If you want to get transformative value from your venture capital investments, you need to have strategic alignment with the business. To find out how Munich Re's ventures, team ensures they are making smart investments, Ali Geramian, a Director at KPMG's Innovation Lab in New York, sat down with Jacqueline LeSage Krause, Managing Director and Amir Kabir, Principal at Munich Re/HSB Ventures. Here are some of the highlights from the conversation.
Munich Re has been one of the most active corporate venture teams across the insurance landscape. Can you walk us through your strategic vision?
Jacqueline LeSage Krause (JLK): Munich Re | HSB Ventures is a strategic corporate venture capital investor, which for us means that we are strategic first and financial second. We share a common strategic vision with our businesses. We work closely with them to evolve their strategies based on what is happening in the innovation ecosystem and then translate those strategies into strategic investment themes that encompass an approach to both partnership and investment. Then we go into the market and help our businesses find the best companies to be the best partners, with the best companies being those that are also attractive from a financial standpoint. For us, being this closely tied to our businesses is an asset. Munich Re as a whole is very forward thinking, recognizing that innovation is required for long-term success. In the portfolios built for our first two strategic investment themes, focused on IoT with HSB and Insurtechs with Munich Re Digital Partners, we have partnerships that both help us to develop new business today, while playing a long game for tomorrow.
There is no shortage of capital in the Insurtech ecosystem pursuing deals. What can Munich Re bring to a potential portfolio company, outside of capital?
Amir Kabir (AK): We bring guaranteed strategic engagement, insurance or technical expertise, and venture capital expertise. It is required that our portfolio companies have a partnership with the business, so we establish a strong linkage between our business units and start-ups that are actively driving innovation. As a reinsurance company, we can help start-ups achieve a global footprint across all lines of business. In the right instances, we can even introduce the start-up to potential customers, particularly if it might enable them to find the right product/market fit and scale quickly across geographies. Another benefit we provide is the deep level of insurance and technical expertise that can be found across our global organization. When you combine that with the other parts of the Munich Re Group, such as Munich Re Digital Partners, and our ability to provide capacity where needed, start-ups see benefits from partnering with us. We feel that it's important for entrepreneurs to align with an investor and organization that they are excited to work with. And, we always take a board observer seat which allows us to stay very involved in the start- ups successes. The collaboration doesn't end after we write the check.
How does your team link to Munich Re's M&A function? How do you envision your group collaborating with M&A to help drive the organization's acquisition agenda, if at all?
JLK: At Munich Re, even though we are not part of the M&A function, there are a few ways our ventures team collaborates around M&A. Since our team works closely with the businesses on strategic investment themes, companies that are in our deal flow sometimes present attractive M&A opportunities. No matter what industry you operate in, corporate VC tends to be one tip of the spear for M&A. A good example of this kind of collaboration is our 2016 acquisition of Meshify, a cloudbased industrial IoT platform. There's also a technical aspect that comes from the expertise we have as venture capitalists that differs from our M&A team. While executing M&A transactions isn't our team's core capability, we can work in partnership with our M&A colleagues to consider the unique aspects of acquiring a start-up -- things like valuation, deal structure, stakeholder motivations, and integration expectations. These companies often have a very different financial profile than a mature organization, so getting the deal done is quite different than your standard M&A transaction.
Do you find that it's difficult from a cultural change perspective to get insurers to think about acquiring early stage companies?
JLK: Our industry is in the early days of a period of rapid change. This is real; there are billions of dollars being invested in new companies related to insurance. Our industry has a choice -- view these new players as competition or learn from large tech companies and view them as outsourced research and development (R&D). They can bring new technology, new distribution channels, new data, or even new talent to existing players.