This buzzy London insurtech that wants to 'change the fundamentals of insurance' just raised $4.7 million from top VCs
Laka, a London-based insurtech, has just raised $4.7 million in new funds from VC investors LocalGlobe and Creandum. The startup wants to "change the fundamentals of the insurance market," according to its CEO Tobias Taupitz and will use the funding to fuel its hiring plans and European expansion.
Laka utilizes a community-led model which it claims leads to a lower cost and better service for its customers. Click here for more BI Prime stories.
UK-based insurtech startup Laka has raised $4.7 million from top European VCs LocalGlobe and Creandum. Based in London with an office in Bristol, UK, Laka offers insurance products for cyclists based on a community-led model. Founded in 2018, the startup wants to "change the mindset" of customers by flipping the traditional insurance model. "Insurance has probably been using the wrong business model for centuries," Laka's cofounder and CEO Tobias Taupitz told Business Insider in an interview. "People in our community care about their bike and we're changing people's mindsets about how insurance can be done." In effect, Laka leverages its community of 5000 cyclists to pay monthly fees for the service which is determined based on whether someone has made a claim rather than a standardized cost at the start of a month. The company claims that this process puts the company first and leads to it being 25% cheaper on average than its competition. Other specialist cycling insurers in the UK include Yellow Jersey, Bikmo, PedalSure, and CyclePlan alongside policies from larger organisations like Aviva and Evans Cycles. Investors seem to agree. LocalGlobe co-led the fundraising with European fund Creandum which will assist Laka in its plans to expand on the continent, starting with The Netherlands in the first half of the year. Other investors in the round include Yes VC, and angel investors Nick Evans, chairman of upmarket cycling gear firm Rapha and Oren Peleg formerly the CEO of Fitness First. The new raise brings Laka to a total of $6.4 million. "These funds have a great track record and they support our vision to go beyond the UK," Taupitz added. "Our aim is to change the fundamentals of the insurance market by serving passionate people." Laka was founded by Tobias Taupitz, Jens Hartwig and Ben Allen, with the former having previously worked in investment banking at Barclays doing M&A in fintech and insurance. Taupitz says his passion for cycling and a desire to make a fundamental change in insurance was behind the decision to leave the "golden cage" of banking. "The beauty of Laka is it returns insurance to its pure, mutual heritage," said Remus Brett, partner at LocalGlobe. "Laka's members and their shared interests incentivize positive behaviour which in turn benefits the entire community. These principles are over 300 years old, the difference being technology and increasing consumer awareness that traditional insurance models, with complex clauses, excesses and a painful claims process are fundamentally broken. " Laka's next steps alongside a fresh hiring push is to further develop its product range so it can work more deeply with customers by finding ways of providing for them in the event of a cycling accident which damages them physically, alongside their bike. SEE ALSO: Robinhood challenger Freetrade, which has raised millions for its fee-free trading app, acknowledged a high attrition rate after 22 staff departed in 2019 Join the conversation about this story » NOW WATCH: Watch Google reveal the new Nest Mini, which is an updated Home Mini
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Digital-only banks like Chime are seeing record signups amid the coronavirus pandemic. Here's how they drive revenue without lending or charging overdraft fees.
