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Why you have to pay attention to the Indian startup scene
This is The TechCrunch Exchange, a newsletter that goes out on Saturdays, based on the column of the same name. You can sign up for the email here.
Back in August during Y Combinator’s two-day demo extravaganza, TechCrunch noted a number of startups from India that stood out from the batch. Names like Bikayi (e-commerce tools), Decentro (consumer banking APIs), Farmako Healthcare (digital health records) and MedPiper Technologies (helping hire health professionals) joined our list of favorites from the batch.
Seeing so many India-focused startups in the mix wasn’t a fluke. Data shows that India’s venture capital scene has grown sharply in recent years. 2019 was the country’s biggest ever in terms of venture dollars invested, with Bain counting $10 billion during the year.
In 2020, the third quarter brought the country’s venture capital scene back to form. After a somewhat average start to the year, Indian startups saw their venture capital investment fall to just $1.5 billion in Q2, the lowest quarterly tally since 2016. But data via KPMG and PitchBook make it plain that Q3 was a rebound, with $3.6 billion invested into Indian startups during the three-month period.
That figure was not a historical record, mind; the Q3 total looks to be only the fourth-biggest VC quarter in India’s startup history since at least 2013 and, perhaps, ever. But it was a good bounce-back during a crippling pandemic all the same. The country’s VC deal count also rebounded a bit in the third quarter, with some of that money landing in big chunks, including a $500 million investment into Byju’s this September.
Smaller startups are also seeing strong results. Bikayi is one such startup. TechCrunch caught up with the company via email, digging into its post-Demo Day results. Its monthly recurring revenue (MRR) grew 60% in August from its July results, it said. And in late August the company told TechCrunch that it was on track to reach $1 million annual recurring revenue (ARR) by the end of the year.
Bikayi said more recently that it recorded 100% growth in the number of merchants it supports, and 100% revenue growth in September. So the WhatsApp-focused Shopify-for-India is racing ahead. October results, Bikayi CEO Sonakshi Nathani added, are looking “promising” as well.
To get a better handle on the Indian startup market more broadly, The Exchange got ahold of Accel investors Arun Mathew (based in the United States), and Prayank Swaroop (based in India), for a bit of digging.
Historically, falling bandwidth and smartphone costs along with improved Internet reliability helped lay the foundation for the recent Indian startup wave, according to Swaroop. Mathew added that some high-profile successes like Flipkart made startups a more attractive option, with the ecommerce company’s success helping to “change the tenor” of the conversation around founding tech firms in recent years.
It also helps, Swaroop added, that seasoned folks from existing Indian tech companies are branching out and starting companies of their own, recycling knowledge into new, smaller companies. This is a key method by which Silicon Valley has managed to create an outsized number of hits over time; a concentration of operators who have built big startups are key grist in the unicorn mill. And there’s more money being raised to help power new Indian tech companies.
All told, 2019 was a huge year for the Indian startup market in venture capital terms, and 2020’s recovery is underway. Let’s see what gets built.
Market Notes
The Exchange spent a lot of this week digging into venture capital data and trends, something that we love to do. If you need to catch up, here’s our look at the U.S. venture capital scene in Q3, and here are our notes on the more global picture. And we touched on India above. What more could there be?
Well, some data on healthcare-focused companies is just what we need. Per a new report from CB Insights, there are 41 healthcare-focused unicorns today. More importantly, startups focused on health-related matters (telemedicine, mental health, AI, etc.) just had a record quarter. Even for a pandemic, $21.8 billion went into the space across 1,539 global rounds in the third quarter. That’s far more activity than I would have guessed.
- Moving on, The Exchange compiled a look at how quickly a few dozen startups grew in Q3, which was very good fun.
- The Equity crew also covered a number of media-and-housing-related startup rounds here if that is your jam. There were also some jokes.
- Datto went public this week, giving the market a look at what slower, more profitable software companies are worth in revenue-multiple terms. The news was mostly good.
