Paul Ricard: Hi everyone, and welcome to Oliver Wyman's Reinventing Insurance podcast. I'm your host, Paul Ricard. Welcome to Reinventing Insurance. Today I have the pleasure of welcoming Dave Wechsler, who is a principal at OMERS Ventures. Welcome, Dave.
Dave Wechsler: Paul, Thanks for having me. I really appreciate it.
Paul: Dave, let's start with an intro for you. You have quite the unusual background, at least for someone who's dabbling in the insurance industry right now. So, why don't you tell us a little bit more about yourself?
Dave: Yeah. I'm glad to hear it's a little unusual. So, most of my career was spent being an entrepreneur. When I graduated college, I had a very difficult time finding a job, so I figured why not start a company? So, I did about 27 years of startups in a variety of sectors, but predominantly in internet technology and home control technology.
After being my own boss for about 27 years with a variety of outcomes, I joined Comcast and ran the Smart Home growth strategy for the company. While at Comcast one of the growth initiatives for Smart Home was to think about B2B channels, and I felt the insurance channel would appreciate the potential for technology to avoid loss in the home. First notice of loss, loss avoidance, etc. So, I really started leaning into learning about insurance.
Had a great opportunity while at Comcast. It is a big global company, and I led a team exploring insurance opportunities. Actually, while there, I went and got my insurance license. We set up a national agency and started marketing property and casualty (P&C) products to Comcast customers. And within that process, I became friendly with Hippo Insurance. We built a partnership with Hippo. Our ventures team invested with Hippo. And we distributed quite a bit of their early sales for Hippo, their first policy sales through the Comcast distribution. Loved the experience. It was amazing. And I was very fortunate to have it.
I loved the Insurtech piece so much that I was offered the opportunity to join Hippo, which I did. I became the vice president of growth and that was during the time that they were going public via a special interest acquisition company (SPAC). Another amazing experience for me, I learned a lot. Really had a great time. And I was then approached by OMERS Ventures, who's one of the pension funds of Ontario, Canada. They had a sizable investment in a few different insurtechs and I was asked to lead the insurtech group. It's a broader mandate, we look at investing in both fintechs and insurtechs — which I do both, and we generally focus on companies in the Series A to Series C space, with us writing checks up to $25 million. So, it's been a fun career.
Paul: For someone who is not a traditional insurance person, obviously you have had your entrepreneurial experience, you were licensed as an insurance agent, and you've gone through the insurtech route, investing in a lot of insurtechs. Since you've been at OMERS Ventures, how many insurtechs would you say you've looked at and how many have you invested in?
Dave: We've looked at hundreds on insurtechs. Our portfolio right now is for Morin Insurance Agency, Clearcover, Wefox holdings, Foresight Risk and Insurance Services and Joyn Insurance, who's an excess and surplus (E&S) play. So, it's a pretty diverse group.
I've had the opportunity to meet hundreds of entrepreneurs in the space, both managing general agents (MGAs) as well as technology platforms, and there are many I like, by the way. I've really been fortunate. I've learned a lot from these entrepreneurs.
I thought I would learn a lot either at Comcast leading initiatives to explore insurtech or at Hippo where I was actually doing work. But I've learned much more here at OMERS Ventures because every day I'm meeting smart entrepreneurs in the space. We're actively looking at MGAs, at technology plays, but it's hard to find investments that meet our criteria. Every venture fund is very specific about where they want to invest and how they want to invest. And finding that perfect match is always a challenge, but it doesn't mean we're not seeing great companies because there's a lot of great innovation out there.
Paul: We'll dive deeper into this. Before we do that, I know you're also the founder of something called the Insurtech Rap. Can you say something about that?
Dave: Yeah, sure. So, I've been in six or seven different industries. If you were to really look at all the things that I've done, and to me I'm not like a deep technologist. It's really more the business side that I've always enjoyed or done. And being on the business side, you need to know people in industries and industries that you enter net new are hard to break into. So, throughout my career I've been the person who's always tried to network or to meet other people or to bring people into the conversation.