Digital-only banks, or 'neobanks,' like Chime are seeing record signups for their online banking products amid...Digital-only banks, or 'neobanks,' like Chime are seeing record signups for their online banking products amid the coronavirus pandemic. In the traditional business model for banks, they take in deposits, then lend that money out and charge interest. They make money on the 'spread,' or, the difference between the deposit and loan rates, as well as non-interest income like overdraft fees. Instead of earning interest rate spreads, neobanks like Chime, Monzo, and N26 rely on interchange fees earned from debit card transactions. Amid the coronavirus pandemic, Chime piloted a way to get consumers' government stimulus checks early using its overdraft protection product, SpotMe. Click here for more BI Prime stories As brick and mortar banks close amid the coronavirus pandemic, neobanks like Chime are seeing record signups for their digital-only banking products. In February, Chime surpassed the 8 million customer milestone. And as more users sign up for the branchless bank, Chime has been experimenting with a way to for its customers to get part of government stimulus payments, which are part of the CARES Act, early. Chime began testing the stimulus payments with its SpotMe feature, a product that lets users overdraft their accounts for free, in early April. It found that its users wanted some, not all, of the stimulus checks early, so it doubled its SpotMe limit to $200 for select users. By the time most banks posted the stimulus checks last week, Chime had already distributed more than $1 billion in stimulus payments to over 600,000 users. And last Monday, Chime saw the highest number of account openings since it was founded in 2013, Business Insider has reported. But still, Chime and its fellow neobanks like Monzo, N26, and Varo, have not launched full blown lending products. Traditionally, banks make money on interest rate spreads, or, the difference between the rates they pay costumes for their deposits and rates they charge borrowers. But neobanks currently only play on the deposit side of the balance sheet, offering checking and savings accounts. And these neobanks are attracting waves of VC cash. In 2019, neobanks raised more than $3.7 billion in VC cash, a new record following 2018's $2.3 billion, according to CB Insights. In December last year, Chime's valuation quadrupled to $5.8 billion following its massive $500 million Series F. The round was the largest single equity investment in the neobanking space, a record previously held by Brazil's Nu Bank, according to CB Insights. Chime's investors include Dragoneer Investment Group (Compass, Klarna, Nubank), DST Global (Nubank, Robinhood, Root Insurance), and Menlo Ventures (Betterment, Carta, Roku). And Chime isn't profitable, but its CEO Chris Britt told Forbes in November last year that it could be if it reduced its marketing spend. Fees for card swipes and membership Since many digital-only banks are not lending in the US (some of them, like Monzo and N26, offer credit products in the UK and Europe), they need other sources of revenue. For example, every time a customer uses their debit card, the banks earn transaction processing fees — sometimes called interchange fees — from merchants. Beyond interchange, digital-only banks are also experimenting with membership models. Germany's N26, for one, offers tiered freemium membership to its European customers, and now it's thinking about rolling that model out in the US. N26 offers a free standard membership and tiered levels for a monthly subscription fee. Each tier comes with its own perks, like dedicated customer service, discounts at merchant partners, and insurance on car rentals and cell phones. The UK's Monzo, which had rolled out, then shut down its premium membership offering in September last year, just announced its plans relaunch the product in the first quarter this year. Both Monzo and N26 are also neobank unicorns. Monzo was last valued at $2 billion, following its $113 million Series F last June. N26 was last valued at $3.5 billion valuation after its $470 million Series D last July. Chasing customer stickiness To grow both membership and interchange fee revenue, neobanks are prioritizing customer acquisition, then customer stickiness. And in banking, stickiness is often pegged to establishing what's called a primary banking relationship. To be sure, the nature of a primary banking relationship has evolved. Over the past several years, fintechs have been riding a wave of unbundling — meaning they offer consumers pieces of the suite of products typically offered by a bank, like a high-yield savings account or passively managed investment accounts. But for digital-only banks, there's a key piece of a consumer's banking habits that could increase stickiness: payroll direct deposit. The neobanks have deployed products like access to wages two days early and no-fee overdrafts, specifically for customers who use the accounts for direct deposits. And their customer bases are growing. N26 just announced it has 5 million customers globally (including 250,000 in the US), and Monzo says it has 3.8 million customers. That said, the number of open accounts is not necessarily the same as the number of active deposit customers, so pinning down exact customer numbers is tricky. In some cases, one customer who opens both a checking and savings account could be counted with two open FDIC-insured accounts. Since