Root Raises $350M

According to the WSJ, Root Insurance has raised $350m in a new round of funding that values the company at around $3.65b.

The round will be led by new investors Coatue Management and DST Global, and all of Root’s existing investors – Drive Capital, Redpoint Ventures, Ribbit Capital, Scale Venture Partners, and Tiger Global – also plan to participate. To date, Root has raised $527.5m.

Founded in 2015, Root is currently available in 28 states, reaching 60% of the US population.

https://twitter.com/scorpihooe/status/1160931174379937792?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1160931174379937792&ref_url=https%3A%2F%2Fpublish.twitter.com%2F%3Fquery%3Dhttps%253A%252F%252Ftwitter.com%252Fscorpihooe%252Fstatus%252F1160931174379937792%26widget%3DTweet

https://twitter.com/scorpihooe/status/1160950563716177921?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1160950563716177921&ref_url=https%3A%2F%2Fpublish.twitter.com%2F%3Fquery%3Dhttps%253A%252F%252Ftwitter.com%252Fscorpihooe%252Fstatus%252F1160950563716177921%26widget%3DTweet

So why did the midsize company with over 500 employees raise $527.5 million to date? Because investors don’t do enough research. Because insurance is all about price and Root delivers the message – possibly up to the point of renewal (see above). Because there are no monopolies in insurance. In fact, in 2018, Allstate (also see above) controlled 9.2% of the personal auto insurance market; making it the fourth largest personal auto insurance writer, following State Farm (17%), GEICO (13.4%) and Progressive (11%).

Now what? Well, now you can expect even more aggressive marketing tactics with the promise to save “up to 52%” but you should also keep an eye on Root’s improving loss ratio. Originally, those interested in Root’s insurance had to take the test drive and wait for a quote. Now, drivers can purchase coverage for 30 or 60 days while taking the test drive to later receive a rate based on how they drive. Before we get to the punch line, ask yourself this – why would a company that prides itself with only insuring people based on how they drive take a risk of offering temporary coverage while it assesses how people drive? Here’s our answer: Root is looking to improve their loss ratio and they discovered a clever way – offering short-term coverage in a period where drivers are at their best behavior. After the attractive initial quote, Root, in some cases, increases the premium, which causes the policyholder to look for cheap insurance elsewhere. The result? one-to-two months of premium where the risk level is low.

Bottom Line: In the top 6 or 5 insurance investment rounds, depending on whether you factor in Fair.com’s debt financing round.