Insurtech Founder Accuses Backer of Funding Copycat Company

Startup Founder Accuses Investor of Launching Competing Firm

The dynamic between startup founders and venture investors can often be complex. However, a recent case involving an insurtech company, Sure, based in Santa Monica, California, has escalated to a significant dispute. Sure alleges that its Series A investor, IA Capital Group, utilized confidential information to establish a rival startup, Boost, located in New York.

Allegations of Conflict of Interest

Sure contends that IA Capital Group, a New York-based venture firm, continues to request access to information it is no longer entitled to receive, given the inherent conflicts of interest arising from its investment in a direct competitor. This ongoing pursuit of data has further strained the relationship between the two entities.

Sure's Growth and Profitability

Wayne Slavin, founder and CEO of Sure, believes the continued interest from IA Capital stems from Sure’s superior growth trajectory compared to Boost. He states that Sure has experienced nearly a 50% increase in headcount throughout the COVID-19 pandemic. The company currently boasts annual recurring revenue in the “double digit millions” and operates profitably, suggesting Boost may not be performing as strongly.

IA Capital Disputes Claims

Andy Lerner, a managing partner at IA Capital, who has been with the firm since 1995, refutes Sure’s portrayal of events. He emphasizes that IA Capital did not knowingly invest in two directly competing companies. This statement aims to clarify the firm’s position and address the accusations of intentional conflict.

Former Partner's Perspective

Alex Maffeo, a former IA Capital partner who previously served on Sure’s board before leading the incubation of Boost within the firm, offered a response. He stated he has no knowledge of the dispute between Sure and IA Capital and receives no information regarding IA’s portfolio companies. Maffeo, now CEO of Boost, affirmed his company’s commitment to its original mission and wishes Sure continued success.

The Origins of the Dispute

The core of the conflict dates back to 2017, when IA Capital led an $8 million Series A funding round for Sure. Specifically, the firm contributed $2 million from a fund exclusively backed by the insurance giant, Prudential.

Differing Accounts of Sure's Initial Focus

Lerner asserts that Sure was initially a “mobile insurance distributor,” concentrating on coverage for items in transit, such as flight, smartphone, and baggage insurance. However, Slavin disputes this account, claiming that Sure had already begun developing an embedded insurance API strategy shortly after its seed funding round in 2015.

The Emergence of "Project Boost"

Slavin believes that Boost’s current service offering mirroring Sure’s is not coincidental. According to both parties, tensions began to rise when IA Capital initiated an internal program, “Project Boost,” spearheaded by Maffeo. The initial concept involved providing capital to insurtech startups to accelerate the launch of new insurance products, with a target of raising $40 million. When this funding goal wasn’t met, IA Capital and Maffeo shifted direction, leading to the creation of Boost Insurance with seed funding from IA Capital and Maffeo’s appointment as CEO.

Boost's Entry into Sure's Market

Slavin argues that Boost began to operate in direct competition with Sure without prior discussion. This move was particularly concerning given Maffeo’s year-long tenure on Sure’s board, during which he gained insight into the company’s strategies and technological advancements.

Sure's Response and Information Restrictions

Faced with this situation, Sure, with its board’s approval, invoked a clause in its investment agreement with IA Capital. This allowed the company to limit the information shared with IA Capital. By late 2019, Sure ceased providing any information to IA Capital altogether.

Escalating Tensions and Current Status

Lerner maintains that Sure and Boost “are not that similar” and that IA Capital stepped down from Sure’s board following the Series B funding round in 2018, led by W. R. Berkley. He also states that IA Capital agreed to accept a simplified financial report – an income statement and balance sheet – to fulfill its reporting obligations to its limited partners.

Disagreement Over Information Requests

Lerner explains that IA Capital only requested basic financial information for auditing and valuation purposes, not sensitive technical details or customer data. However, Sure refused to provide even this limited information.

Legal Correspondence and Shareholder Communication

The situation further deteriorated when IA Capital’s legal counsel sent a letter requesting private shareholder information shortly before Christmas. This prompted Slavin to inform all of Sure’s shareholders about the ongoing dispute for the first time. Through its attorney, Evan Bienstock of Fenwick & West, Sure also notified IA Capital that any information requests should be directed to Prudential, IA Capital’s limited partner.

Slavin's Regret and Concerns

Slavin expresses regret for not addressing the issue sooner, acknowledging the potential repercussions of challenging a key investor. He feared jeopardizing future funding opportunities or losing a valuable connection.

IA Capital's Perspective on Resolution

Lerner suggests the situation is a misunderstanding and that IA Capital didn’t realize the potential conflict until Boost was already underway. He reiterates IA Capital’s desire for a positive relationship with Sure and its willingness to provide assistance.

Potential Solutions and Impasse

Lerner proposes that IA Capital would be open to selling its shares to existing shareholders or allowing Sure to repurchase them to resolve the conflict, but first requires information to determine a fair price.

Ongoing Competition and Lack of Resolution

Slavin believes a resolution is unlikely, citing recent instances where Sure and Boost competed for the same deals. He argues that Lerner can assess Sure’s performance through publicly available financial statements.

Funding and Ownership Details

To date, Sure has secured $23.1 million in funding from investors including Menlo Ventures and ff Venture Capital. Boost has raised $17 million from Coatue, Greycroft, and Tusk Venture Partners.

Slavin states that IA Capital holds less than 5% of Sure, while Lerner declined to disclose IA Capital’s ownership stake in Boost.