Vouch Valley
In the late 70s, while teaching construction management at Stanford, Robert “Bob” Medearis began thinking of what would become Silicon Valley Bank. The seeds were planted in his head when his students were trying to find money to start backing new ideas at a time when venture capitalists weren’t around and getting the support of commercial banks was a difficult task. “New is not good and growth is bad,” noted Roger Smith, who joined cofounders Medearis and Bill Biggerstaff to become the banks’ first CEO in regards to the general feel traditional banks had towards technology companies. Medearis, who attended Harvard Business School, had a professor that said that business is 50% luck, and the other 50% is what you do with it. SVB enjoyed a good amount of luck according to Medearis. When it opened its doors in the early 80s, the only other bank that was doing high-tech loans was Bank of America, but due to real estate problems the bank exited the high-tech centers and SVB slid right in. But luck aside, the founders’ intuition that high-tech will become a big business led them to carve out a niche which the bank dominates to this very day, as it serves around 50% of venture-backed tech and life science companies in the U.S.
In September 2019, Vouch Insurance officially went live with the high hopes of following in the footsteps of its backer and distribution partner, Silicon Valley Bank, and becoming the preferred insurance provider to tech companies. With an initial focus on startups, Vouch is promising not just the obvious faster and more affordable coverage, but also a better one that’s tailored for tech startups. “Vouch has a great team and solution to address a problem that faces many of our startup clients: an insurance market that doesn’t understand them or serve them well,” said Greg Becker, CEO of Silicon Valley Bank when Vouch launched. Close to four decades after establishing a financial institution to better serve the tech sector, SVB is backing Vouch to do the same around insurance.
Vouch, which is live in 18 states and plans to go nationwide by the end of the year, was cofounded by Sam Hodges, who previously cofounded and led the US business for Funding Circle, a global small business loans platform, and Travis Hedge, a former investor with SVB Capital, the venture capital subsidiary of SVB Financial Group. The founders lead a team of around 40 professionals, with some of them possessing extensive insurance experience having previously worked for companies such as Nationwide, Hiscox, CNA, Kemper, CUNA Mutual, Markel, and Allianz.
When I speak with founders, the first question I ask is ‘why insurance?’ For Vouch’s founders, it’s about the right opportunity at the right time. “If you look back at every major tech and economic revolution in history, insurance has been a major part of that story,” says Hedge. “Insurance products have evolved to meet the moment in time and we’re in a really unique moment in time where technology has become the established industry.” And in order to meet the moment in time, Vouch is going all in on the product. “We have a vital role to play in helping entrepreneurs build companies thoughtfully and responsibly and making sure they ultimately don’t fail for the wrong reason,” states Hodges. “We have turned the industry’s five dated categories for technology companies into over 80 so we can get specific about risk.”
Vouch’s product focus is evident with their very specific main page product description: “Business insurance for startups – protection from litigation and theft within 24 hours, starting at just $300 per year.” And for different lines of coverage the company offers, examples are provided in plain and simple startup terms. “Your digital trading platform goes down during trading hours and customers lose money because they can’t make planned trades. In most cases, the customer “claim” takes the form of a lawsuit. Whether or not you’ve actually done anything wrong, you’ll have to defend your startup in court or risk a summary judgment (aka the judge saying you have to pay the plaintiff whatever amount they asked for).”
Obsessing over the product is something that’s pretty uncommon in insurance as the majority of incumbents and startups are leading with similar messages of cheaper prices and greater convenience. Of course, commercial lines aren’t as commoditized as personal lines, and perhaps the recent pandemic will get even more businesses to pay attention to their coverage. But product aside, Vouch is also tackling the challenge of ensuring startups have the right coverage at the right time. “Business insurance for high-growth companies is often driven by trigger events,” notes Hodges. “It could be around closing a lease, raising a financing round, doing a venture debt deal, or planning an enterprise contract. We’ve positioned Vouch so we can be a preferred provider of business insurance in those moments of need.”
One of the first things the founders of Silicon Valley Bank agreed on was that they would never have enough money to advertise, so they worked very hard on building strong relationships with and generating word of mouth recommendations from the tech and life science industry. You could say that Vouch is benefiting from good PR – aside from having tech’s most favorite bank on its side, the world’s largest and most popular accelerator, Y Combinator, is also an investor and partner. “We feel really good about the partnerships we have. We have a lot of data suggesting that word of mouth is starting to take over,” says Hodges. But being endorsed by such brands doesn’t guarantee success. “We have to keep up with our fast growing customers,” says Hedge. And of course, marketing to different segments within the tech industry requires different tactics, and educating the market and gaining trust is key. Also, Vouch isn’t alone. The company is competing with well-funded startups and strong incumbents, and it will see even more online competitors as the recent virus outbreak will accelerate a general platform shift to more digital consumption of insurance according to Hodges. Add that to the shaky ground of startups, and Vouch is in for a bumpy ride. “Not to use a Californian wine metaphor, but I really do think that the notion that rocky soil sometimes makes better grapes is very valid,” says Hodges.