- On the insurtech beat, New Front announced that it has raised $100 million, most recently at a $500 million valuation. And we noted in our growth-rate piece that Next Insurance raised $250 million last month, which has missed our attention. Oh, and Chicago-based Clearcover has news out this week, which we care about given the impending Root Insurance IPO (notes on its valuation here). The two companies both insure drivers.
And with that, we’re cutting Market Notes short this week for some important TechCrunch news:
Hey y’all. It’s Megan Rose Dickey busting into Alex’s newsletter for a couple of quick news items. First, I officially launched my newsletter, Human Capital! It covers labor and diversity and inclusion in tech. Also, I relaunched the Mixtape podcast with my colleague Henry Pickavet. You can check out our first episode of Season 3 about California’s gig worker ballot measure Prop 22 here.
Megan is amazing and you should check out her pod and newsletter.
Various and Sundry
As always, there was more good stuff to share here than I can possibly fit, so let’s get right into the data, takes, links and other delicacies.
- Data collected on by a Midwest-focused group concerning its region makes the case for VCs to look more closely at the center of the United States. Why? It’s cheaper to build there, which, combined with lower startup prices, means investors get a bigger bang for their buck. And return multiples for VCs (MOICs, if you care) look strong in Chicago.
- Everyone is burned out.
- Netflix and Intel took stick after their earnings failed to excite investors, in what could be a small warning sign ahead of next week’s earnings-palooza.
- The SPAC boom is precisely as ludicrous as you imagined it to be.
- And while there are loads of late-stage money, first financings are worth an ever-smaller fraction of the VC pie.
- What are the youngest VCs in the world focused on? Well, according to a survey of Gen Z VCs, their top three focuses are the creator economy, edtech and social gaming.
- How Yext evolved on its path to going public, and beyond.
Wrapping, a survey from Salesforce shows that enterprise cloud CEOs are reporting better-than-anticipated revenue growth and lower-than-anticipated churn, when compared to their March estimates. That is probably why earnings haven’t been a disaster and so many unicorns were able to go public in Q3.
That and valuations in the public sphere are higher than what private investors are dishing up, inverting the market’s last few years.
See you Monday,
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Root targets $6B+ valuation in pending IPO, a boon for insurtech startups
This morning Root Insurance, a neoinsurance provider that has attracted ample private capital for its auto-insurance business, is targeting a valuation of as much as $6.34 billion in its pending IPO.
The former startup follows insurtech leader Lemonade to the public markets during a year in which IPOs have been well-received by investors focused more on growth than profitability. In the wake of Lemonade’s strong public offering and rich revenue multiples, it was not impossible to see another, similar startup test the same waters.
Root’s $6.34 billion valuation upper limit at its current price range matches expectations for its bulk. The company is targeting $22 to $25 per share in its debut.
The startup will raise over $500 million from the shares it is selling in its regular offering. Concurrent placements worth $500 million from Dragoneer and Silver Lake raise that figure to north of $1 billion and could help boost general demand for shares in the company. Snowflake’s epic IPO came with similar private placements from well-known investors in what became the transaction of the year.
Will we see Root boost its target? And what does Root’s IPO price range mean for insurtech startups? Let’s dig into the numbers.
Root’s numbers
We’ve dug into Root’s business a few times now, both before and after it formally filed its IPO documents. This morning we will merge both sets of work, snag a fresh revenue multiple from Lemonade, apply it to Root’s own numbers, observe any valuation deficit and ask ourselves what’s next for the debuting company.
Will we see Root’s IPO price rise? Here’s how to think about the question:
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As tech stocks dip, is insurtech startup Root targeting an IPO?
During the week’s news cycle one particular bit of reporting slipped under our radar: Root Insurance is tipped by Reuters to be prepping an IPO that could value the neo-insurance provider at around $6 billion.
Coming after two 2020 insurtech IPOs, Root’s steps toward the public markets are not surprising. But they are good news all the same for a number of insurance startups that have raised lots of capital and will eventually need to prepare their own debuts if they don’t find a larger corporate home.