And Insurtech Rap was something I started about a year and a half ago. OMERS Ventures has been very supportive of investors creating their own brands and their own entry into different sectors. My thinking was to create a group, which the vision was casual networking. For example, you are at a big trade show, maybe you're all in a coffee shop and you start talking to one another and you make some great connections. I said, "How do you do that virtually?" I love trade shows, I love meeting people face to face, but "How do you do it virtually?"
And the concept of Insurtech Rap is every week, every Thursday at 2:00 p.m. Eastern Time, we get a panel of speakers and an open audience. It's all live Zoom. Anyone is welcome to join if you're from the industry. We talk about insurtech topics and every week we've got a guest who focuses on an area. But it's a community-oriented event where the group can ask questions, engage, and be part of the discussion.
So, I've been doing this for about a year and a half now. I think we've had about 65 Insurtech Rap podcast shows. It's been a ton of fun. It's hard, it's a lot of work, but it's been really rewarding. I have personally gained an incredible network from it and a lot of people email me after each show thanking me for the network, which makes me happy. In fact, we recently got a note that one of the folks on Insurtech Rap had closed two or three deals directly in the chat sessions. They made introductions and later went on to do a deal. So, that's exactly what we are looking to accomplish, and I'm excited to hear it.
Paul: That's incredible. And having joined several of these, it's a very cool, informative set of events and community. Also, I know you have an inspiring culture, and cool t-shirts and all. It's always great to see that at various conferences.
Dave: I'm not the most polished guy, but it's fun to see people tagging into the fun. It's all good. Plus, it's insurance, where I think candidly, we take ourselves a little too seriously. I think this is something that's a little bit more fun.
Paul: Exactly. Well, terrific. Well, let's dive into this. I think there are a few things I'd love for us to talk about today. I would love to start by getting your view on the insurtech space, past, present, and future. Then to get your view around what's particularly hot right now in insurance and insurtech. And then finally close on general reflections from your journey as an entrepreneur, as a venture capital investor (VC). You said you had a lot of successes and also a lot of learning opportunities. So, hoping you can share a lot with our audience. How does that sound?
Dave: Sounds great. I appreciate it.
Paul: Perfect. Well, let's dive in. It’s been quite interesting how the insurtech space has evolved. If we think of insurtech as technology for insurance, or insurance plus technology, it's obviously been around for a very long time. But I think...tell me if you agree. I think the last decade is probably when it really started growing a lot more. If you compare insurtech now versus five, 10 years ago, how has it evolved? How has it changed?
Dave: Yeah, so it's interesting as an outsider looking in, especially with an entrepreneurial background, you get fixated on insurance out of the gate for a couple of reasons. One, it is a very tech heavy industry, there's no doubt about it. But most of the tech has been installed a long time ago and it's hard to move off those legacy systems because once these portfolios get so large, it's just very challenging and insurance isn't the only industry to go through that challenge — every single industry has it. So as a tech entrepreneur, this could be an opportunity to disrupt. Then the second piece is how big the industry is. So, you get really excited and dive in. And 10 years ago, I think it was categorical. Everyone beat their chests and said, "outsiders should come in; brand new technology, new approaches will completely disrupt the industry." And that was candidly, even my thesis when I first started looking at it in 2016. It felt almost obvious like old technology, but it's critical though to the operation and big numbers. How could you go wrong?
And I think those early disruptors focused a lot on distribution, customer acquisition and new technology, and those are all things that I think are really important in the insurtech evolution. But I think somewhere along the line, those of us who are traditional technologists who typically would say like, "oh, just win a lot of customers and if you lose money on them, we'll figure it out later on." The Insurtech ecosystem wasn't that supportive of it. Whether it's reinsurance, regulators or consumers, that approach doesn't work as well as it has in traditional tech. Arguably, it's a very bad approach to insurance. We all thought we could just bludgeon our way into it and then fix the mistakes that we made. And certainly, a lot of great companies were born in those early days, but many did not succeed or had to pivot to be more aware of what's going on in the industry.
So, I think insurtech 2.0 is much more cognizant of the fact that the unit economics have to work, that the technology is hard to displace, and not because people aren't interested, but because it's just so deeply embedded, not only in processes, but also in regulatory and interactions. The consumers and small businesses and mid-sized businesses just don't care that much about their insurance. So, you have to create new models and new approaches. There's a lot of upside for everyone, but it's just not as easy as we thought. So, I think the new generation of insurtechs or at least the ones we're seeing, understand the importance of underwriting, understand the importance of technology, but maybe aren't trying to overthrow the entire system. They are trying to add net new stuff that compliments backend systems or maybe makes more incremental change versus disruption.
