Spark Capital has led a $6.15 Million seed round for Shepherd, an insurtech startup that focuses on the construction market. This funding event follows a February pre-seed round led by Susa Ventures.
Shepherd's story fits in with a trend of neoinsurance providers selling to more companies than to consumers. Venture capital funding was a long-term investment in Insurtech startups that serve consumers. However, their public debuts were met with optimism and quickly followed by falling share prices.
Blueprint Title and Shepherd, however, are betting that there is margin in the insurance industry to be attacked. Shepherd sees the construction market as its target and plans to start with excess liability coverage.
Justin Levine, the co-founder of the company and its CEO, stated to TechCrunch, that contractors working in construction have many insurance requirements. These include general liability and commercial auto. Construction projects may also require additional liability coverage. This is called an excess or umbrella policy.
Shepherd sees the middle market of construction companies that do $25 million to $250,000,000 in projects annually as its target market and wants to leverage technology to underwrite customers.
Levine stated that his company's offering will consist of two main parts. Levine said that the first part is what you would expect, which is a seamless digital experience for customers. The CEO compared the digital offering to insurtech table stakes. We agree. We agree. But, the company becomes more interesting when you consider its second half: its partnership with construction tech providers to help make underwriting decisions.
Procore is a company that has invested in the startup's business.
It makes sense to use third-party software companies for underwriting decisions. Companies that are more tech-forward in adopting new techniques and methods will not have the same underwriting profile than companies that don't. In general, more data means better underwriting decisions. Linking to software that aids construction companies makes sense from this perspective.
Procore's CEO, says that he agrees with TechCrunch, saying that a customer was a risk management solution disguised under construction management software. This allows it to be more competitive on price.
Levine believes that the current price situation in the construction market is a problem. Rising settlement costs have led to some legacy insurance books in the space with larger-than-anticipated losses, pushing some providers to raise prices. Levines believes that Shepherd's ability to enter its market with no legacy business will allow it to offer competitive rates.
Shepherd plans to use excess liability coverage to enter the construction insurance market. It stated that it will launch other products as time goes by. Its CEO stated that the startup is focusing on excess liability coverage because it's the area of greatest pain in the larger construction market.
TechCrunch finds B2B neoinsurance startups fascinating. The cost of selling policies to consumers varies based on coverage and can often be quite high. In comparison to national brands with large budgets, CACs can be a problem. Upstart tech companies may find the business insurance market more lucrative. This bet is certainly attractive to venture investors.
Spark's deal was led by Natalie Sandman, who told TechCrunch that Shepherd was initially working on another project when she first met her. However, when Shepherd switched its focus it struck a chord. According to the investor, the idea of adding new data into the construction insurance underwriting process could help the company make better decisions. Better underwriting decisions can lead to more profitable coverage in the insurance industry. This means more future cash flows. We all know what that means for value creation.
