Joel Albarella has led New York Life Ventures, the venture arm of life insurer New York Life, since its founding in 2012.
He has guided the firm during that time through 29 venture investments, and in January was able to announce it had more than $200 million of committed capital. This mission to seek innovation in the startup ecosystem seems alive and well.
VCJ recently spoke with Albarella about insurtech investing and how he balances financial returns with strategic value. An edited version of the conversation follows:
Q: What stage of investment do you target and what is your typical check size?
A: We take a very agnostic approach to both stage and check size. That is part of the type of organization we are. Being a mutual company, we can take a longer view.
That said, our check sizes are typically in the $5 million or so range. And we typically invest in Series A to C rounds.
Earlier- to middle-stage venture, I’d say.
Again we have done some seeds and we have done some later stage deals.
Q: Do you like to lead?
A: We don’t see the need to try to lead deals. We have a model that is very opportunistic. We’re not categorically against leading deals. We typically haven’t led deals.
We made the decision early on to pursue terms that are consistent with pure financial VCs. Really trying to align around the growth of the company and the desire of the investors to singularly drive growth within the underlying investment.
We didn’t see the need to ask for any special rights.
Q: Do you take board seats?
A: We have, but we don’t require it.
Q: How do you balance financial goals with your strategic role as the venture arm of New York Life?
A: Our investing is something we won’t do unless we feel we very strongly we have an opportunity to create meaningful portfolio returns.
By any benchmark, we have upper top quartile performance. Our portfolio is marked at around 1.7, 1.8x at this point with IRRs in the 20 percent to 30 percent range for the last six years.
The model has worked.
Q: We hear a lot about how insurtech is focused more on property and casualty and less on life insurance. Is this still true?
A: I think that is a true statement. But life insurance is certainly catching up. Life insurance is just a different animal than many other insurance categories and it also tends to be a little more long-term oriented and capital intensive and that has maybe kept some folks away from trying to attack the sector from a disruptive point of view.
That being said, More startups are seeing the opportunity in life insurance and trying to attack it in a full-stack manner, and I think you’re going to see a few full-stack life insurtech (companies) come onto the scene in the next year or so. The likes of Oscar Health in the health insurance space and Lemonade in the property and casualty space.
Q: Will there be an increasing appetite for insurtech M&A from traditional incumbents?
A: Yes. I think that within a year, maybe two years, you’ll see increased acquisitions.
You can almost take the robo advice and wealth-management sector as a proxy of an area that saw a lot of innovation and venture funding well before life insurance did.
And I think what you saw was the right focus on customer experience, the right focus on bringing technology and algorithms to things like asset allocation, and the functions that lent themselves to automation.
And you saw some companies get pretty big based on the money they were raising and a few of them are going concerns and they are pretty exciting technology in their own right.
Many others were acquired and began powering more digital efforts within larger incumbents.
We’ve kind of seen it before and I think we’ll see it again in life insurance.
Q: Fintech and insurtech are obvious investment themes for you. Are you looking elsewhere?
A: Most interesting to us, arguable, and what we think could have the most profound impact on the industry long term, are a couple of other areas.
One I would say is what we consider enterprise tech stack 2.0. It is the aspect of large organizations modernizing their existing tech stack. Doing things better, enabling insights better. I think you are going to see a lot of margin fall out of those efforts over time.
And large organizations are doing a good job, better than ever actually, at getting their technology stacks in order. So we focus on startups that can help modernize their tech stack.