And guess what? It's good news. I say this all the time. We're going to be out 15 years from now looking back, and we're going to see the entire industry is different, but it's going to be a slow roll. And generative AI, which I know we'll talk about, could be one of those areas that really helps advance the ball as well.
Paul: And it's very interesting. Picking up on a few things you said. I like the point you were mentioning about customer acquisition and growth and all these things. But back to your point on unit economics. With unit economics, you can try to predict them, but you don't know the implications sometimes until months, potentially years after you've actually sold a policy.
Dave: Yeah. And that's why it's so important to understand the basics around it. When you really look back over history, there's been a lot of great successes in tech because honestly, you don't achieve the true economics until you get big scale. But with insurance you have to have at a fundamental concept of how the unit economics are going to work and at least a plan to get there. And even though you may not know what the actual losses are... And I think it goes for consumer products, business products, you need to at least have the basics covered.
Paul: And to your point, if I take working with a lot of mid-size and large insurers in the space, I think everything you said is also true on the carrier side, on the incumbent side because getting the unit economics right is tough in insurance. And everybody's always talking about profitable growth.
And so, the winners tend to be the players that are disciplined day in and day out about the same profitable growth and unit economics. And that's why I think MGAs and specialized players that are really focused on a particular area and are doing this very well have also grown quite a bit over the last few years.
Dave: Yeah. Absolutely.
Paul: Now we have more players across the entire Series A and Series B, plus a lot of acquisitions these days. So how has that evolved?
Dave: Yeah, so we could do an episode just on this alone. There are two areas or broad categories the insurtech industry can think about now. MGAs and tools and technology. Both are experiencing a different path.
I think in the early days of MGAs it was...We'll look at MGAs first. And let's think about how you get to scale. Because scale — profitable or unprofitable — can get to a potential large exit like an initial public offering (IPO).
And then we learned the hard way that unfortunately you can't grow an MGA too unprofitably because sooner or later you'll lose your partnerships, and you won't be able to sell anything. So, we became more focused on specialized approaches to underwriting. The issue with that though is there was a lot of money in the venture and big checks had to be written. And when you talk about specialized underwriting, you start to get into these niches that may not be easy to put a lot of money into.
So, I think we'll see more mergers and acquisitions (M&A) and new VCs coming in and investing in the space. More capital efficient. I think more niche focused and better technology because now we've been through cycles, a couple of them, and we're seeing where the best products are.
As for tech side, techs and tools, I think what we saw in the early days, the big winners were big systems that came in. Multi-million-dollar contracts, implementations, and those companies that built big enterprise values.
The play nowadays is more lightweight technology, lower cost technology that is easier to install. But again, you have a limited market who can buy that. So, can you get big enough to be venture backable? And this is hard. We're looking at a lot of plays, for example in underwriting and claims and policy administration (policy admin) and a lot of them do really well with winning small clients or getting a small amount of business from a big carrier.
But the question is, can you scale, or can you be capital efficient enough that you can get a great sale in say five, six years of the company? There's certainly some plays out there. There's been some great M&A, but we're still waiting to see where those big exits might be. And I think we're at the tipping point now where when we see a tech company, we're not cramming a ton of money into them. How can we make that balance between capital efficiency and a big exit in that five-to-seven-year horizon? And I'm still very bullish on both. We are a lot more selective now.
Paul: What you think are some of the hot areas in the insurtech and broader insurance space right now? What are some of the areas that you find particularly exciting these days and that you really focus on?
Dave: So, on the MGA side, anything in the admitted space is challenging right now. And I think that it doesn't mean there's not great opportunity, but the commoditized plays in home and auto insurance. If you are not already in the space, it's hard to break in. There are great investments in both, and I think both have very promising outcomes with the people who have had the hard knocks already, but net new, I think it'd be challenging to get in. But I do think it's a challenging market on the MGA side to get in.
