The Insurance of Things

Today we turn Partner PoV over to Brett Jurgens, the CEO of one of our portfolio companies, Notion. Check out the new "Insurance of Things" as described by Brett.

The Internet of Things (IoT) is a new concept for most people. The term, and the industry, have gained relevance through wearables like FitBit, and IoT’s presence in the home is slowly starting to become more mainstream (though the concept has been around for decades, especially in the industrial space).

In the last five years, IoT has quickly gained traction among early adopters and is positioned to be an integral part of the homeowner (and renter) experience. Not only are IoT products becoming commonplace, they are smarter, integrating with each other and providing data that’s never been obtainable. Within the insurance industry, this integration will not only make life easier for the homeowner – from catching water leaks before they cause damage to getting an alert should an alarm sound when no one is home – it will change the way providers interact with customers, ultimately reshaping how properties are protected and insured.

This adoption is defining a new IoT – the Insurance of Things.

Current State of the Industry

While insurance providers document information like when a home was built, where it’s located and what the crime rate is in the area for each of their policyholder’s homes, traditionally very little is known about the actual activities happening inside and around the home, and almost never in real time.

An agent might know that a particular policyholder’s house is located in a ZIP code that experiences a high frequency of burglaries, but the agent has no idea if that policyholder leaves his garage door open regularly – something that’s been shown to leave a home especially vulnerable to intruders. This is just one of many examples of where connected devices present an exciting opportunity.

What the Future Holds

The data that IoT solutions capture will alter the home insurance industry, allowing the market to move away from passive insurance and claims processing and into a more active approach focused on avoiding loss altogether.

This transition is already starting to take shape with auto insurance. As more providers implement devices and mobile apps that report driving habits to capture a driver’s level of risk, behaviors and patterns can be analyzed to tailor coverage for each individual customer.

Over time, these types of insights will empower insurers to identify and build new risk models and to anticipate and eventually predict incidents based on people’s habits and other trends. And, just as the auto industry has clearly defined the characteristics of a safe driver, eventually home insurers will have enough data to define what it means to be a “safe homeowner.”

As IoT’s loss reductiions become more definable through mass adoption and more data, it could very well become a requirement to have certain smart home technologies installed in your home to get insurance coverage. A number of new entrants using data from IoT devices and other sources in creative ways are aggressively pushing this agenda, including Lemonade and Hippo.

A final point to consider – IoT products themselves will dramatically reduces losses, and it will be interesting to track consumers’ selection bias over time as adoption rises. In the coming years, it will be interesting to see if homeowners who install IoT devices in their homes have fewer claims despite the devices they install. There is little hard evidence to support this notion today, but over time will this group prove to be more active, thoughtful and generally safer homeowners even before they installed IoT devices?

What Policyholders Think of IoT (and Why Insurance Providers Should Care)

Consumers are buying IoT devices for many reasons, but one motivation in particular is the same reason they buy insurance: peace of mind. For the insurance provider, there’s even more at stake: loyalty.

NTT Data found that 87% of insurance carriers believe the installation of IoT devices in the home will improve customer relationships, and 83% believe IoT devices will open the door for personalization of policy offerings – something that consumers desire.

The same study also found that 64% of surveyed consumers are open to investing in IoT devices, and are even willing to switch carriers if it means they’re eligible to receive policy discounts for installing these devices.

The insurers that figure out how to capitalize on consumer intrigue of IoT devices will have the upper hand in obtaining new clients (and, as mentioned, potentially lower risk clients, as well). Offering smart home technologies will provide insurance companies with the competitive advantage they need to maintain positive engagement with both new and existing policyholders, and will contribute to increased retention.

Where to Start

So, how can insurers leverage these devices to differentiate their offerings, reduce losses, increase customer loyalty and mine user data for greater insight into the safe homeowner?

  1. Be purposeful when choosing who to work with. Start with an IoT company that has experience partnering with other insurers so you can quickly learn from them.
  2. Keep it simple. Don’t overcomplicate the success you can have with IoT by focusing on complex data too soon. This will come with mass adoption and will take time.
  3. Make it appealing to your customers. Insurance doesn’t have to be a commodity. Make it clear to customers why your new IoT offering is innovative and invaluable to them vs. your competitor’s offerings.
  4. Be nimble and willing to optimize programs. Knowing what doesn’t resonate with customers is just as important as knowing what does. Notice that your customers aren’t installing devices? Ensure the messages your customers receive from agents are clear so that they fully understand how the technology works, the benefit to them, and the incentives they’ll receive. Realize that customers aren’t using a device in the way that you’d like to have the biggest impact on loss reduction? Experiment with other communications, like how-to videos or step-by-step infographics, to better instruct customers how to install their new device and educate them on various use cases.

