Partner up: how Instanda fosters mutual growth
“You can never cover the entire insurance value chain from a technology standpoint and hope to be amazing at every single thing from soup to nuts,” according to the CEO and co-founder of UK-based insurtech Instanda, Tim Hardcastle (pictured).
His comments came as he extolled the virtues of partnerships in re/insurance and the importance of having “a mutual growth ambition” in an interview with Intelligent Insurer. Hardcastle heads up the cloud-based digital insurance platform, which secured $45 million in funding in summer 2022 for its next phase of growth.
He told Intelligent Insurer: “We chose a space, our space, where we thought we could create the most value for the companies that we work with now, and the prospects, and we focused on that.
“We love the fact that we can partner, as we are doing and will be doing more of, with companies that have got amazing technology or data insights on other parts of the value chain.”
Within the insurtech and re/insurance world, Hardcastle already has potential collaborations in his sights. “There’s a really good company I admire that we’re looking to partner with in the life and health space. They specialise in rating and they’re very sophisticated at that.
“We have a rating capability in Instanda natively and it’s an area that I’d say we’re okay at, but we’re not as good as them. So we’ve recognised that we should partner with them and we want to collaborate.”
He said it was Instanda’s job to bring the very best of technology that’s around today to its clients and prospects, adding “Instanda brings some of it, but not all of it”, which is why partnerships are key.
“There’s a really good company I admire that we’re looking to partner with in the life and health space. They specialise in rating and they’re very sophisticated at that.” Tim Hardcastle, Instanda
No shenanigans’
For the first five years, Instanda took the bootstrap approach to funding and Hardcastle said the business has taken almost all of its capital raise funding in the last two years.
The insurtech has, in simple terms, proved the model, got traction in the market, shown it could create value for its clients and then gone big on the fundraising, he explained. This is in contrast to some startups, he said, which make unproven promises and go big on their fundraising early on.
“I think our model played very well for us in our last fundraise, which we completed in July, because it was against this backdrop of an insurtech valuation collapse and the broader fintech evaluation collapse.
“We chose a partner that we believe matched our business plans and ambitions in Toscafund, which is a growth equity fund.”
He said the insurtech had been “vindicated in its approach” because Toscafund’s investment had straddled the collapse in valuations of insurtechs and fintechs seen this year.
Talks with the fund began pre-valuation collapse, in February and March 2022, he said, with the conclusion of the deal in July, which was post collapse.
“There were no shenanigans and we concluded the deal in the same broad terms as we started it. I think that reflected the very strong fundamentals that Instanda has in terms of what it was as a business, where it was going, when it was going to be profitable. So I think we navigated that arc of collapse in valuation very strongly because of the fundamentals of our business and, in part, because of the nature of the partner we chose.”
“We navigated that arc of collapse in valuation very strongly because of the fundamentals of our business and, in part, because of the nature of the partner we chose.”
Why not venture capital?
Hardcastle said that while venture capital has seeded, fuelled, and helped businesses create enormous amounts of value for their markets and investors, “it does not fit well with what we do and what a number of, what I would call, business-to-business core applications are all about”.
The insurtech is there to help companies change their operational efficiency, improve the value they can take to their customers, and be a core part of their business, he said. “Whether it’s an MGA that uses us as their core platform, or it’s a large carrier using the platform for a line of business, we’re still an important part. So the sales cycles are quite long.”
As a result, the relationships the insurtech enters into with its clients are strategic by their nature. “They’re not about running in hard, extracting a lot of value for us, and then running away. We are their long term partner and it’s about a mutual growth ambition.”
He said a lot of the business’s revenue comes through over a period of time as Instanda invests in the client and the client invests back into the insurtech.
“That profile means the business is inherently quite sticky when we get it right. And we’re making sure that we keep the clients happy, which we do the majority of the time, over time.”
A long term strategic partnership growth model needs a source of capital that reflects that growth, Hardcastle explained. “A growth equity fund doesn’t expect a return within three years. It doesn’t expect a return of five times its input. It’s more patient capital, whereas venture capital is not patient, it’s very aggressive.”
Hardcastle said he “felt sorry” for companies that have been fuelled by venture capital before the insurtech collapse because, he said, they would have “a really hard time in the aftermath of this market that we’re now dealing with”.
He added: “I’m not saying that’s a model that’s not appropriate for other industries or other technologies. Of course it is, they had an amazing track record. But for our space in what we do, I want to have conversations with our clients and prospects, which are strategic. It means we can take time to build value together. That’s why growth equity is exactly the right mix for us.”