On the MGA side, I would be looking more at excess and surplus (E&S) insurance, emerging risks, new products, obviously anything to do with catastrophe (CAT) insurance is amazing. Super hard to underwrite though, very risky. That's an all or nothing play. These are areas I think as a venture capitalist you can make money. Also generative AI, cyber, the new areas where you could be totally right or wrong. And that's the VC model.
Paul: I'm sure there's a technology component, but the expertise or the way you approach this is also important. What's the secret sauce usually?
Dave: If it's in an emerging risk market, there is little underwriting history. You have to have belief that the technology is going to make the underwriting easier, that the underwriter process is indicative of these kinds of specialized risks. You need to see the scale.
The excess market is the golden era right now, and it's really exciting to watch, but it's complicated and I'm sure there's lots of people getting smoked because they don't understand how to write it.
And that's a bet you're making I think when you get into these spaces as opposed to say the admitted space, which is a little bit more tried and true, but a little less venture focused. And on the MGA space, one piece is just that emerging risk, like AI underwriting, which I do want to talk about the tools and technology.
Paul: I think I'm sure one of the big questions in pitches to VC is usually what if Google does it? But what if big, well-capitalized carrier does it? Is this something when considering these niche players?
Dave: On the carrier side, I think most carriers have proven that they prefer to buy versus build. In other words, let the smart entrepreneur, let the hungry insurance person who's now doing their own thing innovate, do the grind, take the risk, and once they build a nice repeatable, consistent model that works well, they'll come in and do M&A. And I think that that's a comfortable way to grow in an industry that has seen very nice growth anyways today. There isn't that pressure to actually go out there and disrupt themselves right now. You may get people who disagree with me, but that's my take as a VC investing on the MGA side.
Paul: No, that's obviously a great take. And I think whether or not the reality is consistent with this, I would say that if you compare now versus five years ago, there's probably less of a gap between what's happening on the carrier side versus what would be happening in the VC-backed, which moves into a good direction. But I appreciate your point for sure.
Dave: Yeah, well, on the MGA side, the carriers know what's going on because the reinsurance markets are telling them. So, it's not like risks are of unknown to the carrier. They're excited. Oh wow, there's somebody underwriting this new risk. Let's see how that progresses. There's enough of a market for it, and then let's make decisions. And I do believe most are going to prefer to buy, so there's openness and awareness in the market. I think very few are saying, "we are going to build this ourselves; we're going to build this new line of business ourselves; we are going to build this new technology ourselves and do it completely ourselves." It's more like, “let's test in, let's understand where our thesis is, and let's figure out from there a strategy to get to market.”
Paul: And to your point, then it can become... There is the opportunity to build, but do I build, or do I wait and buy? These tradeoffs are certainly things that are being discussed quite a bit on the carrier side. We talked about MGAs as a big area. Are there any other big areas that you are excited about these days?
Dave: Absolutely. So, on the tech side, I think especially with the advent of generative AI, all that good stuff, claims, underwriting, customer support, these are all things that we're looking at great deals every day.
There's been a pattern with enterprise technology where VCs have gotten excited and that we've seen 10, 15 great carriers buy our product. And then companies stall out. I think we're probably getting through the backend evolution now where policy admin systems are getting upgraded and there's more of a desire for more tech forward solutions.
So, I think we'll overcome that plateau that happens quite a bit. And I think generative AI could be a really good catalyst for that, where maybe third-party outsourcing becomes the norm where tools aren't necessarily sold directly to the carrier, but in the beginning they're provided as a third-party service.
Carriers outsource that process to a hyper-efficient team that's leveraging say, AI and machine learning. And then with time, carriers can look to either bring it in-house by buy the licensing tools or they just say, "you know what, that's not necessarily a core function that we want to own in-house; we would rather partner.”
I think every piece of the value chain has an opportunity for good tech. As long as the contract values are high enough and the scale is large enough, VCs will be interested. And it's interesting, I'll tell you, being in a little bit smaller of an investment market now you hear about these deals quickly.
So, for entrepreneurs listening to this episode, if you meet me with a brand new, I don't know, mapping technology, it's assured that within a few weeks every VC will know, oh, have you heard about mapping? Because we all start talking about deals quickly in the community.
