The first quarter of 2022 was bumpy for fintech deals, but especially for insurtech which saw the biggest funding loss of any fintech sector – recording a hefty 58 percent drop compared to its fourth-quarter in 2021. At the same time, high growth tech stocks have been hit with big losses and current market conditions (i.e. rising interest rates and inflation) are contributing to a rockier investment environment than we’ve seen in years. But while funding availability will continue to be impacted in the near-term, opportunities remain for start-ups and business leaders willing and able to make the most out of the current pricing landscape.
A Challenging Investment Environment
So far, 2022 is shaping up to be a significantly more difficult environment for insurtech fundraising than either 2020 or 2021. According to CB Insights, the average insurtech deal size in 2022 is $19 million, representing almost half the $33 million average deal size recorded across all four quarters of 2021.
From fear of stagflation, to high interest rates, to the rising cost of goods, to supply chain disruption and product shortages, the inflationary economy will be forcing business leaders to make some tough choices when it comes to their pipeline. For some, downsizing, price increases and other corrective measures will be necessary.
However, the present difficult investment landscape doesn't have to spell gloom and doom for insurtech. Many investors are seeing the correction as long overdue and believe tech valuations coming down out of the stratosphere can help create an environment that’s actually better for raising funds. Companies that have demonstrated the ability to grow organically or which have shown they can generate a profit will be in an especially advantageous position with many investors looking actively to build more sustainable business models.
Adapting During Hard Times
We shouldn’t forget that difficult economies and business downturns, including recessions, have given rise to some of the most innovative companies of our time. Apple, IBM, and Microsoft were all founded during a recession or a down stock market. Google and PayPal emerged in the shadow of the dot-com bust. And most recently, Airbnb, Square, and Stripe were all born in the aftermath of the Global Financial Crisis. Strong leadership, flexibility, and the ability to take decisive action have been a hallmark of many of the world’s most enduring and successful businesses. As we wait for the global economy to eventually stabilize, startups and innovation leaders should be taking their cues from what worked during past periods of high inflation – building a solid strategy to evaluate risk, protecting profitability, and adapting the innovation pipeline to match changing customer behaviors. Doing so will help them weather the storm and emerge as stronger, more resilient businesses.