. This means that, for example, everyone who cares passionately about local youth development or finding a cure for cancer is grouped together. Unspent premiums from the risk pool are donated to the good cause at the end of each term.

When a customer makes a claim, he or she knows any embellishment will be taking money away from the good cause they support, not the so-called “fat-cat insurers.”

This is pure genius. Now you have a dynamic where the insurer’s job is to pay claims, and the insured’s motivation is to help others.

  • It’s a pure-play tech stack.

The tech behind Lemonade is pretty special. It’s a 21st century platform built on 2016 technology. It uses artificial intelligence to communicate through a mobile platform with its customers. From quote and buy to making a claim, the customer journey is simple, automated and immediate. 

Underwriting is quick and easy and automated. Lemonade is more likely to ask how many friends you have than how your roof is constructed! Claims are the same. You tell the app what you’ve lost, make a short video testimonial and the company pays out. Immediately. There is no claims submission. There is no approval process. You state your loss, and they pay you what you’ve asked for.

  • It’s all about trust and behavior.

Lemonade’s secret sauce is Dan Ariely, the company’s chief behavioral scientist. Dan studies behavioral economics and has written a series of books, including “The (Honest) Truth About Dishonesty.”

Daniel explained to me why trust and behavior are so important to the fabric of Lemonade. He said, “People are generally honest. We all have a trust self-image that we might push from time to time. It’s like speeding; that doesn’t make us  feel like bad person when we do it. The same goes for insurance. People don’t feel aligned to the insurer, but they do feel the relationship is adversarial. This gives people a sense of entitlement and leads to embellishment and even fraud.”

A great example of how trust can improve human behavior can be seen at Grameen Bank in India. This is a bank for poor people. It is trusted to repay unsecured loans without reliance on credit scores or enforcement through debt recovery agencies. And the repayment rates are higher than those of the traditional lenders who won’t lend into these mass markets for fear of default.

  • It’s about the greater good.

Lemonade is a public benefit corporation. This means it balances the needs of shareholders with a social responsibility to make decisions for the greater good. Like a government department, Lemonade has a corporate duty to make decisions that do not put profit and returns to shareholders first.

Insurtech comes of age

Out of all these characteristics, it is this last one that I think will be the most enduring and the most significant. It fundamentally cements the alignment of trust between the insured and the insurer. This is not paying lip-service to satisfy a corporate social PR agenda. Lemonade is putting its money where their mouth is.

In the age of the 4th Industrial Revolution, trust is the defining characteristic of the modern era.

See also: InsurTech: Golden Opportunity to Innovate  

Now, for the first time in the insurtech era, we are about to see a true game-changer come into the market. Of course, a lot will depend on consumer adoption. Will they “get it”? Do they want it?

But one thing is for sure — up until now, no one has come this close to addressing the fundamental issues in personal lines. And if Lemonade succeeds (and I think it will), we will look back to 2016 and New York as the birthplace of 21st century insurance.