I think we are very supportive of each other, believe it or not. I think it's the niche component of insurtech where we call each other, we share notes, we talk about this one's really interesting, how do we support it? What do we think about it? Can we get on this thing together and bolster it or is it just not really ready for what we're looking for? And is there maybe a VC out there who might be interested in it? I'm constantly sending deals to other VCs and saying “too early for us, or outside my swing zone, are you interested in seeing it?”
Paul: That's very interesting. It’s helpful to understand how the broader community works. If I go back to some of the tech examples you were talking about, do you have one or two illustrations of the services you're talking about? Without necessarily mentioning the name of the company if you want to keep it under wraps, but any one or two examples that you think could make it all the way?
Dave: Listen, I think we've seen say generative AI effectively working in claims and we've seen concepts around something very complicated like adjudication of a claim, which could be very detailed around the contract being optimized in a quick way with generative AI, and also all of the rigmarole around the regulatory piece and the automation of customer notifications.
There are some big potential gains there, especially considering that the claims piece is such an important piece of the process. One of our investments, Clearcover Auto Insurance recently launched a new AI tool designed for claims management. They talk very openly about it as Clear AI, where first notice of loss is facilitated through photos. They're doing it with a few tech partners, well-known tech partners. It takes photos of your accident and if possible, uses straight-through-processing. The optimization of that input is much faster. So, it's no longer a six-month, multi-form process, but it's a five-hour process or a couple of interactions. I think there are big gains there.
Another area is customer service. We are seeing a lot of tools around customer service, which I think again, it's a great opportunity for carriers to engage with their customers in a more robust way. Some of this is very automated, but some of it is just basic triage. Getting the person who really needs help to the right person quickly.
And then the last piece that I always get excited about is underwriting with third-party data sources. Insurtech 1.0 pioneered this. However now, there's so much more data accessible and to use. There’s a much better opportunity to underwrite and to understand the risks.
Somewhere in there is an unbelievable game changer. There’s a real-time piece as well. I was talking to someone about commercial auto the other day. How telematics now can change the underwriting model to a real-time model. I think now markets are getting ready for it. My dad downloaded a driving app from his carrier, and he knows he's being scored. He's doing it for the discount. When I see somebody like my dad downloading these apps, I think it's a big win. How to invest in it as a VC is still challenging, but as an industry, I think that continuous underwriting model will really change the way consumers interact and businesses interact with their insurers. I think it's great.
Paul: Just to build on your anecdote around telematics. I always find it fascinating how I think in the early days of telematics, with Progressive having a dongle and all these other things, there was not even really a difference in the way you were being underwritten.
Dave: Well, nowhere is that seen more than in commercial auto where it's like, can we put a camera in the cab or not?
Paul: Exactly.
Dave: By the way, there’s a huge play in smart home here too, with home insurers. The internet of things (IoT) are getting into home insurance. Somebody like me, a super safe homeowner, really wants to see that technology make the world better.
But there are people who just don't want it. And it's not even that intrusive to be honest with you. It's more just the thinking around ‘what data is my carrier getting?’ But imagine a world where every behavioral thing you do is also tracked and then you have positive reinforcement like discounts that drive these behaviors. I'm a big fan of this.
We just had an Insurtech Rap where there was a wearables platform, real-time data coming from wearables for life and health. You self-select into these. But the reality the way insurance works today is you have pools of risk and good risks are weighted down by the bad risks. And I think that good risks self-select and not only self-select, but when they embrace these technologies, they become even better risks. So, it doesn't necessarily work with today's regulatory environment and insurance pools today, but I do think that that's the future of where we're going to have bespoke underwriting on the business or consumer level where we really understand in real-time how you manage those risks.
Paul: And what's fascinating, first off, and kudos that you are an entrepreneur stating that you want to make the world a better place on the show. I was hoping for at least one of those in this episode. All of these behavioral changes are interesting. We are definitely moving to the world with more data, more sensors, and more acceptance of it.
Dave: A hundred percent. And by the way, there's something there that I want to hit on, which I think that is often missed. And I think people who have a tech career often undervalue the importance of explaining this.
Technology is always evolving and evolves faster and faster as we go through the cycle. So, when you see an early technology that somebody like me gets giddy about, it's not because of today, it's because what's going to happen in six months to a year from now.
