How much difference a year makes.
In April 2021, TechCrunch published a venture capitalist’s take that “the era of the European insurtech IPO will soon be upon us.” At the time, the perspective made some sense.
After all, just last June, this column explored the rapid-fire fundraising in the insurance technology startup market, declaring that “insurtech is hot on both sides of the Atlantic.” At the time, WeFox had recently raised a $650 million round, putting big points on the board for European insurtech.
Since then, we’ve seen the technology market correct and public-market investors spit up the insurtech IPOs from late 2020 and early 2021, essentially repricing the value of neoinsurance companies to near zero if we deduct cash from their market caps.
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The change in sentiment led The Exchange to ask in February which insurtech startups might thrive this year and which might suffer. Since then, tech stocks, including the most recent insurtech IPOs, have continued to correct, bleeding value across the Nasdaq and NYSE.
Now, roughly a year past when it seemed a period of hyperactivity was going to send a host of European insurtechs to the public markets, we’re examining just how different the market is. With venture capital data collected for TechCrunch by PitchBook and notes from active insurtech venture capitalist Florian Graillot of Astorya.vc, we now know a lot more.
While the 2022 data tells a stark story, the rest of Q2 could prove pivotal for insurtech this year. Let’s explore insurtech activity in both North America and Europe, compare recent results and look at what could lie ahead.
How insurtech investing has changed this year
The optimism around insurtech outcomes last year fits neatly with the data that we can now see with the benefit of hindsight.
In North America, PitchBook reports that insurtech venture capital activity rose to $2.21 billion across 83 rounds in the second quarter from $1.67 billion across 78 rounds in Q1 2021. It peaked in Q3 2021 with $2.51 billion invested in 66 deals before falling to $1.80 billion in the fourth quarter of 2021 and to $1.52 billion in the first quarter of 2022.
The number of deals also slipped to just 54 in the first quarter of 2022 from 67 in Q4 2021.
Insurtech’s story in Europe has been a little different. Investment has been largely flat from Q1 2021 through the first quarter of 2022, per PitchBook, with one exception: the second quarter of last year.
Apart from Q2 2021, European insurtech investments mostly floated between $450 million and $550 million from the start of last year through the first quarter of 2022. In Q2 2021, however, some $1.76 billion was invested across 57 rounds, setting a both deal and dollar peak for the recent past. (More shortly on why Q2 2021 is key to understanding insurtech’s future in Europe.)
TL;DR: The North American insurtech market saw rising dollar and deal volume in 2021 through to the third quarter, after which venture totals fell through the first quarter of 2022. In contrast, European insurtech startups have largely seen steady deal and dollar results, apart from a blowout Q2 last year.
Our next question concerns what we’re seeing thus far in the second quarter of 2022. Does more recent data show a change in the winds?
Where the market is today
Using partial data (through May 18) and extrapolating to create full-quarter pace notes, what are we seeing in the second quarter of 2022? Per PitchBook data and a TechCrunch analysis, the following:
North America:
- Q2 projected insurtech VC dollar volume: $1.30 billion, 85% of Q1 2022 activity.
- Q2 projected insurtech VC deal volume: 40 deals, 74% of Q1 2022 activity.
Europe:
- Q2 projected insurtech VC dollar volume: $423 million, 83% of Q1 2022 activity.
- Q2 projected insurtech VC deal volume: 19 deals, 61% of Q1 2022 activity.
The North American data shows a continued decline in the amount of money that VCs are putting to work in insurtech, and that deal volume is also slowing. Europe is much the same but from a more difficult year-over-year comparison.
Why? North American insurtech venture capital dollars invested in the second quarter of 2022 are projected to be just under 59% of their year-ago results. In Europe, compared to the record-breaking second quarter that insurtech startups racked up, the current projection is that insurance technology companies in the region will raise just 24% of their year-ago total.
Sure, some big rounds make the comparison tough, but if Q2 2021 was a key period for European insurtech investment, the current quarter could prove similarly make or break.
In Europe, a shift in the making
Big rounds can skew tallies, so it is always worth looking beyond them. That’s even more important this year in Europe, as we have large deals that could lead us to make hurried conclusions and mask a deeper decline.
According to Graillot, funding in European insurtech was heavily concentrated, especially in Germany and France. Per his data for this year up to May 15, less than €10 million was invested in German insurtech startups outside of Xempus’ €70 million round. Similarly, France’s top three deals — Alan, Descartes and Seyna — accounted for the most funding, with only some €30 million invested in other startups, he said.
Since European insurtech deal volume hasn’t plummeted, funding that didn’t go to large rounds was necessarily split into small amounts. This was tied to stage and location factors, Graillot said.
“Seed deals are piling [up], keeping the number of deals announced at top level while putting the total amount invested down and highlighting smaller startup scenes across Europe.” And even in large markets such as Germany, “seed rounds are leading the wave.”
This means that we won’t get a clear view of the picture before the quarter ends, as some of the deals, usually the larger ones, reflect the state of the market a few months ago more than they do right now. Graillot even wondered if some of the deals announced in Q2 weren’t actually closed last year.
This quarter is particularly important for understanding the state of insurtech in Europe, because a year-on-year comparison should be quite telling. As we mentioned, Q2 2021 was a clear outlier.
Our intuition is that Q2 2022 will be no match for Q1 2021. That’s also what our projections suggest, but we agree with what Graillot said: Only at the end of June will we be able to “take the first conclusions of how the drop on public markets is really impacting insurtech startups (I mean with real figures), beyond what we hear currently from the VC scene.”
What we are hearing is still worth mentioning: Among other things, it is getting tougher to raise money, especially at the later stages. And, being profitable goes a long way. In other words, insurtech is not immune to what’s happening across private market investments. It wouldn’t surprise us, but as always, we will wait for more data and report back. And once again, we will compare Europe and North America and check if their insurtech scenes are back in sync.
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