312. The Embedded Opportunity in Insurtech, Crypto & Web 3.0 Applications, and the Future of Fintech (Ruth Foxe Blader)

Ruth Foxe Blader of Anthemis joins Nick to discuss The Embedded Opportunity in Insurtech, Crypto & Web 3.0 Applications, and the Future of Fintech. In this episode we cover:

  • Ruth’s Background & Path to VC
  • The thesis at Anthemis
  • Embedded Businesses in Insurtech & Fintech
  • Why Ruth invested in Branch
  • Opportunities in Web 3.0, Blockchain, and Crypto

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Transcribed with AI:

Ruth Foxe Blader joins us today from London. Ruth is a partner at Anthemis, a leading FinTech and InsurTech investor. She has led investments in Branch, Kettle, Hokodo, and many others. Ruth, welcome to the show.

Thanks so much for having me.

Yeah. Can you tell us a bit about your background and your path to venture?

Yeah, absolutely. So like all venture investors I’ve met, I was an English major in college, a great lover of literature, you know, brought me straight into venture capital. And so when I graduated with, I guess what Bruce Springsteen would call debts that no honest men can pay, I moved to New York City and started working in tech. I worked in a digital agency, because my best friend got me a job there. And I kind of didn’t know what I was doing. And then sort of figured it out, like most people in the early 2000s, in the tech scene in New York, and thought it was super interesting. And I was always kind of working on what really felt like the cutting edge of something in the early 2000s, in the kind of New York digital agency life that was like building websites, and internet’s and content management systems and stuff like that. And as I continued doing that, I started to realize that that was no longer new or interesting, and started working with startups. And so it was sort of the desire to continue to be working on interesting projects and being on the cutting edge that brought me into contact with emerging technology in the emerging technology ecosystem, which brought me into contact with venture investing and eventually led to me helping to launch the venture capital practice at Allianz in Germany.

Awesome. So some time ago, we had Amy Nauiokas us on the program, but can you remind us of the thesis at Anthemis? And then also your personal investment focus?

Yeah, absolutely. So you know, Anthemis is very thesis focused, we’re really looking at changing the shape of finance, and really changing the financial system for the better kind of looking at things like virtuous cycle outcomes, diversity, equity, and inclusion, and really kind of nonzero sum games, new ways of thinking about financial models, new ways of thinking about finance.

Awesome. And then your focus, I understand that you do some InsurTech is, yeah, I do other things.

So this is a great place. Because when we think about finance, we think of financial services as the backbone of not only thinking about the economy, but also of society. And so we think about tons of adjacent verticals, where finance really kind of has a role to play, has a voice and can be embedded and other product propositions. So we really think about multiple sectors, everything from health to supply chain, and logistics, education, media, and insurance has always been a super important single vertical for us, but also vertical that again, we see embedded and all of these other important places.

Is there a stage preference for you, Ruth? 

So, I lead our venture growth practice at Anthemis. And so I’m mainly focused on Series B, and C, but I have historically kind of done everything from pre seed all the way up through venture growth.

Awesome, I’d love to just hear a bit about the framework that you use, when you think about the Insurtech investment landscape.

Yeah, it’s super vibrant. So when we think about the insurer tech investment landscape, we think not only about kind of the entire insurance value chain, but we also think about horizontal technologies that will have kind of a demonstrable impact on everything, including insurance. And so things like artificial intelligence, and you know, advances in data science, those things will have a huge impact on the world in general, but insurance, you know, can be massively transformed by innovation in those areas. So we look at those things too. And then as I said, we look at different sectors where there’s a strong intersection with insurance sectors of the economy that were their big dependencies on insurance and big inefficiencies. And so they’re I would say, all of the recent sort of crises that we’ve been experiencing in the supply chain really point to well, there’s some real work to be done. And insurance is included in that the insurance industry was one of the first to really respond to climate change, and to recognize that the industry was going to be massively impacted by climate change. But if the world becomes livable for humans, that’s a really big problem. So we think about things like that, you know, we think about the main focuses of the insurance industry as they will impact the planet.

