On the Tearsheet podcast, we’ve tried to interview some of the smartest corporate investors at some of the largest firms in the financial industry, trying to understand their process, their investment strategies, and how their firms use investing as part of their innovation programs.
This week’s guest on the podcast is Dan Reed, managing director of American Family Ventures. As a corporate investor at insurer American Family, he’s looking for early stage technology firms that can help the firm modernize its distribution while remaining true to the legacy of the agents who helped build his business. We also discuss how his career path, through strategy and business development roles, informs his investing practice at a 90 year old insurance company.
Below are highlights, edited for clarity, from the episode.
Gravitating to the insurance industry
“After about five years at the Boston Consulting Group, I moved back to Wisconsin. I signed up with American Family Insurance. The same things kept coming up: the notion of how do we modernize our distribution while remaining true to the legacy of our agents who built this business, how do we derive new insights from large data sets, and how do we work with our policyholders to engineer the risks we cover in a more proactive way.”
Working with tech firms
“I like the optimism of these companies. They’re just cool and excited and enthusiastic to work with a large company like ours to help create the future. When I think of the strategic imperatives we have as an enterprise, as a 90 year old insurance company, marrying up the energy and technological progress that some of these companies we were making with our scale was something I hadn’t encountered during consulting. It feels like a answer to question that may not really have been asked yet.
Our mandate is to get us involved in some of the emerging concepts and business models that can be meaningful to the insurance industry over the next decade and get us involved earlier than we otherwise would from an operational perspective. Our job is to get out over the hill, see what’s out there, and bring it back earlier. In putting this corporate venture function together, we would get the question whether we had a strategic or financial mandate. We have both.”
Incumbents can provide value to startups
“We were pretty active in the home automation market in 2014 and 2015. As a significant home insurance carrier, we have relationships with millions of policyholders across the country. If we could find standouts in the home automation startups out there that were displaying some meaningful customer traction, we could partner with them and offer a secondary or tertiary channel to get to market in a way that benefits everyone.
Ring makes a wifi-enabled video doorbell you can answer from your phone. It’s a fairly effective burglary deterrent device. We put a program together where Ring offered a $30 discount to our policyholders in exchange for some marketing weight we put behind it. We offered a 5 percent homeowners premium discount which can be meaningful over a few years. Ring offered to cover the deductible if there was a theft claim for policyholders that had a Ring device. We’ve have a variety of programs like this to understand what our customers really care about and what types of partnerships seem to work.”