ChatGPT is a great example. When ChatGPT came out, I started showing everybody and everyone in my life liked to show the stupid responses, the hallucinations that it got, all that stuff. And that is lost on someone who's been in tech for 30 years. We don't even notice that stuff. We just say, "yeah, but that's today." Imagine six months or 12 months from now. Telematics are so good, wearables are so good, and every six months they get even better. And the awareness and understanding by consumers, businesses, insurers and regulators becomes more comprehensive. And that's where we are all thinking of this future world, not today. It takes a long time to make these changes happen. That's how I think we need to think about them as investors, as entrepreneurs, and as participants in ecosystem. When I'm calling a carrier and asking ‘what do they think about so and so,’ I'm not asking about today; I'm thinking about the evolution and where the puck's going. And I have to remind myself of that all the time. I don't remember that everyone thinks about where the technology's going.
Paul: Your example of generative AI and of ChatGPT is interesting. And I've mentioned this on this show before. For example, say you have a vendor that has a great product that does a bunch of things using AI. And it's accurate 95% of the time. The AI pilot will get rejected because it's not a hundred percent accurate. But a human being might only be accurate 80% of the time. And there's that element of, oh yeah, well this is where it is today, where could it be one, two, three years from now?
And also, again, the ‘replace versus augment’ is always something I like to talk about. You often times hear that insurance is a mix of art and science. And art is an accumulated experience through decades. And so that human-in-the-loop allows us to blend the two. And I've seen the arrival of generative AI at least change the conversation, but to your point, it's still going to take time to get all the way there. I don't know. What's your take on?
Dave: So, human-in-the-loop is a great way to introduce these technologies and make people feel more comfortable. And I do think there will be applications that always need human-in-the-loop. Now, I understand the concern around human perception and maybe our own control issues, but I also think that ultimately when we look back in 20 years, we'll see that there were many things in our lives that were better left to technology. And guess what? We'll have a whole new world, the things that we have to worry about.
Paul: If we look at generative AI and the insurance industry, there is an element to your point about how do I evolve my operating model? How do I evolve the jobs of people on the ground to make room for this now and how will it evolves over time?
It's not that you no longer need people in the loop but that claims managers will do less manual, tedious tasks, and have more time for value-added, analysis activities. And so, elevating the role, elevating the operating model, the governance, and the metrics is just as important as embedding the technology itself.
Dave: 100%. I often come back to an example of an investment that I made a company called Joyn Insurance. Joyn is a mid-market E&S property and general liability insurer.
Prior to the investment, the underwriters were typically keying in data in the multiple work benches, going out to third-party data sources, and augmenting it by hand. And Joyn's value proposition is all automated ingestion, automated underwriting prep.
Now when the underwriters work on these deals, they're sitting down with augmented third-party data that’s ready for underwriting. Now underwriters are spending their time the underwriting versus spending weeks on the underwriting prep. And to me, this isn't even a scale issue. This is about a quality issue. Now, you are actually doing your job versus all the other jobs. If you can automate these things, not only do you have speed, but you have better accuracy, less errors, and then you let the people who are hired to do what they're supposed to do, like in underwriting, actually do their job or claims do their job.
I do think it's a better efficiency for the market overall, and everybody wins. I think consumers win, businesses win, there are lower rates, less mistakes, less litigation, less of everything because of better accuracy. So, to me, it's a happy place. I think it's the right place, and I think technology will enable all that.
Paul: What are some of your top lessons learned? Obviously for anybody listening, whether they're budding entrepreneurs, whether they're players in the insurance space that could help chart the path forward.
Dave: Listen, I was really lucky to have a 28-year career as an entrepreneur. I think it's the best way to learn, but it's the hardest way to make a living. I think if you think there's glamour and glitz and being a startup founder, think twice. It's a brutal way to make a living. But I respect it. It's a great way to learn. It's a great way to see who you are as a person, and it's a great way to fulfill dreams or excitement that you have. But it's really hard.
I always say this to entrepreneurs, make sure you know what you are getting into and really think about it. I think it's also a world where it takes a lot of courage. Most of the day you are told you're wrong. You're told you're crazy, you're told you're dumb. And sometimes people are right. I've had failed businesses. So, you have to be cognizant of the fact that you may be very wrong and be comfortable with it. Or you may be right, and it may be impossible to succeed. So, you have to be ready for that.