The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
Programming note: The Exchange column is off starting tomorrow through next week. The newsletter will go out as always on Saturdays. I’m taking a week to sit and do nothing.
The Root IPO will also help clarify Lemonade’s own public offering and ensuing valuation. Lemonade’s debut brought a strong price to the rental-focused insurance provider, leading to a more buoyant attitude toward the valuation of its class of startups. More precisely, the public price assigned to Lemonade when it floated was, no bullshit, very bullish.
If Root can repeat the feat it would cast a warm light on the yet-private players in its niche that will have their eyes pinned to the flotation. Names like MetroMile and Hippo could be next if Root’s IPO goes well.
But, first, does Root make sense at a $6 billion valuation? We can do a little digging on that this morning, using Lemonade’s present-day valuation to get a handle on the figure. Let’s go!
Root’s valuation in a Lemonade world
Before we get into the numbers, bear in mind that we’re going to compare apples and oranges today, and that we’ll have to use some dated numbers as well. That said, we can still get somewhere about what Root could be worth. So, roll with me but don’t take every number as engraved onto an obelisk.
Back in July of this year, in the wake of the Lemonade IPO and Hippo’s latest funding round, a $150 million investment at a $1.5 billion post-money valuation, we started to do some math. Lemonade’s valuation was much richer than Hippos’ when you look at their multiples, which got us thinking about private and public neo-insurance provider valuations: Why was Lemonade worth so much more than its peers per dollar of written premium?
To better understand the situation, we dug up some 2019 data on the dollar value of gross written premium Hippo and Lemonade wrote and found new valuation multiples for them based on those numbers. Lemonade was worth 28.4x its Q1 annualized gross written premium, while Hippo was worth just 5.6x its own.
Then we also found Root and MetroMile gross written premium numbers for 2019, which allowed us to calculate their own effective valuations (albeit using dated numbers).
As before when we found that Hippo’s private valuation looked light compared to Lemonade’s public valuation when we contrasted their valuation/gross written premium multiple, we discovered that MetroMile and Root also looked cheap. Very cheap.
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Insurance startup Bright Health raises $200M at ~$950M valuation
A flurry of digital-first insurers are betting they can surpass industry incumbents with a little help from technology and a lot of help from venture capitalists.
The latest to land a massive check is Bright Health, a Minneapolis-headquartered provider of affordable individual, family and Medicare Advantage healthcare plans in Alabama, Arizona, Colorado, New York City, Ohio and Tennessee. The company, founded by the former chief executive officer of UnitedHealthcare Bob Sheehy; Kyle Rolfing, the former CEO of UnitedHealth-acquired Definity Health; and Tom Valdivia, another former Definity Health executive, has brought in a $200 million Series C.
The funding values Bright Health at $950 million, according to PitchBook — more than double the $400 million valuation it garnered with its $160 million Series B in June 2017. Sheehy, Bright Health’s CEO, declined to comment on the valuation. New investors Declaration Partners and Meritech Capital participated in the round, with backing from Bessemer Venture Partners, Greycroft, NEA, Redpoint Ventures and others. Bright Health has raised a total of $440 million since early 2016.
VCs have deployed significantly more capital to the insurance technology (insurtech) space in recent years. Startups in the industry, long-known for a serious dearth of innovation, have raked in nearly $3 billion in private capital this year. U.S.-based insurtech startups have raised $2 billion in 2018, a record year for the sector and more than double last year’s total.
Deal count, meanwhile, is swelling. In 2016, there were 72 deals conducted in the space, followed by 86 in 2017 and 94 so far this year, again, according to PitchBook’s data.
