InsurTech Ignites: Fireworks of Innovation
Bringing 'SurTech Back
I bet you thought I was going to quote Justin Timberlake. Not this time as now we are focused on the return of InsurTech. In order to do that, we need to start with what is not coming back: B2C insurance plays. We have always felt the margins were just too thin if the startup is focused on consumers using reinsurance or borrowing of a balance sheet. Our focus has been on startups that either can bring cost improvements to insurance incumbents that allow for much improved operating margins or those that tap unique distribution advantages.
While we have seen valuations in public markets collapse for the sector, we know this is part of the process of clearing the market to make space for true winners to emerge. Multiples will recover from the current 2-3x revenues to 4-5x over time. The key differentiator in the winning startups will be their ability to generate real revenue growth due to the improvements they make to the insurer. If they drive down costs, like Roots Automation which improves claims productivity by 9x, then they are adding value and will get a fair share of the savings as their revenues.
If they are designing their business correctly, the startup can create significant margins. We try to to target enterprise software with gross margins in the 60-80% range. This is real value for the owners of the business that will be realized as multiples improve.
For unique distribution plays, it's all about the startup joining forces with the insurance incumbent to cross sell or repackage offerings to their imbedded client base. In this case, the startup must have unique knowledge of a specialized area like Wagmo does for pet parents.
Bringing InsurTech back is about being focused on the fundamentals of the business. There are no magic tricks that can fool investors when the startup creates a business that can neither grow nor scale to decent profit margins. There is no denying that this turn in the market is painful as the poor businesses fail, but this is the way the market mojo returns to the category.
-Mark & Dave
Envisions Interview
InsurTech Ignites: Fireworks of Innovation
w/ John Cottongum, CTO and Co-Founder at Roots Automation
A Day at MIT
The AI Frontier and Implications event co-hosted by Imagination in Action and MIT's Computer Science and Artificial Intelligence Lab (CSAIL) on June 27 was jam-packed in every sense of the term. Academics and entrepreneurs alike presented their innovations one after another in a whirlwind of ideas, ideas which frequently overflowed their strictly regulated time slots, to an audience which more often than not outnumbered the seats in the hall. The programming, hosted by John Werner (Founder/CEO, Imagination in Action; Advisor, Vestigo Ventures) and Daniela Rus (Director, CSAIL), ran from 7:30 AM to 7:30 PM and covered broad ranges of AI/ML applications.
The first hour consisted of 41 start-ups doing their most succinct 60-second elevator pitches. Vestigo's own portfolio company Knowbl, represented by co-founder and CPO Matt Taylor, presented itself as the compliant and deployable 'How can I help you?' solution that enterprises are looking to embed in their digital interfaces, a capability whose demand has skyrocketed since AI has caught the public's eye. Thus the event, attended by the full Vestigo team, not only gave us the opportunity to support Knowbl, but also afforded the full day for the team’s ongoing learning in areas that are rapidly changing the way the world operates.
Following the start-up pitches were 60 CSAIL speakers honoring the 60 years since CSAIL's inception, each with ten minutes to discuss their research and progress in applications of AI/ML ranging from healthcare and early diagnoses to autonomous vehicles and drones and much more. But beyond presenting the latest innovations in this field, many speakers also identified key limitations observed, citing for example the biased and static nature of training data as well as black box models that may prevent enterprise-readiness. In this way, they indirectly pointed out the direction for next innovations to take place.
One of the most interesting developments in this light is that of liquid neural networks, pioneered by CSAIL and Daniela Rus herself, which are forms of time-dependent neural networks built to have the ability to change their underlying model as new data is seen even after the training is complete (read more here!). This seemingly fantastical development reduces the number of artificial neurons needed in the network from ~100k to just 19. And while not yet solving the commonly seen black box problem with machine intelligence, this drastically smaller neural network may be the first step towards being able to measure its decision-making process. And Daniela Rus was just the first of sixty incredible speakers.
While it seems like AI has been the focus of every technological headline of the past nine months, very rarely do you have the opportunity to peel back the curtain in this magnitude and view the underlying models of so many cutting-edge implementations. And while you'd be hard-pressed to fit any more ideas in the day's schedule, it was abundantly clear that this event and broader ecosystem will serve as a catalyst for many ideas still to come.
- Team Vestigo
Portfolio Updates
Knowbl's Podcast Launch
Knowbl has released the inaugural episode of their podcast, The Conversational AI Divide. Be sure to check it out!
Knowbl
Railz Introduces Enhanced Version 2 API
Railz' enhanced API continues to build capabilities and ease the process of interacting with your SMB consumers' financial data. Check out all the details here!
Vault Partners With Charles Schwab
With Vault's partnership with Schwab Retirement Plan Services, 401(k) plan participants will now have access to Vault's student loan resources!
View Profile
Interesting Reads
MIT Technology Review Insights
Ron Shevlin
Apply to One of Our Portfolio Companies!
Our mailing address is:
Vestigo Ventures
1 Kendall Sq Ste B2101
Cambridge, MA 02139-1588
Add us to your address book
DISCLAIMER: The information presented in this newsletter is intended for general informational purposes only and may not reflect current law or regulations in your jurisdiction. By reading our newsletter, you understand that no information contained herein should be construed as legal, financial, or tax advice from the authors or contributors, nor is it intended to be a substitute for such counsel on any subject matter. No reader of this newsletter should act or refrain from acting based on any information included in, or accessible through, this newsletter without seeking appropriate professional advice on the specific facts and circumstances at issue from a professional licensed in the reader's state, country, or other appropriate licensing jurisdiction. This newsletter and its content should not be considered a solicitation for investment in any way.