All that said, as I look back at my career, I had one of the first startups to ever build websites. Again, we built one of the first major league baseball teams websites, and we literally got threats from people back in 1996 — saying “the internet is not supposed to be used for this.” We got literally physical threats we were ruining the internet for having commercial enterprise on it. And now who even remembers that the internet was created for the military and academia.
And I look back and I'm like, maybe I'm not in the record books, but I know that I was one of those people who actually helped all this technology happen, and I'm proud of that. So, I think you got to have conviction. You hopefully have wealthy friends or family who are willing to back you because it's a lot harder if you don't. Trust me.
Paul: Well, speaking of which, having been on both sides of the venture capital world, what advice would you have for securing funding, for getting the right investments in your startup regardless of where it's at in the journey?
Dave: Venture capital is not for most businesses. Every day, I am amazed how many people call for venture capital who shouldn't be. And this is not because your idea is not good. It's just about scale and returns. If you work to understand what a venture capitalist needs to achieve to actually be successful, you would be shocked. And I think that as an entrepreneur, your idea may be fantastic, but it may not fit the buy box. So, I would really encourage entrepreneurs first figure out, ‘am I right for venture capital?’ And if you're not, by the way, there are other funding sources — there are private investors and there are businesses. I raised money from strategics and corporates in my career, who invested in me because they saw the growth opportunity. Friends and family, and banks. So many different funding sources.
So only go into venture capital if you really need it. And also, think about why you need external funding. I think a lot of people want external funding. They want a $300,000 a year salary, and they want to be able to travel. But that's the wrong reason to begin a startup.
For two of my startups, I moved back home with mom and dad, ate ramen noodles, and had no social life. That's part of being an entrepreneur. And if you're fortunate enough to have some resources saved and you're willing to risk it, be ready to go to zero. And investors who get involved know that. One of my startups tanked and I lost a lot of money for my investors, but almost every one of them invested in my next startup.
And then one last thought. Be judicious with capital. I think VCs in the last few years created a big problem because we had to write these big checks to get the returns that we needed, and we created a culture of spend fast, grow fast.
You can't grow slow when you raise venture capital, but you also shouldn't be expected to grow at the pace that we were pushing many startups to grow at, especially in insurance. Because ultimately, you'll create a bad book, you'll do the wrong things. So be disciplined in your growth regardless of what your investors say. And if you have an investor who's really pushing you to go crazy, speed for growth, again it's probably the wrong investor.
Paul: Dave, that was super insightful. Thank you for all this. Before we wrap any final words of wisdom you have for our audience?
Dave: Listen, there's no better way to learn than to be an entrepreneur. There's no better industry as far as I'm concerned right now than the broad fintech market and especially the insurtech market. It's harder than it was before to raise money. It's harder than it was before to be the bold innovator, but I think never before has there been a time or an opportunity to enter this market with pioneering ideas.
If you have the wherewithal, I think you absolutely should go for it. The probability for success is super low, but you learn a lot in the process. You have good time in the process, and you see what you're made of. And I have plenty of friends who started as entrepreneurs and are now more career people.
Look at me. I'm employed by venture capital firm now. So, the experiences are amazing and it's a great way to help change and make the world a better place. So, I'd encourage you to do it, and I'm always happy to talk to people.
If you're an insurtech please join my show, Insurtech Rap every Thursday at 2:00 pm to 2:30pm Eastern time. It's an open forum for anyone to join and network, meet people, listen to the podcast, talk to people. It's the best way to learn about the space and to figure out what's right and what's wrong — and go for it.
Paul: Dave, thank you so much for your time today.
Dave: Thanks Paul. I had a great time and really appreciated it. I'm flattered that you asked me on for this episode. And thank you for the opportunity to be on Reinventing Insurance.
Paul: Terrific. Well, that was Dave Wechsler, who's a principal at OMERS Ventures. For more information about our Reinventing Insurance series, you can find everything on our website at oliverwyman.com/reinventing insurance. Thanks for listening, and I'll see you next time.
This transcript has been edited for clarity.