You’ve invested in Branch insurance, which is an interesting company. They’re changing traditional insurance by offering a reciprocal exchange. What are your thoughts on group bundling, and that approach to insurance, the risks in that approach and that strategy, and then the opportunity as well? 

Yeah, so I think what’s cool is that, you know, the reciprocal exchange is sort of a mechanism by which they can operate. It’s not super interesting. It’s actually I mean, it is I guess, it’s interesting if you’re super into Shouldn’t insurance and Steve like us, the CEO is very interested in insurance and can be very fluid on that subject. But you know, it’s a technical mechanism that allows the company to operate. I think Branch is a great example of a company that I’m interested in, because it really represents a 21st century financial institution, it’s based on technology. So it’s going to inherently be much more efficient. And it’s going to solve one of the large problems that insurance companies have, which is that distribution is really, really expensive. So the bundling of insurance products is really interesting, because you basically cut your customer acquisition cost in half, you know, you’re offering a single person, you know, multiple products. And actually, several of the incumbent insurance companies have followed suit and recognize that this is very interesting, and that you could underwrite an individual and sort of understand their risk profile and offer them multiple products, the way that we do that using technology is really through another sort of interesting innovation of Branch, which is to embed insurance and other platforms where the insurance purchasing experience is going to be relevant. So if I’m going to get a mortgage, or if I’m going to get monitored home security, this is a really interesting point at which I might also want or need to buy an insurance product. And the digital embedding of this product into a platform allows me as the insurance company to use a bunch of really interesting third party data to better understand the risk and to make a binding offer that I can then purchase instantaneously alongside this other experience. And so for me, it’s really the bundling and the embedding that make this company so interesting and make the proposition so much more modern.

Do you tend to look for companies that build a third party solution and embed or partner in an affiliate channel relationship with other products? Or are you seeing more companies kind of building it themselves? Right? It’s a startup in a certain space that also builds maybe a finance feature product, right? Or insurance? That’s

That’s such a good question. I think that there are opportunities for both. So I have backed teams that have very deep financial services, or insurance expertise. And it’s always really fun to work with them, because they’re anticipating all of the complex regulatory issues and really understanding deeply how to engineer very interesting financial products. And then I’ve worked with technologists who are just totally into the power of technology and bringing the absolute maximum best user experience to the end user and really understand like, wow, we can create a product that flies off the shelf. And I think that’s a really important and interesting attitude. No matter what industry or sector you’re in, or vertical, like you have to build something that customers love. So I do think that there are opportunities, and often we invest in companies that don’t perceive themselves as financial services companies, where there’s a huge opportunity to capture a big market by creating an adjacent revenue stream with this financial product, which is relevant to the customer while they’re doing this other thing,

I guess, at the stage you invested probably makes a bit more sense, right? At the stage we invest were seed investors, and in some cases, pre seed investors. And there’s this huge emphasis on focus D features, right, but once you get to some of the growth phases of a company, that’s a different time in the maturity of the business and thinking about how to expand that product offering and all the capabilities such that your wallet and ATVs go up.

Yeah, absolutely. And there are also interesting moments of pivots or discoveries. And I’m sure that you’ve experienced this where you kind of hit a wall with the first thing, but you recognize that you’ve got something really interesting. And can you capitalize on this specific set of theater, this specific customer acquisition channel to build something which is extremely relevant?

You know, it’s funny on the embedded FinTech side, I just got an email today, just coincidentally, from my banking provider for the funds that said that they’re no longer going to use plaid with the fund administrator, some fund administrator talking to my bank, they use plan A and now they’re just building I guess, their own direct API integration. And they’ve cited issues and inefficiencies. But I wonder if that’s the truth? Or if it’s there it’s just to take over a function that is a cost center for them?

Yeah, it’s so interesting. I mean, I can’t imagine the argument for that being more efficient, but Right, ask them.

