Give us a brief introduction to your venture unit.
Munich Re / HSB Ventures invests in and partners innovative companies to develop growth opportunities for our companies. Munich Re is the world’s largest reinsurance company, with a global platform spanning all aspects of primary insurance and reinsurance. Its subsidiary Hartford Steam Boiler (HSB) is a leader in equipment breakdown insurance and coverage for renewable energy and cybersecurity, as well as engineering-based risk management for businesses, homes and farms. Our venture group was formed just over a year ago in December 2014 to invest for HSB and was expanded mid-year to include Munich Re.
What key drivers have caused you set up your group?
I will start with a story. About a year ago in a meeting, the head of HSB’s engineering team leaned over and pulled out of a folder a slightly worn internal magazine from the 1990s that asked when the machines will talk to us. Now they do. With a business focused on equipment and half the company still engineers of the built environment, HSB is excited about the future. More broadly for all of Munich Re, the insurance sector is extremely dynamic at the moment as new technologies enable new risks and new business models, which impacts all aspects of our business.
On the technology side, sensor-related technologies in the business, factory, home, car, hospital – and even body – have the potential to dramatically disrupt insurance. In addition, the digital world continues to change the way we reach and engage with customers, not just as a channel, but as a fundamentally new way of offering products. And, of course, the ever-increasing quantities of big and small data offers both huge opportunities and threats to the traditional insurance sector. As a result, we are seeing the real emergence of insurance tech in the venture ecosystem.
Five years ago, when I was leading the corporate venture group for Hartford, a US-based primary insurer, we were the only dedicated strategic venture group in insurance. Now, most of the larger primary carriers from the US and Europe, as well as from China, have dedicated venture groups or at least innovation groups. We are also seeing startup insurance or insurance-like companies, following the recipe first crafted by Climate Corp for becoming an insurance-like business that does not require venture capital investors to fund the balance-sheet capital requirements and risks of an insurance company.
Describe your strategic objectives.
We are responsible for corporate venturing activities that deliver both strategic and financial value through minority investments, business partnerships, and, in some cases, acquisitions. The focus is to grow our business by leveraging new technology-enabled products, services and data to serve our customers, to enable new insurance growth platforms, and to identify insurance gaps in the startup ecosystem. The goal is to build a portfolio of investments and partnerships that has measurable strategic value on our business within a few years and generates strategic options for our future over the near and long term. Our current areas of focus include the internet of things (IoT), cybersecurity, cleantech, and big data, among others.
What type of venturing process do you use?
We are currently investing off of the balance sheet with an initial five-year allocation of funds. I expect this to change over time, heading towards a larger, more separate and committed fund.
Give us some order of magnitude to the investment and portfolio size.
We did two early-stage investments in 2015 and I expect us to do closer to five or six investments and significantly increase the size of some of deals. Talk to me later this year and the size of our portfolio will be dramatically larger. For investments, our appetite is anywhere from seed to around series C. We will also do partnerships in some situations without investments.
Introduce the members of the team.
We currently have three members of our team and are recruiting additional people. The two investment professionals, Matt McElhattan and myself, are based in San Francisco. We are both external hires with previous corporate VC experience. Matt joined us after seven years at Chevron Technology Ventures, while I founded and led the innovation and corporate venture capital group at Hartford.
I have found that for strategic VC, especially in a company that is not a tech or R&D-driven company, it is essential to have someone on the venture team who drives strategic value – and it is helpful to have that person come from within the industry if not from the company itself. Marc Saulsbury plays that role for HSB and is our head of strategic business development, based in Hartford. Marc was previously in our strategic products group and previously led HSB’s flagship equipment breakdown product, so he is the perfect link between our portfolio companies and the businesses. For Munich Re, we collaborate closely with scouts based in Silicon Valley and elsewhere, as well as with innovation management in Munich, to play this role.
Do your team members sit on the boards of investee companies as members or observers?
We are currently observers, but are okay with being either, as appropriate for the investment.
How do you manage the connection between your group and the core business units to ensure the transfer of technology and capabilities?
We are structured for strategic value in a way that makes the connection quite tight. We invest off strategic themes which are agreed with the company and give us focus – not 100% focus because we also need room for the new. All our investments need to have some sort of collaboration in place at the time of the investment. The lightest form of that is a strategic alliance, which has a business owner and plan for engagement that the venture group helps to make sure happens. The engagement can evolve from there to a full commercial relationship. Our group also frequently collaborates with the businesses to develop strategy, as well as to help structure a partnership and negotiate a deal.
Are you seeing new products, services and business models that are brought together in different ways to the current business – what I would term innovative new value chains?
Absolutely. That has been especially true over the past five to 10 years for telematics and other sensor-based technologies, that can be integrated into insurance in either light form or very disruptive ways. However, some of the biggest news in the insurance tech space is not a new business model, it is the startup ecosystem harnessing the existing insurance value chain to create new insurance-like companies – a new twist on an existing business model.
What do you see as the key challenges in corporate venturing?
A primary challenge in corporation venturing is achieving strategic value, which impacts the longevity of a corporate VC. Companies often focus more on the tactical choices to set up a venture group, and less on setting up the specific execution processes to deliver strategic value to both the corporate and the portfolio company. To achieve the desired strategic value from investments and partnerships, the corporate has to do some things that are traditionally very difficult, such as create futures under uncertainty, partner startup companies and create optionality. None of these are easy to do for companies that are used to forcing certainty, working with other large companies as vendors, and picking single linear paths forward.
How do you measure your financial and strategic performance.
Financial performance is pretty standard. On the strategic side we are looking to learn and have a measurable impact on our corporation. For the measurable impact, we look at a number of parameters, including both revenue growth and retention. For learning, although measurement is hard, we know when we have made a strategic decision differently than we otherwise would have as a result of learnings from our venture activities.
Illustrate what you have described with a couple of examples of recent investments or collaborations.
Two of our investments, Augury and Waygum, are in the IoT sector, which is an area where we are active strategically. Augury marries machine learning and predictive maintenance, while Waygum offers a mobile back-end for IoT that we see as being like a universal remote control. Both investments are early-stage, so the collaborations are as well. We are in the learning and piloting stages. With both companies we started with a strategic alliance and, with Waygum our earlier investment, we have progressed to a pilot that will both help us tremendously with a current significantly-sized pilot and help Waygum get points on the board. So far, so good.
What do you do to relax?
Yoga, looking out at the ocean, feeding my brain with non-venturing stimuli, reading, and spending time with friends and family.