Looking Around Corners....

At Frontier, and every early-stage venture capital firm like it, it’s our job to look around corners to theorize about what the world could look like in the future.  Our partners look through lenses that are filtered by certain thematic beliefs that drive our fund investing (click here!), but also inspired by a world of creative entrepreneurs who are often already ahead of us.  As we look around these corners to the future, we always want to be convinced that we can see that the product market possibility is actually imminent.  We have been wrong on this many times, I assure you, sometimes resulting in challenging commercialization experiences!  But sometimes, we predict accurately.  We have been watching the autonomous vehicle market for several years.  In 2017, we looked around a corner believing that such vehicles were closer to market than most people knew or believed.  A lot of investment capital has flowed toward the technologies required to bring this vision to life.  For that reason, autonomous vehicles are right around the corner: (click here!)

With this in mind, at Frontier we backed Driav, a business focused finding a solution to mitigate insurance risk for just this eventuality.  This is a complicated problem to solve and requires all kinds of insight, driven by a combination of technology in the automobile, integrated with a completely new road map for insurance companies and auto manufacturers.  We think the team at Driav is poised to help the autonomous vehicle vision come to life, safely, and we are excited to have given them the important fuel they required for timely commercialization.  More to come soon on autonomous vehicles. 

Profile of the Progression of a Portfolio Company

By David Cremin

The link below takes you to an interview with the founder and CEO of one of our previous portfolio companies, Ryan Born, from AudioMicro. His interview tells the story of AudioMicro and the twists and turns it took on the path to a successful exit. If you're listening to the recording, you can hear the humorous story of how Ryan met us at about minute 17.

Click here for the interview.....

Inflection Point

By David Cremin

The wrong answer: “we’re raising money for 18 months of runway.”  The other wrong answer:  “we’ll hire sales and marketing and engineering…”  

Let’s play Jeopardy, what is the question?  

The question is: “how much money are you raising and why?”  But your answers above aren’t quite what we’re looking for when we ask that question; however, they are the answers I most often receive.  

Building companies is not about months. It’s about achievements. Milestones. Completion of major goals. Everyone around the table must understand and believe in some set of goals that, if achieved, will likely raise the perceived value of your company.  A next phase. A moment of optionality.  That is your company’s inflection point. You’re raising capital to achieve this inflection point!; btw, you should also be raising enough capital to have cash in the bank at that moment, so you have time to think about your options and execute on them.  If everyone agrees on the goals, then imagining and executing on the tactics to get there is transparent, and trackable, which keeps everyone on the same page from the top to the bottom of your company.  Only then, when your goals and tactics are clear, should you work backwards on the time you need to achieve these important goals, and tactics required to achieve them.  It may be 18 months, it may be 6 months.  Tailor your capitalization strategy accordingly.  

Therefore, when asked the question, how much and why, here’s the sort of answer I wish we received:

  • Here are the 2 or 3 goals we are going to achieve; if we achieve them we will have proven that our business is valuable because…
  • We will then have options to raise more capital, or sell the company, (or also be cash flow positive, unlikely in most companies, but provides the most complete optionality)
  • Our cash flow forecasts suggest we can achieve these goals, and we will have 6 months of cash in the bank at the time they are achieved, so we’ll be in great shape to make important strategic decisions

When I hear this kind of response from an entrepreneur, I know she is thinking about value creation, and how venture capital relates to it.  She is thinking about the inflection point.  

Accidents and Self Driving Cars

At Frontier, we read with interest Jason Calacanis’ recent defense of self-driving cars.  [click here to read]  Our partnership was also thinking about writing a piece on the subject, but not only did Jason beat us to it, he also framed the argument perfectly, so we opted to mention his piece instead of duplicating efforts.  Bottom line, accidents will happen.  And this concern, now come true, has catalyzed some of our thinking and exploration in the space in recent months.  We believe data and personalization are the key to building the software and infrastructure for accident avoidance.  But it turns out that data and personalization also drove us (pun intended) to invest in Driav, which offers an autonomous vehicle risk mitigation strategy for auto manufacturers, auto owners and insurers.  If there are going to be accidents, there needs to be a way to assign and spread risk.  With unique access to sensor data in cars, Driav does just that.  We are excited to collaborate with Driav’s founder, Dan Peate, as he builds a big company promoting safety and productivity for driverless autos. 

Learn more about our portfolio company Driav by clicking here.....

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!