What is Transamerica Ventures’ ideal investment case? What is it that you look for in a startup in order to invest in it?
We ask two questions. The first is: “Does it fit?” The second is: “Is it a good deal?” The first question is prequalified by our venture team and then ultimately answered by our business units. The second question is a much bigger challenge and a much more involved process, since this analysis is the basis for what makes a venture capitalist.
We believe each opportunity ultimately boils down to one simple consideration – the probability of success and the magnitude of success. In other words, what is the likelihood the company will work, and if it does work, how big will it become? All of our evaluation feeds back into this idea. Then we deep dive into technical benchmarks and metrics for the type of business we are evaluating, the market and opportunity for the business, the product usage and engagement, the team that is running the business, the competition the business currently faces or will face, the risks – generic, specific and inherent – associated with the opportunity, and the strategies the business plans to employ to grow and develop.
If any of these are not to our liking, we will likely pass. If there are any gaps, we assess if and how those gaps will be filled. And if, in our view, the business seems to have everything in order, we will likely make an investment. Even if a business checks all the boxes to our satisfaction, we understand that many will not work out.
What is Transamerica Ventures’ preference in terms of stage of development of portfolio companies?
We like to invest in series A, B and C rounds at the point at which a company is more developed and has some traction in the market. We might look at an even more mature company, but these deals are usually a bit too expensive for how we have modelled our fund. Because the relationships we create with our business units take time to develop, we like companies that are more stable and less likely to pivot. The last thing we want is to align with a company for a specific set of reasons only then to have that company pivot its focus, product or market – undermining the basis for why we signed on in the first place. This only results in lost time, money and disappointment for all parties.
What is the geographical focus and orientation of your investments, both within the US and internationally?
Transamerica Ventures acts globally on behalf of the whole group to support the innovation and digital transformation efforts across the entire company, but so far our deals have been limited to the US and Europe. We are looking at Asia and have explored opportunities in India, and we are even starting to get some interest in Latin America from our nascent operations there. At this time we have not done anything with Africa or Australia. Within the US, it does not matter where the company is located.
The broader fintech and insurancetech sectors are among the most vibrant and talked-about nowadays – what is your take on them as an experienced investment professional?
These are both very hot industries with lots of startup formation and venture investment. Fintech is more established, but the sub-sector known as insurtech is still in its early stages. Because there is so much opportunity to improve the insurance experience, to develop more efficient processes, to engage and advise customers more effectively, and to launch unique and more scalable business models, insurtech has been called “the final frontier of fintech”, and it is an industry receiving a lot of VC attention. Like any hot industry, the trick is to sift through the noise to find the best companies that are providing real value and solving real problems.
Most hot sectors become oversaturated with companies and investment dollars, and there are too many pretenders where capital is chasing bad opportunities and founders who do not really understand the industry are launching companies. This leads to consolidation and failure, so the key is to find the companies that rise up and break through the noise. We are seeing this now with fintech as we have with many other industries, and it is no doubt an inevitability with insurtech.
What would you say are the most important trends in fintech and insurtech and what are the most important new technologies that are bound to cause disruption?
Across both industries, as well as many others, artificial intelligence is probably the most popular trend. Machine learning and cognitive computing – and within that, things like neural networks and computer vision – have the ability to impact so many different aspects of our lives. There are many use cases which we call low-hanging fruit, but there are also some seriously innovative and fascinating advances being made as well. More specific to the insurance and financial worlds, as regulation increases, technology to help companies deal with compliance – known as regtech – will become more important. Then there are things like autonomous vehicles, which have the potential to change the world, automated underwriting, done through better data, which would be an incredible achievement for a life insurance company like ours, blockchain technology once we all figure out how best to leverage it, and even quantum computing.
How do new developments in the artificial intelligence (AI) field change the financial services landscape?
They change the landscape in three key ways. They can automate many different tasks which leads to process improvements, they can provide better data through machine learning and predictive analytics which leads to better decision-making, and they can significantly cut costs, which is critical for an insurance company facing margin compression. If, for example, you can use an AI chat client trained through data to engage with your customers and solve their problems, you can repurpose your call centre agents to handle only the most challenging issues, which saves a ton of time and money. Another example would be to use data to profile your best customers and then use predictive analytics to find the most similar prospects who are likely to buy from you, which leads to significant increases in sales efficiency. There are hundreds or even thousands of use cases, and the possibilities are endless.
What do you think will be the impact of autonomous and self-driving vehicles on insurance companies in the next 20 to 30 years?
I do not follow this industry as closely as I do others since we are primarily focused on life insurance, but I think there will be a huge impact. Accidents are the fourth leading cause of death in the US, and auto fatalities rank first in this category. In fact, the National Highway Traffic Safety Administration says highway crashes alone have an annual price tag of around $871bn in economic loss and social harm, with speeding accounting for $210bn of that figure. When autonomous vehicles are perfected, all of this goes away, and even before they are perfected, it is likely that speed controls will be implemented. This will not only impact auto insurance, but it will also significantly impact health insurance and life insurance in that insurance companies will have to pay out fewer claims.
It is hard to predict how far we will advance, but it is conceivable that in 20 to 30 years we will live in a world without auto insurance. For life and for health insurers, there would simply be less risk and therefore higher margins on life and health policies, or potentially these savings get passed on to consumers, which leads to lower-cost products and ultimately more money in all our pockets.