Let’s hope the service level doesn’t go down. I’m curious, just close out the discussion on Branch. You know, we’d love your thoughts on web three, oh, Branch, I guess is kind of a group buying situation, which is not web three. Oh, but I wonder if it’s kind of an example of an incremental step in that direction, where things are, you know, becoming more distributed and less transactional point solutions and more communities that are operating in groups and making decisions together?

Yeah, I mean, I guess like when I think about web three, there’s tons of different projects that I’m super interested in. And the whole concept is really interesting, but when you think about the sort of early notions of insurance and the mutualization of risk, you could see how distributed autonomous organization really make sense with that kind of also very old fashioned concept of saying bringing together a bunch of different unassociated people with different risk profiles to create a safety net. So I think we are going to see some really interesting web three projects related to insurance, both ensuring defi transactions, but also potential mutualization of risk and people sort of sharing risk in new ways. Yeah, I think that there is something this kind of everything old is new, again, that comes back, at least philosophically, when we think about blockchain and crypto.

Can you give us some examples of how you look at that market now, and you know, you invest a bit later. So it’s interesting to me, you know, there’s the hyped up opportunities that raise tremendous amounts of money with, you know, an idea and a lot of a lot of hype and a lot of energy and excitement. Have we seen some real mature businesses that have real strong fundamentals that are firmly in that web REO camp of general fintech? You know,

You know, it’s pretty early, I think that one of the things that we’re excited about on the other early stage side is looking at infrastructure. So I think as a house, we have a pretty good eye for assessing the kinds of picks and shovels the necessary infrastructure for building a financial system. So I’ve invested in an early stage company called Keiko, which provides crypto exchange data to financial institutions. And so just the notion similar to the idea that a kind of mature economy requires an insurance layer, any sort of mature market economy is going to require data. And so that was sort of an early bet that we made there. But yeah, we are looking at a bunch of different crypto projects, and it’s definitely a space that we’ve got a lot of open mindedness for.

What do you guys think about the Bitcoin halving cycle and the potential for this recent surge in crypto to turn here in? I don’t know, Q1 Q2 of next year, what some of the historians at least are predicting the ones that have gone through multiple cycles of boom and bust in crypto?

Yeah, I mean, I’m not subscribing to any sort of specific idea around cycles. I think a lot of stuff is changing right now. And I think that what we’ve seen in this, like last weekend, for example, is that Bitcoin feels linked to the equities market in some way, and monetary policy is having a really big impact on the way that people are behaving. And you know, whether people go risk off for a couple of days, or, you know, there’s kind of booms and busts, I think the risk doesn’t feel systemic. So I think that’s one of the things that we’ve thought about, you know, as a house is just like, how is the economy sort of broadly impacted by people’s behavior and krypton and having like, broader economic exposure? And you know, the recent data is showing that there is quite a lot of economic exposure to Bitcoin, I had to crypto more generally, but it doesn’t feel like a systemic risk. And I think what’s happened is there’s just been a maturation and people are very interested in this space, and are going to continue to, to buy and sell it.

You know, I’ve noticed some of my FinTech friends in the industry waffling between investment philosophies when it comes to crypto based businesses. And I know you’re not here to give investment advice. But I’d be curious, I’ve heard it swing from one end of the spectrum to we’re going to do equity only to the other end of the spectrum, which is we’re gonna do tokens only. And I’ve heard compelling arguments for each and you know, namely, on the equity only side, there’s, in many cases, an absence of a liquidity event, depending on the type of company. So is there a way that you thought about that? Or is there a best practice that you’ve heard when it comes to investing in crypto projects, equity versus,

look, I guess there’s a lot of people who have really strong conviction in this space, and will tell you that everything that you think is wrong, that where you disagree with them, I think that we invest in both and have invested in both and feel like, you know, this is kind of early innings, and there’s room to be optimistic that there are a lot of different interesting projects that are going to win. And there probably is a liquidity event that you can manufacture one way or the other if you’ve invested in a successful company. So I think that what we’re really focused on is looking at really successful projects, interesting projects, and structurally being pretty open minded.

