(Image source: MassMutual Ventures.)
This week MassMutual Ventures (MMV), announced its third $100 million fund, now managing a manage a total of $300 million on behalf of the fund’s parent company MassMutual. Springfield, Mass.) from its Boston office. MMV also launched a Singapore team in November 2018, and second fund in Asia in Jan. 2020 managing a total of $150 million. Insurance Innovation Reporter recently had the opportunity to talk to Doug Russell, Managing Director, MMV, who oversees both U.S.-based and Southeast Asia teams.
Insurance Innovation Reporter: MassMutual Ventures has grown steadily since its beginnings in 2014. At a high level, how would you explain its success and the continued confidence of its parent company?
Doug Russell, Managing Director, MassMutual Ventures: There are several reasons we’ve succeeded. One is the team. Eric Emmons and Marc Goodman, both Managing Directors, joined the team when we launched the fund in 2014. They had been venture investors at other firms and brought venture experience, great network and reputation. A year later we hired Chuck Svirk as a principal, who now has responsibility for managing several of our portfolio company investments. Those three individuals lead the day-to-day investing out of our Boston team.
We have established a very disciplined and focused investment process, that begins with sourcing the investment opportunities through network of investors and entrepreneurs and establishing the portfolio of investment companies. The diligence is in really understanding three markets in which the companies compete—financial technology, enterprise software and cyber security—and then working effectively with our portfolio companies.
An important differentiator for MMV from some other corporate venture funds is that we are structured to pursue financial returns in addition to our strategic mandate. Many other corporate venture funds have a strategic component to the investing they do.
IIR: And how has your approach borne out in terms of results?
DR: Our Boston team currently manages over 30 companies, and we have enjoyed several very successful exits of portfolio companies, including Recorded Future and Solebit, which are cybersecurity companies. In the aggregate, looking at each of the first two funds we’re pleased that we’re meeting our targets. However, it’s still early on at six years in—you really start to have good visibility between year eight and nine. We think of our business model as investing over three years and then expecting to see returns in seven to 10.
IIR: How much of MMV’s capital is going into financial services and, more specifically, into InsurTech?
DR: The two broad sectors in which we invest are Fintech and cybersecurity. Embedded within Fintech is enterprise technology. So, the three major areas we invest in are Fintech, enterprise technology and cybersecurity, though there’s a bit of overlap between them. Fintech includes the InsurTech subsector.
Our approach isn’t to invest a third in one category, a third in the second, etc. We’re doing bottom-up analysis of each sector and identifying subsectors within each to see where the opportunity is, with a bit of strategic focus as well. We’re rigorous from an analysis standpoint at identifying where the opportunities will be over the next year to year-and-a-half. The diversification of our company portfolio is less about allocating capital to each sector and more about acting on the opportunities as we see them in the subsectors—and there’s quite an ebb and flow there.
IIR: What are examples InsurTechs that MMV is investing in?
DR: Some examples are Insurify, which lets consumers quickly compare car insurance quotes from dozens of carriers within Facebook’s Messenger app.; Policygenius, a digital insurance broker that sells individual policies for life insurance, long-term disability, renters, and pet insurance; One Inc., a cloud-based insurance payments focused company; Gradient AI, a data analytics firm for underwriting workers compensation; and Embroker, a digital insurance broker for small commercial risk.
IIR: What are the areas of the insurance value chain where MMV sees the greatest opportunities for investment?
DR: What’s interesting is there’s not a link of the value chain for which we haven’t looked at the opportunities. For example, Payfone, a leader in digital identity authentication for the middle-office, aiming at efficiency and effectiveness. Insurify and Policygenius are in both the manufacturing and distribution areas on a direct-to-consumer basis. One Inc is on the payments side. And that extends to our cybersecurity companies as well.
IIR: Though MMV is primarily focused on achieving returns, you’ve implied that secondarily MMV is interested from a strategic standpoint, and the main sectors you invest in also serve that aim. Tell us about the strategic side.
DR: From a simplistic standpoint, MassMutual is seeking to benefit, yes, but it’s not the primary focus. All the companies we’ve invested in can enter into conversations with MassMutual and we do everything in our power to encourage those conversations. But that’s done at arm’s length, and ultimately it’s up to the business we’ve invested in to generate a commercial relationship. About half of the 30 or so companies our Boston-based team has worked with have had a commercial relationship with at some point. It’s not a requirement, but when we invest, we do discuss whether the target company has strategic relevance.
IIR: Where do you see MMV five years from now, both overall and with regard to its participation in insurance innovation globally?
DR: I think it’s relevant to reflect on the fact that within a little more than five years, a single fund with $100 million under management has grown to where we are today with the three funds that size in the U.S. and two in Singapore totaling $150 million. We have an investment partnership with London-based Crane Venture Partners that has helped us go from a single fund, single country focus to becoming a holding company with a multi-fund, multi-geography profile. We have continued to build out our global platform, find and make great investments and I think those are the two most important points for talking about the future. We will continue to build our global platform. We can only guess at the amount of growth, but we continue to be disciplined across our teams, getting better every day at sourcing good investments, at making those investments and at working with and helping our portfolio companies succeed once we’ve made those investments. I think we’ll have good return and make many companies benefit the industries and end-consumers who need the services that our portfolio companies are providing.