(Rashmi Melgiri, CEO, Functional Finance. Image source: Video on Functional Finance website.)
This week Functional Finance a software platform dedicated to modernizing financial operations for MGAs, carriers, and wholesalers, announced that it had closed a $20 million Series A funding round led by Walkabout Ventures,(Los Angeles) with participation from Munich Re Ventures (Munich) and Phil Edmundson, the visionary behind Corvus Insurance. Insurance Innovation Reporter took interest in the news in part because of the background of the founder and president, who were founder and president of CoverWallet (New York), respectively, and partly because of the success that drove the Series A round: since founding, Functional Finance saw an increase of more than 2,500 percent in premium payment volume year-over-year. We were also interested in getting the perspective of the company’s COO, given that he is a former client. Hal Schwartz joined Functional Finance co-founder and CEO Rashmi Melgiri in an exchange with IIR.
Jim Ermilio, President, Functional Finance.
Insurance Innovation Reporter: You had a successful exit in the InsurTech space a couple of years ago when your first startup, CoverWallet, was acquired by Aon. How did that experience change the way you went about founding and building Functional Finance?
Rashmi Melgiri, co-founder and CEO, Functional Finance: When I founded CoverWallet, I was a complete insurance newbie. My co-founder and I went into it with the following question: “Insurance is one of the many foundational components of running a small business. Others, like payroll, benefits, time-tracking, accounting—you name it—are now available to business owners in a self-serve, online way. Why isn’t business insurance?” We quickly learned about the complexities that made that vision difficult, and CoverWallet was a journey in attacking each obstacle as it came…and learning along the way.
When I started Functional Finance, I wasn’t an insurance newbie. I had dealt firsthand with the problems of the insurance back office and reconciliation and knew what the industry needed. I also knew exactly who I wanted on the team. The pace of traction at Functional Finance has been so much faster than it was at CoverWallet given the expertise of the team we’ve built and the clear vision of what we are delivering.
IIR: Hal, you came to Functional Finance from a client company, is that correct? What was it about being an early adopter of unified financial operations—FinOps—through Functional Finance that made you want to join the company?
Hal Schwartz, COO, Functional Finance.
Hal Schwartz, COO, Functional Finance: I have worked in the InsurTech space for a few years—too many probably!—often focused on the operations and finance side of the business. Every place I have been, whether big company or two-person startup, there has always been a team of people—or sometimes just me—sitting there running payment reconciliation: reviewing each line, each transaction, and tediously matching it to a received payment. Before Functional Finance, I had never seen a system that integrated and matched the invoice created by the relevant PMS to the dollars in my bank account. For example, as a client, I would ask my Functional Finance CSR a question my accounting team could not solve, and within no time Functional Finance would send me a report that explained the data to match settlements and fees. I would ask whether there was an analysis we could run to consider payment intervals and failure rates. Again, I got a detailed report and, more importantly, a good discussion with the Functional Finance employees about different ways to consider the data to best help my company.
As for joining the team, my goal has always been to support smart, diligent, and positive people who are solving challenging problems. When discussions started for a possible role for me at Functional Finance, I saw both an opportunity available to streamline these tedious (and mistake prone) exercises and the knowledgeable and supportive Functional Finance professionals who I knew would make me look good with every client we bring on.
IIR: What is the short-term future for Functional Finance? Long-term?
RM: In the short term, we are focused on recruiting and further building out the platform. We are looking for the right folks to add to the organization across engineering, product, and operations/customer success. Simultaneously, our customers are asking us to expand our solution capabilities to include features like international coverage or enhanced reporting. We are busy executing on the roadmap.
In the long term, we will be the shared, single, centralized source of truth for the financial standing of an insurance policy. This includes giving all parties up and down the insurance value chain—brokers, wholesalers, MGAs, fronting carriers, and insurers—not only an automated FinOps platform for internal use and efficiency but also the power of real-time, accurate financial data related to that policy to better work with partners and insureds, as well as make more informed decisions about risk.
HS: I see growth, growth, growth as the short-term future for Functional Finance. Growth in system integrations, growth in personnel to join our team to add to our expertise, and growth in clients who see the value of what we are providing to the market. Every day, I am part of new discussions on incremental improvements we are making to the interface, streamlined services, and available solutions, which expand the pool of customers who could benefit from our services. As for the long term, the definition of what our industry is varies by the person on the other side of the table. I will say, I do not see Functional Finance as a solution only for MGAs. I do not see Functional Finance as a solution only for broker-managed books of business. From my personal experience at and working with large insurers, Functional Finance is working to solve the human-intensive, mundane, mistake-prone chores all industry players devote significant person-hours while adding on layers of timely, accurate, and valuable data and insight.
IIR: Per this week’s announcement, you closed your Series A round and it included some investors who were part of your seed round. What does the continued support of these investors and individuals mean to you as a company founder?
RM: It means the world. These are the folks that have been there from the very beginning. They know the business inside and out. For one of our inside investors to lead the round—with perfect information about the business—is a true endorsement of the Functional Finance team and product-market fit.
Functional Finance Secures $20M Series A Round Led by Walkabout Ventures