We’ve seen some countries that reserve currency to crypto and we’ve also seen countries offering their own digital currencies, do you think we should expect more of that in the future both setting reserve currencies to something like Bitcoin as well as creation of a sovereign cryptocurrency?

I think what we can predict is that there is going to be more regulation. And so some of the projects that feel kind of wild and crazy and exciting are going to be maybe slightly less exciting in terms of reserve currencies, and sort of, I would say, well, we’ll probably see a bunch more new stable coins and you know, perhaps interesting experiments along the lines of stable coins linked to a basket of different currencies. Will we see more reserve currencies or more people moving to Bitcoin reserve currencies? Yeah, I think we will. I think that it’s attractive in certain parts of the world. And I think that we’ll also have to wait and see what happens with the broader macro context like is the Fed really going to start tapering power people are going to feel about digital assets when there’s a lot of money searching for a home in the market? But generally as you know, I’m very, very bullish on Bitcoin and on crypto and I think that there’s a lot of interesting things still to take place.

As I look at established markets, and then look at emerging markets and think about the startups that gain the most traction, quickest in the ladder, the emerging markets, it’s often FinTech commerce, you know, how do you think about FinTech plays in emerging areas in which are most likely to emerge as their own standalone companies in a new country, as opposed to big player in the States, for instance, like a stripe that’s going to go on into a bunch of emerging countries?

Yeah, I mean, that’s such an interesting question. So first of all, in the context of crypto, we’ve just invested in a very early stage company called Ijarah, which is a noncustodial, crypto wallet, and wealth management app addressing Francophone Africa. So based in Cameroon, and I really have a strong conviction that it needs to be based in Cameroon, and that the founder is the absolute perfect founder for that company, and that she’s building this company for her area of the world that she lives in and that she deeply understands. I think that you know, what’s really interesting about the question and thinking about the kind of emerging markets, generally in Africa specifically, is that many early FinTech projects have their roots in technology that started at the intersection of telecommunications and finance in Africa. And so there was a lot of talk early and pull like FinTech boom about leapfrogging and how these kinds of deep needs for any sort of money fernet financial modernity really mixed with mobile technology to create just early opportunities to transfer money for payments. And so as we see people in Africa, in the emerging markets, building their own wealth, controlling their own assets, they need these basic tools of wealth creation and ultimately sovereignty. And so I think that these FinTech projects continue to be super important.

You know, it’s something that strikes me in many emerging regions. not all but many. The communication layer is WhatsApp, for instance. Right? And so you’re contending with meta, how do you think about platform risk or channel risk? You know, when a lot of the corresponding FinTech or commerce related startups are building on the back of US based tech giant,

it probably isn’t one of the principal risks that I would highlight when it comes to investing in other regions, I’m really thinking about this sort of understanding of the culture understanding of I mean, there’s really fundamental risks, like I’ve seen a lot of interesting remittances companies just really fall on hard times. For example, in Nigeria, last year, the government sort of deregulated the Naira and said that no money could come into the country unless it was coming in an IRA. So I think that there again, these more systemic fundamental risks around regulation, like how deeply Do you understand that, and then also the the kind of cultural context and how willing are people to continue to use sort of large tech platforms, I think of that as being less risky. And I think we’ll definitely see local locally based backbones and sort of deeper local platforms. But I think what’s super interesting about FinTech and InsurTech is there’s always this interaction between kind of, you know, the traditional sort of incumbent real world institutions and the digital institutions. And so one of the most fundamental problems to solve is, you know, how are you going to have technology that communicates seamlessly between those incumbent institutions and these new platforms? And then how is the regulator going to create a framework so that those technologies can continue to flourish in a way that is, you know, protective of both the population and sort of the interest of the incumbents who obviously have a lot of influence, you know, by the government on that regulatory body? Sure,

I can only imagine some of the geopolitical issues, the corruption based issues that could present depending on where you’re investing. And coincidentally, there was an article today, on TechCrunch, about Kenya’s president signing a new law to police, digital lenders, and apparently apps have six months to get license. So I think there’s an example of it’s probably, I mean, in theory, if I’m a little Pollyanna ish, it’s probably in the best interest of consumers, hopefully, you know, in the US we’ve got usury laws when it comes to consumer lending, but in a lot of other countries those don’t exist. Yeah. So Ruth, you invested in Hokodo, which is a b2b Buy now pay later solution based in London. You know, we’ve seen some others emerge across different geographies, we’d love to hear the thesis on Hokodo and how you got to believe in that business and their market.

