Insurtech Valuations: Should You Be Concerned?

The TechCrunch Exchange: Startups and Markets Update

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Greetings to all our readers. I recently celebrated my 32nd birthday, accompanied by some unwelcome heartburn. A mix of positive and negative experiences, but the markets remained unaffected. Consequently, we have much to discuss, including the downturn in insurtech stocks and its potential implications for startups, alongside a series of initial public offerings (IPOs).

Insurtech Performance and IPO Landscape

Before delving into detailed discussions with recently public companies like Kaltura, Couchbase, and Enovix, let's examine the current state of the insurtech sector.

Over the past year, several insurtech startups have entered the public market, including Root (auto insurance), Metromile (car insurance), and Lemonade (rental insurance). Here’s a summary of their current stock performance:

Root: Currently trading at $7.72 per share, representing a 71.4% decrease from its $27 per share IPO price.
Metromile: Shares are valued at $7.26, down 64.4% from its peak following the business combination.
Lemonade: Trading at $86.97 per share, showing a substantial 199.9% increase from its initial IPO price of $29.

It’s important to note that Root and Metromile began trading after Lemonade, meaning their performance is evaluated over a shorter timeframe. This distinction adds another layer of complexity to the situation.

Analyzing the Downturn

Currently, two out of the three insurtech companies that went public – through SPACs or traditional IPOs – are experiencing significant declines in their stock value. This situation doesn’t offer a positive outlook for Hippo, which is nearing completion of its own SPAC merger. These substantial drops raise concerns for insurtech startups as they navigate private market investor scrutiny regarding their valuations.

Does Lemonade’s success mitigate these concerns? The answer is complex. The company has been actively expanding its services into new areas, notably auto insurance. While the Texas freeze earlier this year did impact their earnings, it’s not immediately apparent what differentiates Lemonade’s strategy from its competitors.

However, investors are demonstrably enthusiastic about Lemonade, while Root and Metromile have struggled. For the numerous insurtech startups still working towards their own IPOs, understanding the reasons behind this disparity – and articulating how their business model resembles Lemonade more than the others – will be crucial for future success.

Recent Trends in Initial Public Offerings

Over the past couple of weeks, our team has engaged in discussions with CEOs leading their companies through the initial public offering (IPO) process. The goal was to gather insights from their recent experiences. Presented below are key takeaways from conversations with leaders at Kaltura, Couchbase, and Enovix.

Kaltura: Navigating Market Volatility

As a reminder, Kaltura, a company specializing in online video solutions, initially filed for an IPO earlier this year but subsequently postponed it before re-attempting the process.
During a conversation with Kaltura CEO Ron Yekutiel, it was revealed that the timing of the IPO was significantly affected by the public market instability experienced in early 2021.
Yekutiel attributed some of this instability to the fallout from the Archegos implosion, a factor previously unknown to our team.
Despite the delay, Yekutiel expressed that investor interest remained strong, with those contacted during the initial attempt still enthusiastic about Kaltura’s prospects.
Preliminary Q2 results, according to the CEO, validated the company’s earlier projections, and the adoption of new products was highlighted as crucial for continued expansion.
The CEO conveyed satisfaction with the pricing and initial trading performance, noting a 20% increase in value was appropriate – exceeding this would have been excessive, while falling short would have been undesirable.
Yekutiel emphasized that seizing the opportunity to complete the offering was paramount, acknowledging that a second chance to make a first impression is rare.
Currently, Kaltura’s stock is trading 17.5% above its $10 per-share IPO price.

An interesting detail: Kaltura secured an early victory at TechCrunch40, a precursor to TechCrunch Disrupt, thanks to a single vote cast using a physical token. Yekutiel still possesses this token, which he graciously showed during our discussion.

Couchbase: The Benefits of Remote Roadshows

The Exchange spoke with Matt Cain, CEO of noSQL database provider Couchbase. The company’s IPO was priced at $24 per share, exceeding the anticipated range of $20 to $23.
As of today, the stock is valued at $33.20, representing a 9.2% increase in trading.
Cain adhered closely to a prepared statement, a common practice for new public CEOs aiming to avoid potential legal issues. Consequently, obtaining detailed answers proved challenging.
However, we learned that Couchbase, like many others, found the increased meeting frequency facilitated by remote roadshows to be advantageous.
The CEO focused on the substantial market opportunity within operational databases, arguing its vast size generated investor excitement regarding the company’s potential. This suggests significant potential for growth and innovation within the database sector.
We sought further insight into how public market investors perceive open-source companies, but received limited information. Nevertheless, Couchbase’s successful IPO indicates that an open-source foundation does not necessarily hinder a company’s ability to go public.

Enovix: The SPAC Route to Public Markets

The Exchange engaged with Enovix, a company that went public through a Special Purpose Acquisition Company (SPAC). This is relevant as other battery companies are considering similar paths.
Naturally, we appreciate the opportunity to discuss publicly traded companies.
Rust, a representative from Enovix, confirmed that the process of combining with a SPAC and trading under a new ticker symbol felt akin to a traditional IPO.
The company’s SPAC combination date was delayed from Q2 to Q3 due to changes in SEC accounting regulations. This delay was considered minor and did not significantly impact the company’s timeline.
Rust explained that the decision to go public via a SPAC was driven by access to capital and the expertise of the sponsoring firm, which provided valuable operational knowledge. The company has also recruited personnel from the SPAC sponsor’s network.
When questioned about its valuation compared to SES, another battery company pursuing a SPAC merger, Rust stated that the initial valuation was a matter of negotiation and that future success would ultimately determine the company’s worth.
Enovix is initially focusing its battery technology on high-end electronics, prioritizing rapid product cycles and potential pricing advantages, before expanding into the electric vehicle (EV) market.
The company’s current share price is $17.33, resulting in a $2.5 billion valuation, a positive indicator for SES’s upcoming debut.

That was a comprehensive overview. Thank you for your continued readership of The Exchange’s newsletter. You can explore our extensive archive of articles on the global venture capital market, edtech, and other subjects here.