Should we be worried about insurtech valuations?

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Hello everyone, I hope you had a lovely week. I turned 32 after experiencing sleep-destroying heartburn. So, a little good and a little bad. But that didn’t stop the markets. Nope. Not a bit. Which means we have a lot to talk about, including falling insurtech stocks and what the situation might mean for startups, and a raft of IPOs. This will be fun!

Before we get into the nitty-gritty of our chats with newly public companies Kaltura, Couchbase and Enovix, let’s talk insurtech.

In the last year or so we’ve seen a number of insurtech startups go public, including Root (auto insurance), Metromile (car insurance), and Lemonade (rental insurance). Here’s a quick digest of how their performance looks today:

• Root: $7.72 per share, 71.4% down from its $27 per share IPO price.
• Metromile: $7.26 per share, down 64.4% from its post-combination highs.
• Lemonade: $86.97 per share, up 199.9% from its IPO price of $29 per share.

Recall that Root and Metromile began to trade after Lemonade, so their declines are not over a longer time horizon, but a shorter interval. Which makes the situation all the more interesting.

What’s going on? Well, two of the three insurtech public offerings (SPACs, IPOs, etc.) are sharply underwater. That doesn’t bode incredibly well for Hippo, which is pursuing its own SPAC-led combination that should be wrapping up in short order. The huge declines don’t seem bullish for insurtech startups, who will have to answer private-market investor doubts concerning their value.

Does Lemonade’s strong post-IPO performance allay concerns? It’s tricky. The company has been busy expanding into new markets, including auto insurance. The company did take a somewhat material hit from the Texas freeze earlier this year — per its most recent earnings report — but past those two data points it’s not entirely clear what the company is doing that the other two are not. But investors are stoked about Lemonade, and not Root and Metromile. Figuring out why that’s the case, and why their startup is more Lemonade than the other two, is going to be key for the many insurtech startups still scaling toward their own IPOs.

It’s IPO season

The Exchange has been busy on the phones these last two weeks, talking to CEOs of companies going public to try and learn from their recent experiences. So, what follows are notes from calls with folks at Kaltura, Couchbase and Enovix. Enjoy!

Kaltura

• Reminder: Online-video-focused Kaltura filed to go public earlier this year before delaying its IPO and taking another run at the funding event.
• The Exchange spoke with Kaltura CEO Ron Yekutiel, who said that the company’s IPO’s timing was impacted by the early-2021 public market turmoil. That was not a surprise, but it was good to get confirmation regardless.
• That freeze was partially caused by the Archegos implosion, per Yekutiel. That makes sense, but was news to us.
• Yekutiel said that his company wasn’t thrilled about the delay — going public is the only fundraise that you pre-announce, he noted — but added that investors his company had already spoken to the first-time around were still enthused about Kaltura on its second run at an IPO.
• Per the CEO, Kaltura’s preliminary Q2 results showed investors that what it was talking about earlier in the year was coming true. He also stressed uptake in new products as key to the company’s continued growth.
• The CEO was happy with how his company priced and traded during its first day, snagging a flat 20% uptick in value upon trading. He noted that more would have been excessive, and less would have been un-good.
• Regarding the lower valuation that Kaltura priced at compared to its March-era IPO price range, Yekutiel said that you don’t get a third chance to make a first impression and that his company wanted to get the offering done. So they did. Points for not getting lost in their own head.
• Kaltura is up 17.5% from its $10 per-share IPO price as of the time of writing.

One anecdote, if I may. Kaltura won an early TechCrunch40 — the precursor to the TechCrunch50 event, itself a predecessor to today’s TechCrunch Disrupt conference series — thanks to a single vote cast via physical token. Yekutiel still has that token, and showed it to us during our chat. Neat!

Couchbase

• The Exchange spoke with noSQL database company Couchbase’s CEO Matt Cain. Couchbase priced at $24 per share, above its $20 to $23 per-share IPO price range.
• Today it’s worth $33.20, rising 9.2% in today’s trading as of the time of writing.
• Cain was talking from a pretty strict script — a pretty standard situation amongst newly public CEOs worried about fucking up and going to jail — so we didn’t get the precise answers we were looking for. But we still managed to learn a few things, including that Couchbase was yet another company that found the meeting density made possible by remote roadshows to be accretive.
• The CEO was focused on discussing the scale of the opportunity ahead of Couchbase, namely the world of operational databases. It’s hard to find a bigger market, he argued, which made investors excited about what his company might be able to accomplish. Our read here is that there’s probably plenty of surface area for startups in the database world, if the market is as big as Cain reckons it is.
• We wanted to learn a bit more about how public-market investors view open-source powered companies, but didn’t get too much from him on the matter. Still, the company’s IPO is a pretty damn strong one, implying that being OSS-built isn’t exactly a detriment to a company hoping to exit.

Enovix

• The Exchange wanted to chat with newly public company Enovix because it debuted via a SPAC. Why does that matter? Because there are other battery-focused companies looking to go public via SPACs. So, the chat was good background for later work.
• And we love talking to public companies. Who doesn’t?
• Asked if combination-and-trade-under-new-ticker-symbol day was like an IPO to his firm, Rust said that it was. Fair enough.
• The company’s combination date for its SPAC slipped from Q2 to Q3, we noticed. Why was that? Some SEC changes regarding accounting, in short. Not a big deal was our impression from the chat, but one that did cause a slight delay to Enovix’s trading date.
• Why go public via a SPAC? Cash, but also the particular sponsor of their combination, which Rust said was a key resource in terms of operational knowledge. The company has also hired from its SPAC sponsor’s network, which felt notable. (Hey look, actual investor value-add!)
• Asked why his company is worth less than the impending SES SPAC, another battery company that has yet to generate revenue, Rust said that the value of his company in its SPAC deal was a negotiation, and that if the company is successful, whether it was valued at $1.1 billion or $1.4 billion wouldn’t really matter.
• What’s fun about Enovix is that it is not starting with its impending battery tech aimed at EVs. Instead, it’s targeting high-end electronics. Why? Quick cycles to get batteries into hardware and possible pricing power. It does intend to get into EVs in time, however.
• The company is worth $17.33 per share, giving it what Yahoo Finance describes as a $2.5 billion valuation. That’s a good markup from what it expected and could bode well for SES’s own, future debut.

Yo, that was a lot. Thanks for sticking with me. And thanks for reading The Exchange’s little newsletter. You can catch up on all our work here if you want some long-form reads on the global venture capital market, edtech and other topics. Stay cool!

Your friend,

— Alex