US-based insurance provider Erie Insurance has teamed up with CVC-as-a-service firm Touchdown Ventures to set up a new corporate venture capital fund, called Erie Strategic Ventures, dedicated to backing companies in the insurance and adjacent sectors.
The unit’s focus will be trained across the entire insurance value chain, from risk avoidance and underwriting to claims, digital sales, agency productivity tools and products and services for the home, family and small businesses that go beyond insurance.
“The idea of partnering with startup companies to create the future has always been part of our history as a company,” Keith Kennedy, senior vice-president for Next Level Innovation at Erie Insurance, told Global Corporate Venturing. “We think that the venture discipline, specifically, is a great opportunity for us to mature our innovation capabilities more rapidly.”
“As we looked at options to continue to mature how we do that, more of a formal approach to a venture fund seemed like a good next step, consistent with our desire to support startups and entrepreneurs, and also recognising that we’re going to be most effective creating the future together, both within our insurance space as well as some spaces that are adjacent to that.”
Erie had already made a handful of venture investments in recent years, which will be rolled over into the new fund, and is already in talks with new prospective investees.
Typical investments will range between $1m and $3m, with reserved capacity for follow-ons. Currently, the team is looking to make between three and five investments each year to begin with.
The open-ended structure of the vehicle is such that it allows flexibility to try different things and find the best approach, according to Kennedy.
“We’re taking step one here as we’re doing this formally for the first time. One of the things that we want to do is make sure that we retain the flexibility to execute this in a way that’s most effective. By executing, we’ll learn and will evolve from there,” he said.
That flexibility also extends to its strategy in terms of investment stage and geography – both of which the fund is generally agnostic on but will lean towards early-stage investments in North America-based companies. It has, however, already been in talks with companies outside North America that want to expand their relationships in the region.
For Touchdown, the fund marks the first time it does direct work within the insurance sector, though it does have experience in its team from investing in the space, according to Touchdown Ventures co-founder and managing director Rich Grant (pictured right), who notes significant venture activity in the sector.
“If you look at just the overall venture ecosystem, I think close to a quarter – around 20% – of all venture deals were in the financial services space. So it’s a pretty vibrant market across the entire value chain,” Grant told Global Corporate Venturing.
“If you think about underwriting or claims management or loss prevention – there are a number of different themes and we’re seeing a lot of activity across the board.”
Having the support of a seasoned firm like Touchdown to manage the fund gives Erie a reach they would likely not have otherwise.
“We’ve always paid attention to what’s going on in the insurance business and who’s doing what. With the help of Touchdown and how broad their visibility and network is, I think it’ll improve our ability to know who’s doing what across a wide range of things within the insurance business,” said Kennedy.
“We also intend to innovate and leverage our venture capacity for things that are beyond and adjacent to our core business, and we’ve identified three themes that we’re focused on in that regard.”
The themes include services for the home — to protect and manage people’s homes and lifestyle — services for family and pets, as well as services for small businesses, which would complement a large part of Erie’s existing business.
Kennedy explained: “Erie’s insurance relationships are largely on the commercial side with small and medium-sized businesses. So maybe there’s an opportunity with that group to deliver even greater value beyond the insurance relationship.”
The fund is an evolution of the innovation efforts Erie has been undertaking for some time. In addition to the responsibilities that the company’s business units already have to look for new solutions to existing problems, said Kennedy, the Next Level Innovation team that he heads up has also been focused on looking beyond Erie’s core business to see where it would make sense to go in the future. Teaming up with Touchdown has been a way for it to supercharge this innovation agenda.
The partnership with Touchdown came about after someone in Kennedy’s network referred him to the firm, coming after a period of time when he was thinking about options in terms of partners to help expand Erie’s venturing capability – an approach they deemed most effective relative to going it alone.
Following some work the pair did together last year, it made sense to expand and formalise their relationship.
Images of Keith Kennedy and Rich Grant courtesy of Erie Insurance and Touchdown Ventures respectively.
