AFV’s Investment Focus: Three Classes of Startups
American Family Ventures looks both inside and outside the insurance industry because we know insurance innovation can come from anywhere.
I joined AFV three years ago from FinTech and SaaS venture capital. AFV grabbed my interest because they weren’t just looking for obvious opportunities within insurance.
At AFV, we use our domain expertise to interrogate whether a startup can be disruptive to insurance, regardless of its market. This thematic approach uncovers non-obvious opportunities that could foster real change in the insurance ecosystem. This mindset makes every day of work enthralling.
We’ve evolved this approach into a clear framework that focuses us on three classes of startups that can transform insurance.
Our first class is Core: startups directly targeting insurance. These are the most obvious class of startups driving innovation in insurance. Think of MGAs, carriers, reimagined brokerage and reinsurance models, and any software built for the insurance tech stack (claims, fraud detection, policy administration, agent management systems… the list goes on).
If examples work better for you, think the new digital insurers scoring major headlines: Lemonade, Hippo, Root, Clearcover. Core also includes solutions powering insurance operations, like Bold Penguin’s commercial insurance exchange and Hover’s 3D modeling platform.
Second is Adjacent, where we begin to venture into the land of non-obvious ways to drive change in the insurance ecosystem. Adjacent startups operate in markets outside of insurance but open up opportunities for insurers to capture new value.
A new data source that insurers can use to sharpen underwriting. A proprietary distribution channel. Wyze, the consumer IoT company in which AFV recently invested, is both. Wyze customers are safety-minded homeowners who may represent better risk for carriers (distribution) and deeper insight into the condition of their homes (data).
The Adjacent class also includes startups offering platforms insurers can use to drive efficiencies or deeper value for their enterprises. This is where Enterprise SaaS becomes relevant; at a carrier, it can show up as CRM, HR tech, business intelligence, marketing tech, or in many other ways.
The final class is Enabling, those startups whose tech advancements and new business models drive step change in their markets. Of all our focus areas, these startups have the least obvious ties back to insurance, but we cheer them on because insurance benefits from the work they do.
For example, Red Balloon Security, a longstanding AFV portfolio company, provides its clients a platform-independent, real-time, host-based intrusion defense system. They’re monitoring servers around the world, and their system limits the fallout insurers face in the event of an attack.
Some Enabling startups migrate into the Adjacent class over time, and we encourage that growth — it formalizes the value to insurers we detected when we first invested. HomeTap, an AFV portfolio company, offers homeowners cash for a minority stake in their home. This is a bold new business model in home equity (i.e. Enabling), and since both HomeTap and the homeowner want that home’s value to grow, it positions HomeTap to be a trusted partner for protecting and improving that home (i.e. Adjacent).
On the off-chance that you think this framework doesn’t provide a large enough market to deploy against, guess again. With so many insurance lines at play, the list of industries that can non-obviously impact insurance is amazingly deep.
We spend time in FinTech, PropTech, construction, cyber, and mobility, but we also monitor spaces like AgTech, GovTech, eCommerce, and logistics. Our quest for both obvious and non-obvious value leads us into a wide variety of markets. Not all markets (sorry eSports and vice), but many.
This is why the framework is imperative. Its guiderails ensure we stay on our mission: to drive alpha for our limited partners by investing in startups that will shape the future of insurance. It’s our way to engage the marketplace, and it’s also a handy way to engage with us. I believe it’s the reason why American Family Ventures sees so much more: we’re able to look out, not just around.
Get in touch with us and tell us what you see.
Katelyn Johnson is Principal at American Family Ventures. Get in touch with us on Linkedin or Twitter.
Previously: Dan Reed on AFV’s Evolution
Disclaimer: The information published, and the opinions expressed are provided for informational purposes only. This document does not constitute an offer, solicitation, or recommendation to sell or an offer to buy any securities, investment products, or investment advisory services. Information provided reflects American Family Ventures’ views as of a particular time. Such views are subject to change at any point and American Family Ventures shall not be obligated to provide notice of any change.