the neobanks are private companies, they are not subject to the same disclosures as public retail banks. Ten-year-old Ally, one of the US's largest digital-only banks which went public in 2014, reported 1.97 million retail deposit customers in fourth-quarter earnings last year. Chime makes the majority of revenue via interchange Chime earns the vast majority of its revenue from interchange paid to Chime by Visa, a Chime spokesperson told Business Insider in emailed comments in December last year. Every time one of Chime's customers makes a purchase with their debit card, the bank earns a fee. Chime also earns a "modest percent of revenue" from referring customers to other fintechs like SoftBank-backed renters insurance startup Lemonade and fellow DST Global portfolio company Root Insurance, the spokesperson said. In February, Chime announced it would offer a high-yield savings account with rates starting at 1.6%, well above the national average savings rate of 0.07%, according to the FDIC. Other digital-only banks unburdened by the cost of brick-and-mortar footprints, like Goldman Sachs' Marcus and Ally Financial, also both offer high-yield savings. While Chime doesn't currently offer direct lending products, it's been vocal about its ambitions to enter the credit side of the balance sheet. But the timelines are unclear. In March of 2018, Chime's CEO Chris Britt told Bankrate that it would launch lending products within the year. "Our initial efforts in the area have been focused on the short term lending segment, and more specifically, the overdraft fee epidemic facing our country," the Chime spokesperson said. Chime launched SpotMe in September last year. Customers who direct deposit at least $500 per month are typically able to overdraft their accounts up to $100. There is no interest applied to the overdrafts, which are repaid to Chime from the next payroll direct deposit. Users are offered the option to leave a tip to "pay it forward." "While we've publicly announced our intention to launch other credit and lending products, we'll focus next on helping our members improve their credit scores and will announce a new service in this area in the first half of 2020," the Chime spokesperson said. Neobanks are challenging legacy players' fee structures In addition to free overdrafts and getting your paycheck a couple days early, there are other features of these digital-only neobanks attracting customers. Across the board, they have leaned into fee transparency, and largely moved toward eliminating things like minimum balance and account maintenance fees. Incumbent retail players like JPMorgan and Bank of America both charge $35 for every overdraft, and $12 in monthly maintenance fees. According to Chime's website, the only fee it charges is $2.50 for out-of-network ATM withdrawals. N26 doesn't charge overdraft, maintenance, nor foreign transaction fees.Join the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America
UK startup Tessian raised $42 million from Sequoia using this 1 pitch deck slide — and it's just a photo of the founders in their London flat
London startup Tessian has raised funding from some of the biggest names in VC including Accel...London startup Tessian has raised funding from some of the biggest names in VC including Accel and Sequoia. The company's $42 million Series B earlier this year was partly successful because Sequoia Capital were impressed by Tessian's pitch deck and one slide of it in particular. "The grit of this team, the market opportunity in human-centric security and enthusiasm of their customers convinced us to invest," Matt Miller, a partner at Sequoia Capital, told Business Insider. Click here for more BI Prime stories. The picture shows two young men working on makeshift desks in their London flat. It was enough to grab the attention of one of Silicon Valley's biggest VC funds, Sequoia Capital who led the round for UK tech startup Tessian earlier this year. The pitch deck had many more slides in it, of course. But that one stuck out. "I loved this slide and the story behind it," Matt Miller, a partner at Sequoia Capital, told Business Insider. "The Tessian founders walked away from lucrative careers to pursue their passion of building a human-centric security company. That move and their early endurance showed grit and gave us insight into the types of people we'd be working with if we backed the company. The grit of this team, the market opportunity in human-centric security and enthusiasm of their customers convinced us to invest." Tessian has raised $58.7 million to-date and was founded by three university friends in London with the intention of making tech security more robust. Tessian's tech is designed to prevent accidental emails with confidential information to the wrong recipients, spearfishing, and other forms of fraud. Tessian calls the current email system "like driving a car without a seatbelt." The slide shows two of the company's founders, Ed Bishop (left) and Tom Adams (right) working on building Tessian in a small living room in their then flat in Hammersmith, West London where they lived. Alongside the regular offering to investors, London-based startup Tessian included a more personal view of life in a growing company in its $42 million Series B deck. Human error is a big part of cybersecurity It's estimated that companies will spend around $100 billion on cybersecurity this year, but they should be focusing on the human errors. 