Yeah, absolutely. So getting to conviction was pretty easy. It was just a really awesome founder Market Fit kind of three co founders, great technology co founders, one of the guys was the former chief risk officer and COO at Aspen reinsurance. And the other guy led healer Hermas digital lab, and these guys, two of them met in Oliver Wyman’s insurance practice, they were all pretty frustrated with the way that credit risk insurance was being delivered by incumbents, pretty old school, expensive, inefficient, not tied to to a lot of data and specific platforms. And they set out to create a better way to deliver initially single invoice credit risk insurance. And so the way that that project started, they were sort of experimenting with where would be the best place to deliver this single invoice credit risk insurance. And it turns out to be a really great place to deliver that is where people are invoicing each other, which ended up being kind of b2b marketplaces. And so I think one of the things that I needed to get convinced on was that there were a sufficient number of these b2b marketplaces, these niche marketplaces where people are kind of trading. And there are, you know, there’s kind of all sorts of weird and wonderful niche b2b marketplaces. I think the largest cattle marketplace in the UK actually is an online b2b marketplace. So you can kind of imagine this for all sorts of things, restaurants, computers, cars, fish, you know, seafood, you know, this is the way that people trade nowadays. And so one of the early observations that the team at Hokodo made was, you know, what, like, people actually, in addition to wanting to ensure invoices, they also would love to have the BNPL offer, the marketplace would love to allow people to provide credit terms. And so the business expanded to do that. They live across Europe, and in the UK, which is really exciting, because commerce is international. And it’s really important to be able to serve clients in other places. And I think I really loved the way these guys came back, back to our conversation about kind of embedded and taking data off platforms, they’re really creating much better risk scores and understanding risks much better than the credit agencies. And so therefore, we’re able to price these products. I think the other thing that’s really interesting to me about BNPL is that in the kind of consumer space, you can worry about it, this is going to be the next big credit crisis are people buying things that they can’t afford, like if you need to do installment payments for a sweater, maybe you shouldn’t be buying this sweater when it comes to small businesses and the free flow of capital between small businesses. This is the backbone of the global economy, we absolutely need for small businesses to be able to transact and so what is slightly problematic in the retail space is actually quite ESG play when it comes to SME. And so that’s been a super fun project to work on.

Amazing. Maybe to bring full circle a little bit as we think about credit risk. And then per our conversation on blockchain and crypto. Do you think in the future, there will be a better way of assessing credit risk based on publicly available transaction data on the blockchain? You know, from wallets?

I think what’s so funny about that is how do you assure identity? Yeah, you can associate wallet ownership. But I think that that’s one of the interesting projects that some of the crypto companies that I’ve come into contact with recently are trying to figure out is like, how do you really assure consistently identity on a broadly decentralized platform where anonymity is sort of one of the main features,

right, it’s not anonymous, but it is anonymous. If you’re trying to disguise your activity, you’re right, because you sure you can find ways of transferring money to different accounts.

And also like, what’s my provenance? You know, like, how do I know that’s if I’m this crazy, NFT face? You know, how do you know that I’m Ruth Blader, that I am an English major, ex-English major, and that I lived in New York and worked at a digital agency. So I think that this sort of, again, this kind of real world to crypto world identity verification is going to be a very, very interesting web three problem.

So you mentioned NFTs, do you have some prognostications?

Not really, I mean, I’m just watching it with interest. Like I think that the killer app for NF T’s is actually going to be something to do with Title Insurance common kind of dyed in the wool financial services person and I think people who hate it are obsessed with like a stupid jpg being worth a lot of money, which, if you’re interested in the history of art, as I am, doesn’t really seem all that surprising because we’ve assigned value to all kinds of crazy stuff. But I think that for me, what’s really interesting is that the Whole NFT craze has brought on chain ownership and provenance screening to a totally new level. And I think that it’s really just a matter of time before we’re using the same principles to replace things like notaries and title insurance companies.

