Nationwide has invested $122 million so far of a $350 million venture capital fund focused on financial technology, CEO Kirt Walker said.
Valuations of companies in its portfolio have increased by 10% to 15%, Walker said in an interview. In contrast, tech companies nationwide last year experienced many so-called down rounds, which is raising additional capital at a decreased valuation.
"In the past several years, investors have really been on the lookout for unicorns,” Walker said. “That’s never been our deal.
“We’re more interested in thoroughbreds that can innovate and sustain long term.”
Nationwide made only two new investments in 2022, in line with a national slowdown in VC investing and startup IPOs, said Erik Ross, who leads the VC team. He said he does not expect new investments from the fund to ramp up again this year until the broader economy stabilizes.
Otherwise, the fund's strategies differ from a typical VC firm, Ross said. After all, it's part of a $57 billion, nearly century-old insurance and financial services giant.
"We’re looking for companies that are strategically important for Nationwide," he said. "We want to make sure that we’re being fiscally responsible with our members’ dollars.
"We have the benefit of a little more long-term view than the return cycle an institutional firm has. There's still an expectation of a return for Nationwide."
Portfolio companies intersect with Nationwide's lines of business, CFO Tim Frommeyer said. The insurer gets early access to safety technology such as AI and connected vehicles or heat sensors for fire detection; seats on startup boards bring insights into market direction. Some have built products for the company.
Ross has "done an incredible job," Walker said.
On its own, Nationwide's VC arm would dwarf the typical Midwest fund of about $50 million. Nationwide funded the pool out of its own investment capital in 2016 and 2021, and does not sell stakes to outside investors.
Two portfolio companies are in Columbus: Beam Benefits, the specialty benefits company that rebranded from Beam Dental last year, and Matic Insurance Services Inc., a digital insurance agency. Both have cut jobs in single-digit percentages this year, but Ross said that prudent expense management is key to navigating the current economy.
Nationwide's relationship with Beam started in 2019, two years before it invested. Beam is an all-digital third-party administrator designing insurance plans underwritten by other companies. It started offering Nationwide dental and vision products to employers in 2019, a spokesman said, later adding other specialty lines such as life, disability, accident and hospital indemnity.
The portfolio of about 30 companies is "doing very well" despite inflation, rising interest rates and fluctuating concerns about the economy, Ross said. Half were able to raise new capital last year, and the companies are focused on growing revenue and managing expenses.
Some are even profitable, and several others are on that road.
"We believe strongly those are realistic plans," Ross said.
On average, he said, the companies have about 20 months' worth of operating expenses in reserve.
That bodes well in case of economic downturn, he said. While Nationwide remains hopeful a recession can be avoided or at least remain mild, Ross said, large tech companies such as Uber and Airbnb were founded during the Great Recession.
"We feel really good about the health of the companies and the teams," Ross said. "We think there's going to be great founders and great companies that come out of this cohort."