67% of organizations reported increases in impersonation fraud via email, according to Mimecast's State of Email Security report for 2019. Tessian hopes to cover those issues and has clients including Schroders, Man Group, Investec and Clyde & Co. The company wins clients by applying its AI-software to a six month period of company emails to work up a model of its security and then applies the findings to another six month period to demonstrate the number of instances of problematic leaks or security breaches to clients. Tessian has also secured funding from other major names in VC in London and San Francisco from Accel, LocalGlobe, and Balderton Capital. "We wanted to include something personal in the deck because it shows our journey from taking a risk to found a company to now securing great investors," Tessian CEO and cofounder Tim Sadler told Business Insider in an interview. Cofounders Edward Bishop, Thomas Adams, and Tim Sadler created Tessian (originally Check Recipient) in 2013. The company claims to have prevented countless numbers of instances of sensitive or confidential information being leaked using its AI-driven platform and will be extending its office network to San Francisco in the coming months. SEE ALSO: This CEO has a pitch-deck slide titled 'Why you shouldn't invest in us' that he says was a key draw for $140 million in VC funding Join the conversation about this story » NOW WATCH: The US women's national team dominates soccer, but here's why the US men's team sucks
Buzzy indoor cycling company Peloton has filed the paperwork to go public, giving the public a...Buzzy indoor cycling company Peloton has filed the paperwork to go public, giving the public a glimpse of how it makes money from its cycling hardware and subscriptions. The company sells connected exercise bikes and treadmills that start at $2,000, as well as membership subscriptions that give customers access to virtual fitness classes. Peloton put this subscription business front and centre of its IPO filing, describing its fitness programmes as "engaging-to-the-point-of-addicting" content. But it's pretty clear from the numbers that Peloton, at this stage, makes most of its money from hardware. It's hardware margins are actually more impressive than Apple's. Peloton's hardware margins were 44% in 2018, while Apple's are about 30%. Peloton, the startup that sells fancy connected treadmills and exercise bikes, has filed to go public — and it really wants investors to believe it's more than just a fitness equipment company. In a slide published in its IPO documents, filed on Tuesday, Peloton uses no less than 10 terms to describe itself, claiming it is a "technology, media, software, product, experience, fitness, design, retail, apparel, logistics" company. In his letter to investors, CEO John Foley goes even further and says the company "sells happiness." Peloton is probably best known for its fitness equipment, which starts at $2,000, but in its IPO documents the firm consistently highlights its "Members" — customers who pay for a Peloton subscription starting at $19.49. That subscription gives them access to "engaging-the-point-of-addicting" fitness classes and group workouts, as Peloton describes it. You don't necessarily need to own the connected treadmill or bike to access this content. Read more: Peloton, the buzzy exercise-bike startup that ignited the connected-fitness craze, has filed for an IPO and revealed spiraling losses The thinking here, presumably, is that Peloton is pitching itself as something akin to a "software-as-a-service" (SaaS) business, a model beloved by investors because it scales well, there's recurring revenue, and the margins are great. In Peloton's case, the idea is that people will keep paying upwards of $20 a month because they want good fitness content. They're probably only going to spend $2,000 on a bike once. Better, then, to play up those "Members" who are going to keep bringing in regular revenue. John Foley, Peloton's CEO, hinted as this thinking back in a 2017 interview with Axios. "For sure we're a software company," he said. "The entire leadership team comes from consumer Internet." Except Peloton's IPO numbers show that it is very much a hardware business. As noted by a number of observers on Twitter, Peloton has impressive hardware gross margins, the metric which shows how much money a company makes on a product after meeting the immediate costs. For its fiscal year 2018, Peloton reported a 44% gross margin on its Connected Fitness products, i.e. its bike and treadmill. That's more impressive than Apple, which famously has great margins on the iPhone. Apple reported a 35% gross margin on all its hardware for the nine months to 30 June 2019. Where Peloton is not quite as impressive, at least for now, is its content margins. For 2018, the firm reported a 43% gross margin. Apple's content margin is closer to 64%. In part, this is because it currently costs Peloton a reasonable chunk of money to produce all those fitness classes for its app and connected equipment — it lists studio rental costs, hiring instructors and music royalties as some of those costs. In its prospectus, the firm argues that these margins will improve and that its content business is scalable.SEE ALSO: The CEO of exercise-bike startup Peloton says the company 'sells happiness' in his big pitch to investors Join the conversation about this story » NOW WATCH: This company turns shredded plastic and clothing into new bottles for Pepsi, Evian, and Coca-Cola