In its report for venture capital activity in the insurtech industry, analyst PitchBook reveals the industry-wide value of venture capital investment was down 9.9% quarter-over-quarter, despite an 8.5% rise in the number of deals struck compared to Q4 2022.
The investment landscape
While venture-capital deal value was at its lowest since 2018, this doesn’t necessarily reflect a wavering investment market. As more insurtech start-ups continue to populate the market, investors have been hedging their bets with smaller contributions in seed-funding rounds.
This is reflected in the 8.5% rise in deal count quarter-over-quarter, creating a more competitive market in seed rounds. In 2022 alone, the deal value in early-stage funding rose 19.6% from the previous year.
Although seed valuations are down 5.3% so far in 2023, this has yet to detriment the number of investments taking place throughout the industry.
A startup focus
And, unsurprisingly, funding of any kind for commercial insurtech startups have bucked the industry-wide trend of lesser investment, increasing 137.4% quarter-over-quarter to US$223.7m.
PitchBook attributes this start-up investment growth to a $54.5m Series B funding round in digital insurer Superscript, as well as $46m in Series B investment for commercial fleet insurer Fairmatic. However, the biggest generator of startup investment in Q1 2023 was InsuranceDekho, an Indian online insurance marketplace that generated $150.0m Series A funding.
So, while an appetite for seed funding is driving up minimal investment values, larger-scale investment in startups is driving VC forward in the insurtech industry despite an overall dip in funding.
This is evidenced by PitchBook, which notes early-stage pre-money valuations were up 7.7% to $27.3m in Q1 2023, compared to $25.4m in 2022. The shift away from large-scale investment is further reflected in the 21.5% year-on-year decrease in late-stage valuations for Q1 2023.
Though medium to large-scale insurtechs may not have generated as much investment so far in 2023 compared to 2022, there is little fear of investors cashing in – with mergers and acquisitions (M&A) looking the most likely exit route for VC firms according to PitchBook.
This is due to macroeconomic conditions, with initial public offerings (IPOs) slowing to a near-halt across the entire technology sector from mid-2022. IPOs were the primary exit route for insurtech investors in 2021, with $36.6bn in exit value recorded that year.
However, with this exit route seemingly out of action for the foreseeable future, M&A appear the most viable exit option for VC firms, given the increasing need for long-standing insurers to update their legacy systems.