Here’s What One VC Is Warning His Portfolio Companies About As Coronavirus Spreads

Mary Ann Azevedo — Wed, 11 Mar 2020 21:33:59 +0000

This week alone, I have heard from two different companies that had pitched me stories they were holding off on announcing “in light of COVID.”

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Last week, distributed a memo to founders and CEOs of its portfolio companies about the worsening economic situation as coronavirus spreads, and many other media outlets reported.

I’ve also seen posts all over from people cautioning about a slowdown in VC funding and reacting with concern to the tumultuous state of the public markets.

So I decided to ask around myself.

I didn’t get as many replies as I expected. Perhaps folks just don’t want to share their revised strategies. Perhaps they’re still trying to figure it out. I’m not sure, but for now, here’s what , general partner of Austin-based, told me on the topic. (For those that don’t know, Silverton Partners is arguably one of Austin’s most active early-stage VC firms with $384 million under management.)

Warning to executives

Flager shared with me some highlights of a note he sent out to key executives across Silverton’s portfolio this week.

Essentially, Flager said it is “prudent to assume that fundraising velocity will slow from the fast pace we’ve seen as investors take time to process the new macroeconomic environment.”

He pointed to what transpired economically in 2001 (after 9/11) and 2009 (after the economic downturn) as a reference to what people should likely expect to happen this year.

“Most investors react to uncertainty with increased caution. Travel restrictions will also make it more difficult to meet investors,” Flager wrote.

Additionally, he said that valuations will likely see pressure from multiple angles.

“First, volatility in the stock market and declining multiples will inevitably play through to the private markets. Companies that haven’t ‘gotten the memo’ and are still recklessly buying growth and burning lots of cash doing so will increasingly be viewed as risky and will see that risk premium reflected in their value,” Flager continued in his note to executives across Silverton’s portfolio. “In some cases these businesses will not be able to attract additional investment at any price. Do not be one of them.”

He also suggested that if a startup in Silverton’s portfolio is in the middle of closing a round or in the latter stages of a fundraising process, “it may make sense to take additional capital.”

“More runway in this environment could mean the difference between life and death for your business,” Flager said.

In September 2019, we covered how Silverton had filed paperwork signaling its intent to raise not just one, but a pair of new venture capital funds. The firm was reportedly aiming to raise $120 million for its sixth fund, as well as for a $20 million “opportunity fund.”

In May 2018, we reported on the firm closing on its fifth fund, in which it raised $108 million in an oversubscribed round of funding.

Silverton has made 131 knownover its 14-year lifetime at least 42 of them – and had 28 known . Startups it has backed include insurance comparison marketplace , as well as and , a woman’s shaving products startup that was recently acquired by P&G.

Some of Silverton’s more recent investments include participating in Austin-based last-mile delivery startup $10.5 million and cybersecurity company $21 million Series B raise (which was led by , ’s venture arm).

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The Zebra Raises $38.5M For Insurance Comparison Site After 200% Growth In 2019

Mary Ann Azevedo — Wed, 05 Feb 2020 13:00:35 +0000

, which operates an insurance comparison site, announced today it raised a $38.5 million Series C led by .

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Other existing backers , , and all participated in the latest round, along with new investor .

The investment brings The Zebra’s since its 2012 inception. The Austin-based company last raised $40 million in an Accel-led Series B in September 2017. As part of that funding round, Accel and The Zebra tapped , former president of travel metasearch engine as its new CEO.

“We like to think of The Zebra as the ‘Kayak of Insurance,’” Melnick told me. “We’re basically creating a virtual insurance agency.”

The Zebra started out as a comparison site for people looking for auto insurance. And it’s partners with nine of the 10 top auto insurance carriers in the U.S. Over time, it’s also “naturally” evolved to offer homeowners insurance with the goal of eventually branching out into renters and life insurance.

“Ultimately, as people evolve through their insurance needs, we can be there for them,” said Melnick, who invested in the company’s Series B and C rounds.

Meanwhile, the company says it did not intentionally raise less in its Series C than its Series B but instead aimed to raise just what it needed to keep up with its momentum. (For more on companies that are not trying to grow at all costs, read my story on the increased focus on profitability here.) Also, to read about another company that also took that approach (raising less in its Series C than B), head here.

How it works

The Zebra offers a real-time quote tool that compares more than 100 insurance companies.

Despite being an online company, The Zebra prides itself on offering customer service help via telephone as well in acknowledgement of how “complicated” of a product insurance is.

“If someone gets stuck, we have licensed insurance agents in all 50 states that can talk to them,” he said. “We want to make it as easy and as transparent as possible.” Or, just like a zebra, more “black and white.”

After Melnick joined, The Zebra killed off the lead generation side of its business, going as far as to eliminate any requirements for a user’s phone number to protect the privacy of its users. It also revamped its mobile and desktop platforms. Its headcount has surged from about 50-60 people to close to 200 across its offices in Austin and New York. It also works with a team of developers in Lagos, Nigeria.

“We invested a ton in product management and engineering and became really user-focused,” Melnick said. “We’ve also developed much deeper relationships with carriers.”

The company’s efforts seem to be paying off in the way of growth. The Zebra is that rare transparent startup that actually divulges revenue figures. Last year, Melnick said, the startup saw its revenue surge by nearly 200 percent year over year to nearly $37 million in 2019. The company also says it ended the year with a revenue run rate approaching $60 million, “more than half of which was driven by users coming organically to The Zebra’s website.” Melnick projects revenue to grow “well over” 100 percent in 2020.

The flexibility of The Zebra’s model means it’s “agnostic to a carrier’s business model” Melnick said.

“We can refer people to agencies such as or or we can also work with direct insurance agencies like or insurtech startups such as ,” he added. “We can offer a bigger breadth of product than most places.”

Looking ahead, the startup plans to increase its use of machine learning “to better serve customers and bind more policies in-house.” It also plans to add more customization so it can serve a wider audience.

Investor POV

For Accel Partner John Locke, The Zebra is “the most interesting company in insurtech” and one of the fastest-growing consumer businesses his firm works with globally. Also, Accel believes insurance is one of the most interesting consumer markets in general in tech right now.

“It’s the largest consumer market yet to shift digital,” he said. In fact, he points out that the auto insurance market in the U.S. is expected this year with just an estimated 20.7 percent of insurance being purchased.

“We believe over the next 5 years that will flip to 80/20 digital (versus the other way around), just like all other major consumer markets such as banking and travel,” Locke added.

He believes old-line carriers realize that consumers want to engage online, so will spend more money acquiring customers digitally versus via agents. Locke also believes there’s a “terrific amount of startup energy in the market and very talented entrepreneurs building new, fully digital ‘carriers’ like in auto, in renters and (another Accel company) in life insurance.”

For his part, Silverton Partners’ General Partner Morgan Flager has been impressed with The Zebra’s ability to aggressively scale its business “while maintaining a vibrant culture and identity.”

“They’ve grown revenue and headcount quickly, while maintaining their status as one of Austin’s best places to work because they have stayed true to their values and purpose,” he added.

Note: This story was revised post-publication to change Accel Partners to Accel.