Investors are putting tougher conditions and citing a possible slowdown to turn down funding requests
The first major round of funding, also called Series A funding, is getting increasingly difficult for insurance-technology firms. Both company and investor sources told Moneycontrol that given the current economic situation, funding has been very selective.
“Till about a quarter ago, investors were ready to fund even companies with just short-term business plans. Now, that is no longer the case,” said the chief executive of a company working in the InsurTech space.
Due to this, at least seven funding proposals are currently pending at consulting firms. Here, the private and angel investors not only want a five to six-year horizon of business plans but also want clarity on the next two to three phases of growth of the venture.
For the companies, with funding drying up, all expansion plans have been put on the back-burner. In the near future, there could also be forced to diversify into other business segments. For instance, an AI-linked insurance sales platform is now looking at selling mutual funds and simple bank loans.
“We are in talks to raise funds for the past six months. While we are close to finalising a few such arrangements, the investors backed out saying that there is no clear differentiation between us and a few others. Also, the business-related conditions that were placed on the table were not acceptable to us,” said the chief executive of a mid-sized InsurTech firm.
This firm was told to ensure that they turn profitable in 16-18 months or begin offering home loans and travel tickets as well.
Even those entities that have raised funds in the past are finding it difficult to raise additional funding rounds. The co-founder of an insurance distribution portal using technology said existing investors have also expressed their inability to provide more funds.
Being a capital-intensive business, insurance (especially InsurTech) sector firms that are new in the sector require funding every 10-12 months. With a lag in the supply-demand gap, business strategies are also getting postponed.However, industry sources said the situation is likely to continue until January 2020. This gives the struggling firms an opportunity to either pivot to other businesses or strike a deal to be acquired by an insurance company.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.