What other challenges and opportunities lie ahead for the Insurance of Things? I’m excited to see how insurance providers and technology companies will work together to define the safe homeowner and the future of insurance!

Theme Focus: Curated IP Generation

By David Cremin (Originally posted July, 2014)

Comic books?  Seriously?  That’s a good business?  Well, yes, and, well, yes!  It can be.  My Frontier co-founder and awesomely literary partner Scott Lenet grew up reading comics and graphic novels (which are longer comprehensive collections of comic books).  He also majored in comparative literature at Princeton, so don’t judge too quickly on what may seem like idle time reading silly comics.  BTW, when I say comics, some immediately think of Archie and Superman.  But there are a LOT of comic books, which actually tell great stories about compelling characters, not just about superheroes and generic teenagers.  Such great stories make valuable intellectual property (“IP”). 

We all know IP can come in many forms.  Technology companies patent their code or hardware, and this is their IP.  Hollywood has IP.  Companies like Sony, Fox and Universal own lots of great movie titles, and exploit these titles across media globally.  At Frontier, we believe that we should be backing founders with transformative IP.  But since we believe IP can include not only technology companies, but also certain types of content, we are open to expertly curated content generation companies, which drive an engine to create valuable content portfolios. 

I bet you didn’t know that when you went to see the blood spattering, action-packed movie 300, that you were seeing a movie adapted from a graphic novel?  I bet when you enjoyed Angelina Jolie in Wanted, that you were seeing a movie adapted from a graphic novel.  How about Walking Dead, on TV?  Yup, graphic novel.  Blade Runner.  Heck, why not Harry Potter or Twilight?  A great story is a great story.  [Is there a game example?]

At Frontier, we invested in a company called Boom Entertainment, because we were intrigued by their stories, their writers and their artists.  We also realized that Boom was having great conversations with the creative folks in Hollywood.  The founder had a history in comic book publishing, but also understood the production of movies and television.  We liked that the team drove a fiscally sound book publishing business, but that this success provided the company with lots of shots on goal to translate its IP into other, potentially more valuable media.  Recently, the company’s first translation from a comic book to a movie, Two Guns, starred Mark Wahlberg and Denzel Washington and was an important creative and financial success. 

Another portfolio company, Seismic Games, was founded by video game industry veterans Greg Borrud and Giz Gewirtz.  Mobile and virtual reality are driving new gaming experiences, and the founders were busy assembling the best engineering teams to build games on a contract basis.  But these teams were nimble, and the company is also building its own games at the same time.  Like Boom, the company had a fiscally sound game development business, giving it time to be creative with some of its own innovative IP.  If you are at Disneyland, and you choose to check out the Millennium Falcon, the experience was created by Seismic Games. 

We’re continuing to seek new companies that have a unique engine for valuable IP creation and long term value like Boom Entertainment and Seismic Games.    

Darth Venture - The Force Awakens

By David Cremin (Originally published on March 30, 2003)

Quick, entrepreneurs, use the force because Darth Venture is after you.  How do I know this?  I recently attended an MIT forum, at which entrepreneurs, venture capital providers and service providers met to discuss technology, business and capital.  The MIT forum, along with the Central Coast Venture Forum, TechBrew and the Center for Engineering Entrepreneurship Management at UCSB, are vital, growing organizations that prove this is a fertile and exciting region.  (If you have not attended any of these events, and this is an area of interest, then I strongly urge you to do so). 

At DFJ Frontier, a seed and early stage venture capital firm and the newest fund in the Draper Fisher Jurvetson network, we see a tremendous opportunity in this central coast region.  From Westlake all the way up to Santa Cruz, you’ve got top-notch educational infrastructure, smart workforce, models for success and great places to live.  The only thing missing to date has been efficient access to capital.  What did Silicon Valley look like 25 years ago?  I was there - prune orchards, horse fields, Stanford and HP - and a few venture capital companies.  Here on the coast today, you’ve got all kinds of orchards and horses, UCSB, Cal Poly, and models for success like Green Hills Software, Xylan (now Alcatel), United Online and many more.

That’s why we’re here.  Venture capital catalyzes business, creates jobs and wealth, and as we still see in Silicon Valley today, promotes additional venture capital dollars.  This will continue, and in fact has, save for two or three strange years that most of us would like to forget.  Those years were the anomaly; we should be back on track shortly. 

