It's not as easy for startups to land a funding round these days as it was a year ago, but Austin's Spot Insurance Inc. found a path to a $25 million investment as it continues to secure new partnerships for its shot-term insurance policies.
Austin-based Ensemble VC, a firm that has also invested in Austin-based 3D printing unicorn Icon Technology Inc., led the new round. All of Spot's prior investors joined pro rata, co-founder and CEO Matt Randall said.
Spot has found success in partnering with ski resorts, marathons, sport leagues and other organizations to give their customers short-term insurance coverage, often a day or weekend, for any injuries they might incur.
"Whenever you're buying a lift ticket or you sign your kid up for taekwondo or you're doing any events or anything like that, you can just add it and we'll cover any of your injuries for five, six bucks a day," Randall said.
It's a largely untouched insurance model that Randall said is growing quickly. It's also one that Ensemble VC Managing Partner Collin West sees great financial potential in — and one that he thinks can help folks adventure with fewer worries.
"Our health care system just isn't working for everyone. We know that," he said. "There are a lot of really high deductible plans and people with no insurance at all. So that's a really big inhibitor to people going out and enjoying life's adventures because there's just such a fear of injury. ... For us, to be able to give that peace of mind to folks and really lower their fear of injury so that they can go enjoy life's adventures was something that was really compelling to us."
Spot currently has about 65 employees. It plans to make a few key hires for engineering and sales, but will largely be using new funding to increase its reach.
The company previously had an office off Barton Springs Road, but it vacated the space last year after surveying employees and finding only four people wanted to come into an office.
"I think we're gonna' keep it pretty virtual as of right now," Randall said. "We've taken the approach to do quarterly off-sites with the leadership team, and then annually we'll fly the entire company to get together to be able to spend time with one another."
Spot previously aimed many of its marketing campaigns at the extreme sports market, and it brought on several brand ambassadors including world renowned snowboarder Travis Rice and champion cyclist Justin Williams. The company, however, shut down its direct-to-consumer sales last year.
Randall said the consumer market was strong, but it didn't fit with how the company intends to scale. Spot sees its strongest growth in partnering with events, ski resorts, sporting leagues and other organized clubs.
"Partnerships will potentially have around 5 million customers this year on that side of the business," he said. "So we can use that as a through line allowing our partners to market Spot for us out there in the market. So, to us, it is using that as kind of a catalyst for direct to consumer longterm, and will be a huge way for us to kind of unlock that and not just play the Facebook/Google game."
West said he sees a lot of potential for growth.
"The market for partnerships is just huge," he said. "Honestly, when I first met the company, I didn't realize how big of a market this was. But there's just so many opportunities. Obviously, skiing alone is a gigantic market."
A tough time to raise
Randall, who previously co-founded Twyla Inc. and Pop Austin International Art Show, said he's never seen a fundraising market like this before across his decade of experience.
"If we were raising on the same numbers behind the company last year, we'd probably raise twice as much money at twice the amount of valuation on it," he said. "I'm not saying that's healthy for the company. I think what we raised is incredibly healthy at the valuation which we agreed upon."
Randall, who declined to share Spot's valuation, has heard from fellow founders that valuations are plummeting and some VCs aren't even cutting checks right now, despite many firms having significant funds in hand.
"To be completely frank with you, I know a lot of friends out there that have great companies and good positions and they're trying to raise $40 million, and they're lucky to raise $10 million out there in the market right now. And so everyone's pulling back from it."
West said that it's important for startups to focus on their burn rate and customer acquisition costs. But he said Ensemble hasn't been advising portfolio companies to dial down real estate expenses.
"It depends so much on the talent and the team that you put together and what they need to be successful," he said, noting that Ensemble is invested in Zoom, which makes them big believers in remote communication. "We do see that in the earliest stages of a company, founders tend to prefer to be in person, which makes sense because there's just so much iteration going on and so much ideation going on. But there's so many great tools today."
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