the zebra
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Insurtech startups are leveraging rapid growth to raise big money
The investment landscape for insurtech startups is off to a hot start in Q2 2021. Since the end of the first quarter, we’ve seen several players in the broad startup category announce new capital, including Clearcover, Alan, Next Insurance and The Zebra.
But, as anyone who’s familiar with startups that offer insurance-related products and services knows, the sector is enough of a mixed bag that one needs to segment down to get clarity on how constituent companies are performing. So while Clearcover’s $200 million round from last week, Next Insurance’s $250 million round from the first of the month and Alan’s $220 million round from yesterday are interesting, this morning we’re going to focus a bit more on The Zebra’s side of the insurtech house.
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The Exchange divides insurtech startups into three categories: neoinsurance providers, insurtech marketplaces and insurtech enablers. (You can see why we need to segment the insurtech genre!)
Briefly, neoinsurance providers are companies like Root, Metromile and Next Insurance, which use technology to underwrite and sell insurance in an updated manner; these companies also often have optimized mobile experiences.
Marketplaces like The Zebra, Gabi, Insurify and others provide a way for consumers to better identify their insurance options. And, finally, there are companies like AgentSync, which fit neatly into our third category of firms that help other companies in the insurance business digitize their operations or otherwise modernize.
Insurtech marketplaces came back into our view when The Zebra put together a $150 million Series D earlier this month and released a host of metrics regarding its growth, and Insurify dropped the news that it is partnering with Toyota.
This morning, let’s discuss insurtech’s 2020 as a whole, peek at some preliminary 2021 venture data and then dive deep into what we’ve collected regarding growth among insurtech marketplace players. The Exchange has data and other details from The Zebra, Insurify, Wefox and more.
Covering longitudinal progress of specific startup categories is one of our favorite things to do. So, please, walk with us!
2020 to today
PitchBook data regarding the insurtech category in 2020 underscores how large the startup niche has grown. Per the data company, $18.3 billion was spent last year on insurtech startups across venture capital, private equity and M&A activity. That was a billion dollars under its 2019 result, but given the pandemic’s onset, 2020’s final result is somewhat impressive — who expected insurance investing to hold up during an unprecedented global catastrophe?
This year is proving lucrative for the insurtech market, at least from a venture capital perspective. Normally I’d make a joke about how unprofitable some neoinsurance providers are at this juncture, but because our focus is elsewhere, bringing up the fact that, say, Lemonade’s adjusted losses in the final quarter of 2020 were around 150% of its revenue is kind of irrelevant. So we won’t!
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The Zebra reaches $100M run rate, turns profitable as insurtech booms
From a cluster of insurance marketplace startups raising capital earlier this year, to neoinsurance provider Lemonade going public this summer at a strong valuation, Hippo’s huge new round and Root’s impending unicorn IPO, 2020 has proven to be a busy year for startups and other growth-oriented private tech companies focused on insurance.
That news cycle continues today, with The Zebra announcing that it has reached a roughly $100 million run rate, and, perhaps even more notably, that it has turned profitable.
TechCrunch most recently covered the car and home insurance marketplace startup in February, when it raised the first $38.5 million in a Series C eventually worth $43.5 million that Accel led. As we noted at the time, the startup joined “Insurify ($23 million), Gabi ($27 million) and Policygenius ($100 million) in raising new capital this year.”
The Zebra released a number of financial performance metrics as part of its Series C cycle, including that it recorded revenues of $37 million in 2019, and that it had reached a $60 million annual run rate around the time of its Series C. The Zebra also said that it could double in size this year, putting it above a $100 million run rate by the end of 2020.
With that history in hand, let’s talk about the company’s more recent performance.
A changing market
According to the company, The Zebra recorded net revenue of $6 million in May, 2020. That number grew to around $8 million in September. For those of you able to multiply, $8 million times 12 is $96 million, or a hair under $100 million. According to a call with the The Zebra’s CEO Keith Melnick, the company’s September was very close to $8.3 million, a figure that would put it on a $100 million run rate.
Given that our $100 million ARR club has a history of granting startups a little wiggle room when it comes to their size, it seems perfectly fine to say that The Zebra has reached revenue scale of $100 million; at its current rate of growth, even if its final September revenue tally is a hair light. the company should reach a nine-figure topline pace in October.
According to Melnick, while the bulk of The Zebra’s revenue isn’t recurring, a growing portion of it is. Per the CEO, around 2-5% of The Zebra’s revenue was recurring last year, a figure that he said is up to around 10% today. (If The Zebra binds an insurance policy itself, and that policy is renewed, its commissions can recur.)
What drove the company’s quick 2020 growth? In part, the insurance market changed, with insurance networks that depended on in-person sales seeing their ability to drive business slow thanks to COVID-19. Insurance marketplaces like The Zebra stepped in to assist, helping move some offline demand online. Melnick detailed that dynamic to TechCrunch, adding that when certain advertising channels saw demand fall, his company was able to leverage inexpensive inventory.
A number of factors appear to have added to The Zebra’s rapid growth thus far in 2020. Our next question is whether other, related players in the insurtech startup space have seen similar acceleration. More on that in a few days.
Finally, regarding The Zebra, the company said that it is now profitable. Of course, profit is a squishy word in 2020, so we wanted to know precisely what the company meant by the statement. Per the company’s CEO, it is generating positive net income, the gold-standard for profitability as the metric is inclusive of all costs, including the non-cash expenses that startups tend to strip out of their numbers to make the results look better than they really are.
If other players in the insurtech space are surfing similar trajectories, all that capital that went into the sector around the start of the year is going to appear prescient.
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