At the MIT forum, we heard from an inspiring local entrepreneur, Dan O’Dowd about his terrific history as founder and CEO of Green Hills Software.  Dan is one of the guys doing it right in my opinion.  He referenced other entrepreneurs who are doing it right, guys like Bill Gates, Michael Dell, etc.  What are they doing right?  They started their companies with a small amount of venture capital, and proceeded to run their businesses well and never looked back.  These heroes are examples for today’s entrepreneurs and just the types of women and men we venture capitalists like to support.

Dan stressed that making more money than you spend means you do well.  Spending more money than you make is a bad thing.  While moronically simple, he is dead on in pointing this out and questioning why others don’t use this simple business model more often.  Use the force Luke!  Heck, my immigrant grandparents taught that one to us many years ago.  That’s how they built a business teaching twenty-five cent music lessons into a chain of fourteen music schools.  Remember: don’t spend more money than you make…you won’t do well and Darth Venture will come calling for more of your company. 

Dan cautioned that when entrepreneurs raise progressive rounds of venture capital to drive faster growth, this capital comes with a cost.  An entrepreneur sells a little bit (or sometimes a lot of bit) of the company in each venture round.  Why does Dan think this is bad?  Because if capital and growth are not used wisely, one can lose control of employee training, product development, and ultimately the company, as venture capitalists can own as much as over 50% of the company at the time of an IPO.  Again, entrepreneurs like Dan, Bill and Michael each used very little venture capital, and then succeeded by making more money than they spent.  They used the force to keep Darth Venture under control. 

After Dan spoke, we then listened to a terrific young Santa Barbara-based company called Warp 9 tell its story, after which Dan joined me and Sumant Mandal from Clearstone Venture Partners (Darth Venture was in the house) on a panel to talk about Warp 9 specifically, and venture-backed companies in general.  I give Jon Lei, the CEO of Warp 9 a lot of credit for his courage and poise during our questions, challenges and recommendations.  The audience chimed in too, asking tough questions and helping mold a better battle plan for this new startup.  One audience member asked Darth Venture why we don’t wait long enough for Warp 9’s market opportunity to dwindle, and then exploit such market timing to rush in for a better-timed venture capital kill.  Wow.

I guess Darth Venture’s reputation preceeds him.  Wait.  Dan used venture capital.  So did Bill, and Michael, and a host of other successful entrepreneurs.  But they used it the right way.  They used the force, Luke: they got a small venture kick-start and then made more money than they spent.  Salient message in tough times.  Salient message in boom times too in Darth Venture’s humble opinion. 

Dan argued vehemently that the recession is at its nadir, and good times are ahead.  I agree.  Darth Venture isn’t always on the dark side.  Darth Venture has helped Dan and many others use the force with terrific results. 

We’re excited about the huge growth potential in this region.  We want to help more local entrepreneurs become heroes, and catalyze job and wealth creation.  Catalyzing this success will drive more venture investment in the region.  Luke, get in the game, Darth Venture isn’t such a bad guy, and may the force be with you.

“It’s a Trap!” Or, the Myth of the Mid-Stage Round

By Scott Lenet

Nearly half of Series C rounds were flat or down in the third quarter of 2016, prompting the industry refrain that “flat is the new up” and implying that entrepreneurs should be happy with the current state of affairs. Happy or not, entrepreneurs seem to recognize the new reality, with two-thirds of CEOs admitting that they believe the balance of power is shifting from entrepreneurs to VCs, according to the State of Startups survey from First Round.

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Interview with Robert Blatt, CEO of MomentFeed

By David Cremin

When we invest in startups, often we also serve on the company’s board of directors.  As directors and/or fiduciaries of early stage companies, sometimes we recognize that a founding team needs operational assistance.  The vision is there, but sometimes the steps to realize that dream are not clear.  Based on the pattern recognition gleaned through investments in over 100 startups, we can help identify and articulate the need. 

We always talk to the founders and discuss the problem.  Working together we try and find a solution by adding missing ingredients to the team, sometimes even a new CEO.  Though more art than science, and sometimes fraught with real human emotion or ego, in our experience this kind of collaborative change should end up working out really well for all shareholders, especially the founders.  In one company, Momentfeed, the founder Rob Reed built the company to a certain level and then, as an example to so many founding teams, helped lead a successful search for a new CEO.   

Under new CEO Robert Blatt’s direction, Momentfeed has since more than doubled in size four years in a row and just landed significant incremental financing from our colleagues at Level Equity to expand the business.  I give HUGE credit to Reed for managing this process with such integrity – I’m sure it wasn’t always easy. But the outcome is undeniable.  Here is an interview with CEO Robert Blatt, in which he discusses the transition, the company’s evolution and the his mission and vision for the future.

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