I hope you’re right, Ruth, every fund that’s had a FinTech thesis from 2013, 2015, To now kind of looks like a genius. Do you think the bull run for FinTech continues? Do you expect it to kind of normalize with the greater tech segments? Or, you know, do we have a lot of room to run further and fintech at really, really high growth levels?

I think I think we’ve got a lot of room, you know, I have strong conviction on that, because there’s just still so much inefficiency in our financial system, there are still so many people who are underserved. There’s still so much democratization to happen. And I think that there’s a little bit of a false notion that like, every single solitary project has gotten funded and kind of gotten funded to the moon, that isn’t true. And, you know, and I’ve known a bunch of companies that have really struggled, which is normal, and which is the way it should be. I think it gets really dangerous when you start to see everybody getting an extract, but I do think that there’s just so much value yet to be created. I really strongly believe that.

It’s like, every time I hear from somebody that the enterprise SAS opportunity is over. I can only help but chuckle. It reminds me of FinTech in that what has been done is only a small percentage of what’s still yet to be done out there.

Yeah, it’s really perennially interesting. And I think that that’s, you know, we’re also just seeing, I think, people having so much belief and change and new things. And that sort of generalized conviction is kind of what you need to actually change. And I really, really believe that we’re, yeah, that we’re kind of still in early innings.

Okay, this question is called three data points, I’m going to give you a hypothetical situation with a startup. And you can ask three questions for three specific data points. So let’s say you’re approached to invest in a startup, those companies based in London, they’re in the Insurtech space, they’re doing about 5 million of ARR. And they’re, they’re growing 10% month over month. So we’re not giving you much information, we know that this is not how it works. But you can ask me three questions for three data points in order to make your decision, what three questions he asked.

Okay, the first question I’m gonna ask is a question that I asked every startup that pitches me, which is, what are the hypotheses you plan to test with this round of funding? And I always ask this question, because I think that the most successful companies that I’ve worked with have a really strong sense and really sort of use, like the scientific method to get to the bottom of the problem that they’re solving, and are very systematic and how they’re going to solve it. And so I love to hear people’s thoughts about that question. And it usually provides a sense of how structured their thinking is. And if they have actual data, and they understand not only the hypotheses they’re testing, but what the test results look like. That’s usually a good sign. I would probably ask what inspired you to start this business? And then I would ask, what does success look like here?

You keep it open ended like long term success versus short term.

I keep it open ended man. I need to hear how much conviction somebody has got about what they’re doing. And, you know, 10% month on month growth for that early stage company, it’s fine, but I assume that they haven’t mopped up all of the latent demand yet. And I’d like to see how much you know how much they can grow, how much more they can grow in the near term.

Very good. Ruth, if we could feature anyone here on the show. Who do you think we should interview on what topic would you like to hear them speak about?

I think that you should speak with a couple of founders ombre Sue Barra, the founder of Keiko. I think you should talk to her about crypto. I think you should talk to Bharath Krishna Morty, about helping small logistics companies meet their financial needs. I think you should talk with Melissa Danielson, the founder of Joshin about helping families with disabilities find care for their loved ones. Yeah, I’ve got a whole list. So give me a call anytime.

With what piece of literature has influenced you most as a startup investor?

I guess Moby Dick.

Are you Ahab? Are you the whale?

Good question.

Awesome. And then finally, Ruth, what’s the best way for listeners to connect with you?

You can reach out to me at ruth@anthemis.com You can follow me on Twitter at Foxe_news and you can look me up and read my stuff on Medium on the Anthemis group Medium page.

Well, that’s Foxe with an E. She is Ruth Foxe Blader from Anthemis. Ruth, thanks so much for the time today. I really enjoyed it.

Thank you.

Transcribed by https://otter.ai