Corporate Venture Capital, in a Patagonia Vest

Brian Anderson opened by clearing up the Patagonia vest, a venture capital uniform in jokes. He first got to know the company in the late 1990s as a keen fly fisherman, likes its gear and values, and described it as both a capital-making enterprise and an organization that impacts the environment and communities. He isn’t a Patagonia investor, but is happy to wear the vest, and says Nationwide Ventures looks for that kind of values alignment in the companies it invests in.

About Brian Anderson

Brian Anderson invests through Nationwide Ventures, the venture arm of Nationwide, which backs insurtech and fintech startups at Series A, B and C. Nationwide is the only limited partner in the fund.

2020: Cutting Bone and Compressed Time

Business was great, Brian said, though everyone went into 2020 expecting another record year. When COVID hit in March, capital markets seized up, and many companies went through down rounds and cut deeply, not just fat and muscle but bone. Those that got lean and focused on their core often saw an uplift from customers. COVID, he said, accelerated digital business models by perhaps ten years. Early-stage companies saw pipelines go from $5 million to $35 million in about three weeks. He called the human tragedy unspeakable, with bittersweetness in the fact that it helped many software companies.

SPACs and the Wall of Capital

Gilad asked about SPACs, with Hippo reportedly planning one for 2021. Brian said a SPAC is just another way of raising capital, and the thematic view should be set aside in favor of asking why this is happening. The answer is the amount of capital in the world: over 30 years it has shifted from public to private markets, Sarbanes-Oxley changed IPO incentives so companies stay private longer, and two global dislocations, in 2009 and March 2020, brought massive injections of money. He cited a figure that by some measures 25 percent of all the money ever printed was printed in the previous 12 months, while earnings haven’t risen 25 percent, so valuations keep rising. The world uses debt, so it values growth, which explains the divergence in multiples between those who can create growth and those who can’t.

With about $60 billion raised into SPAC vehicles, he said, the money has to go somewhere, since investors don’t raise capital to sit on it. He expects the trend to continue, and expects businesses that went public through SPACs eventually to “de-SPAC,” being acquired or listed in another vehicle.

Raising Funds and Angel Platforms

On being a single-LP fund, Brian said that raising a fund is like a startup raising capital, but instead of three or four investors you need 20 to 40, so it is never easy, though there is plenty of capital among endowments, family offices and others, and different LP structures have different pros and cons.

On AngelList, he said giving people access to more companies to invest in is a net benefit, but investors should think about adverse selection. If a company is talking to you, they have probably talked to others who said no, so ask why you specifically. He also noted the irony in the accredited-investor rules: they are defined by income and balance-sheet thresholds, while the regulators writing them often earn less than the threshold, so someone with the knowledge to invest might be excluded. He welcomes new vehicles for retail participation.

“Does the World Need Another One?”

Gilad mentioned a new seed or Series A for a commercial insurance startup, and asked whether the world needs another. Brian’s answer: he doesn’t know, and no one does. Many of the leaders in insurtech, when they raised a seed or Series A, could also have been asked whether the world needed them. Inside these companies are often secrets about how systems connect and data is analyzed across silos that create new opportunities. He used Next Insurance as an example: it wasn’t obvious early on that it would be hyper-successful, and five years later what it did is disruptive. Nationwide invested in Next’s Series B in early 2017, when the team had a clear strategy and was gaining market traction and finding product-market fit.

The Portfolio: Next, Matic, Nexar

Brian talked about Nationwide’s portfolio in distribution, including Next and Matic, plus fintech and retirement companies, and an IoT company, Nexar, which turns smartphones and smart dash cams with machine vision into a software platform. His view is that compute has become so powerful and inexpensive that software will creep into every corner of everything, and Tesla showed what bringing software into a product line can do.

On blockchain and AI, he said people understand what distributed means and the value of cryptography and algorithms, but pulling them into one buzzword is like saying you’re doing a food startup: it says nothing. Gilad noted a speaker who compared blockchain and AI to the steam engine, as forces that can scale what was previously manual.

Telematics and the Grand Bargain

Brian called telematics the best way to price a risk, with no doubt, but pointed to a tension: we have mostly subscribed to a 21st-century grand bargain of getting free products in exchange for data, and some people are retreating from it. A product is needed for people who don’t want a company collecting their data. The other side is that if the best drivers get discounts, what happens to the people who are driving worse and just want a price, perhaps people making ends meet and not thinking about insurance? He hopes they won’t be priced harshly because of bad social determinants, and said that as a careful driver, he feels good about subsidizing the worst drivers if it’s a social good. Gilad pointed out that regulators have a role in keeping the risk pool intact and gave a shout-out to JUST as an alternative.

2021 and Beyond

Brian expects 2021 to feel like 2020 but with much less uncertainty, and expects benefiting businesses to keep benefiting while pain continues, with insurtech and fintech investment continuing to accelerate. Nationwide typically invests in Series A, B and C, with average checks of $1 million to $10 million, and flexible on capital and ownership if the economics work and there are multiple strategic shots on goal. Later stages mean fewer pivots, so the relationship capital Nationwide brings lasts longer. He expects more later-stage companies, as every year since 2015 has seen more growth-stage investment, and he hopes seed investing keeps up, because that is where new teams do new things.

Brian also noted how the industry has matured. In 2016 and 2017 institutional VCs who hadn’t made an insurtech investment asked him what the Series B metrics were; now they look at premium run rate, growth and attrition. He also described insurtech 1.0 as distribution-focused, and 2.0 and 3.0 as operations-focused, a better fit for core software. The challenge is tracking and operationalizing cost-out KPIs, since it’s harder to credit software for efficiency than to credit sales for revenue, and companies need a business case to turn a pilot into a contract.

What’s Missing: Honesty and Empathy

Asked what the ecosystem lacks, Brian said everyone speaks a different language: corporations, investors, startups. Startups should learn sensitivities, who owns the budget and the buying criteria, and empathize with corporates; corporates should learn what it’s like to worry about payroll and a star developer with an offer from Google. His answer is transparency and empathy: a corporate can say this isn’t a good fit, and it saves a startup 45 minutes. People need the truth, and they need to trust it.

Advice: Sapiens, and Private Truths, Public Lies

The football behind Brian is signed by Brian Dawkins, a safety for his favorite team, the Philadelphia Eagles, whom he admired as a role model for passion and respect for people. For books, he recommended Sapiens by Yuval Noah Harari, and Private Truths, Public Lies, about preference falsification, the gap between what people say and what they think. His routine: early mornings on Tuesdays and Wednesdays, a Peloton about four times a week, a run when it’s warmer, and walking the dog. Gilad mentioned that a recent guest had recommended Endure, which he owns but hasn’t yet read.

Key Takeaways

• A SPAC is another way to raise capital; the wave reflects a global glut of capital that has shifted to private markets.
• Brian wouldn’t judge “does the world need another one” from outside; successful companies often had hidden advantages in data and systems that only became clear later.
• Nationwide invests in Series A to C, typically $1 million to $10 million, with strategic shots on goal, and invested in Next’s Series B in early 2017.
• Telematics is the best pricing engine, but raises privacy and fairness questions about the “grand bargain” and the risk pool.
• Insurtech is shifting from distribution to operations, and success depends on business cases and KPIs for cost out.
• Startups and corporates need transparency and empathy: a quick, honest “not a fit” saves time.