According to leading VC and daily blogger since blogging began – Fred Wilson:
“There are two kinds of corporate investments in startups; passive corporate VC arms and active strategic investments.
The former is made by well established investment groups like Google Ventures, Intel Ventures, SAP Ventures, Comcast Ventures, and many many more. For the most part, they don’t “suck”. They can be a good source of capital for your company, they can be supportive investors who follow on when the rest of the syndicate does, and they generally have good reputations, including with me.
The latter is when a company sees a business they want to get closer to, they take a big stake, a board seat, and they make a ton of promises about how much they are going to help the company. These type of investments and relationships have almost universally “sucked” for our portfolio companies. The corporate strategic investor’s objectives are generally at odds with the objectives of the entrepreneur, the company, and the financial investors. I strongly advise against entering into these kinds of relationships.”
Which prompts the question, why did Allianz, Germany’s largest insurance group, buy a minority stake in Berlin based startup Simplesurance? In other words, will this be a good experience for the founders of Simplesurance and the shareholders of Allianz? Lets read between the PR lines to find out.
Simplesurance is a “we bring you lunch” startup
We categorize Fintech startups as we eat your lunch or bring your lunch:
A. We eat your lunch. They take business away from Incumbents. For example, Market Place Lenders and Robo Advisers. Note: they can also do cooperative deals with incumbents, but the startup usually owns the customer relationship and that makes it a fundamentally different deal. Quite often the startup first gets traction in a market that the Incumbent does not care about but eventually there is a market share battle.
B. We bring you lunch. This describes both Traditional Fintech as well as ventures building B2B2C revenue share partnerships with Incumbents.
It makes no sense for an active strategic VC to invest in a eat your lunch type of startup. They should leave that to purely financial VC. There is no strategic alignement possible between Corporate VC and an eat your lunch startup.
So far so good. Simplesurance is clearly a bring you lunch type of startup. Their software enables a customer to buy insurance products online. That is technology that an incumbent can use.
That puts Simplesurance in the category that we call Robo Brokers.
The PR makes it clear that Simplesurance will not only sell Allianz products, so they can act in the customer’s best interest.
Allianz is huge, with operating income over EUR 10 billion. This deal is a rounding error for them. It is a cheap way to get a front seat at the Creative Destruction 7 Act Play and the right to go back stage and talk to the actors. They get to see how to attract customers online and figure out how to apply that at scale.
Allianz will probably buy Simplesurance at some future date.
How Allianz figure out the cannibalization challenge with their existing agents remains to be seen. No amount of digital tech can make that problem go away.
The other game play for Allianz can be be to use Simplesurance as a digital only entry to new high growth markets. The PR mentions India as a country and that makes sense as it is mostly a blue ocean market for Insurance.
Allianz is not alone. Incumbent insurers such as Munich Re and Axa have also been active in Corporate VC. Munich Re is taking the indirect route by investing in a Berlin-based Fintech incubator called Finleap.