Oscar Health, the health insurance provider led by Josh Kushner, is responsible for about 25 percent of the capital invested in U.S. insurtech startups this year. The company has raised a total of $540 million across two notable deals in 2018. The first saw Oscar pulling in $165 million at a $3 billion valuation and the second, announced in August, had Alphabet investing a whopping $375 million. Devoted Health, a Waltham, Mass.-based Medicare Advantage startup, followed up with a massive round of its own. The company nabbed $300 million and announced that it would begin enrolling members to its Medicare Advantage plan in eight Florida counties. Devoted is led by Todd Park, the co-founder of Athenahealth and Castlight Health.
Bright Health co-founders Bob Sheehy, CEO; Tom Valdivia, chief medical officer; and Kyle Rolfing, president
VC’s interest in insurtech isn’t limited to healthcare.
Hippo, which sells home insurance plans at lower premiums, officially launched in 2017 and has brought in $109 million to date. Earlier this month the company announced a $70 million Series C funding round led by Felicis Ventures and Lennar Corporation. Lemonade, which is similarly an insurer focused on homeowners, raised $120 million in a SoftBank-led round late last year. And Root Insurance, an app-based car insurance company founded in 2015, itself raised a $100 million Series D led by Tiger Global Management in August. The financing valued the company at $1 billion.
Together, these companies have raised well over $1 billion this year alone. Why? Because building a health insurance platform is incredibly cash-intensive and particularly difficult given the breadth of incumbents like Aetna or UnitedHealth. Sheehy, considering his 20-year tenure at UnitedHealthcare, may be especially well-positioned to disrupt the industry.
The opportunity here for investors and startups alike is huge; the health insurance market alone is forecasted to be worth more than $1 trillion by 2023. Companies that can leverage technology to create consumer-friendly, efficient and, most importantly, reasonably priced insurance options stand to win big.
As for Bright Health, the company plans to use its $200 million infusion to rapidly expand into new markets, planning to triple its geographic footprint in 2019.
“Bright Health has continued to execute at a fast pace towards our goal of disrupting the old health care model that places insurers at odds with providers,” Sheehy said in a statement. “[Its] current high re-enrollment rate shows that consumers are ready for this improved healthcare experience – especially when it is priced competitively.”
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A new unicorn is born: Root Insurance raises $100 million for a $1 billion valuation
Root Insurance, an Ohio-based car insurance startup with a tech twist, said Wednesday it has raised $100 million in a Series D funding round led by Tiger Global Management, pushing the company’s valuation to $1 billion.
Redpoint Ventures, Ribbit Capital and Scale Venture Partners all participated as follow-on investors in this latest round.
The car insurance company, founded in 2015, plans to use the funds to expand into existing markets and make inroads into new states, as well as hire more employees such as engineers, actuaries, claims and customer service to support increased scale.
Root provides car insurance to drivers. Not exactly a new concept. But it establishes the premium customers based on their driving along with other factors. Drivers download the app and take a test drive that typically lasts two or three weeks. Then Root provides a quote that rewards good driving behavior and allows customers to switch their insurance policy. Customers can purchase and manage their policy through the mobile phone Root app.
Root says its approach allows good drivers to save more than 50 percent on their policies compared to traditional insurance carriers.
The company uses AI algorithms to adjust risk and sometimes provide discounts. For example, a vehicle with an advanced driver assistance system that it deems improves safety might receive further discounts.
“Root Insurance is leading digital innovation in U.S. auto insurance,” Lee Fixel, a partner at Tiger Global Management said in a statement. “This industry is ripe for change, and we are excited to invest in a team that has the expertise, vision, and momentum to deliver real results. We look forward to growing our partnership with Root and helping them expand their footprint across the United States.”
The company has grown from its home market of Ohio into 20 other states in the past two years. The company plans to expand to all 50 states and Washington, D.C., by the end of 2019.
Drive Capital and Silicon Valley Bank are also investors in the company.
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Root Insurance launches a new car insurance company
Alexander Timm has been working in the insurance industry since he was 14. While that’s strange enough, what’s even weirder is that Timm really loves the work. He’s so enamored of the business that he’s founded his own insurance company, Root Insurance, to remake the process of applying for — and insuring — drivers. There’s a lot happening in the… Read More
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