The Struggles of Vouch

In September 2019, Vouch Insurance formally launched to serve startups with “proprietary” insurance products and risk assessment tools. The startup announced $24.5 million in funding at launch, and two months later it raised another $45 million. Some of its backers and partners include startup magnets Silicon Valley Bank and Y Combinator. “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, then CEO of Silicon Valley Bank. “We are excited to make this investment and partner and support the Vouch team as it delivers insurance products to startups in the U.S.”

Recently, we said that if the consumer pain point isn’t big enough, companies will need to go to great lengths to potentially build a significant business. If Becker had spent the summer of 2019 with Travis Hedge, he would have been exhausted, not excited.

Hedge, the mastermind behind Vouch, spent the entire summer of 2019 living in a hotel in Lehi, Utah going up and down I-15 to meet startups and entrepreneurs. “There was a coworking space in Lehi where I would just go door to door. They probably got really sick of me asking about their insurance,” Hedge shared in a podcast. His efforts paid off and Vouch’s first client, a Utah-based crypto tax and compliance startup by the name of Taxbit, was secured during a meeting at a restaurant. “They didn’t need to switch insurance providers, but they did because they wanted to help out a fellow startup trying to get off the ground,” he shared.

Shortly after, Hedge told his co-founder and CEO Sam Hodges that they’ll be able to close ten more clients in a week; it ended up taking three. “In the first six weeks, we had one week where we didn’t sell a single policy,” Travis shared, “and that really forced you to look in the mirror: ‘Are we doing the right things? Pursuing the right strategies?'” This reflection inspired the team to work harder.

It took Vouch 3-4 months to reach 100 clients with a little help from SVB, which sent out an email to its customer base when the startup launched in California. After two years, Vouch attracted over 1,600 clients, and today, four and a half years since launching, it serves more than 4,000 businesses. Without a doubt, Vouch is off the ground, and according to our sources, the startup generated $60-$70 million in written premiums so far. However, Vouch is struggling on several fronts and one indication is that after raising ~$160 million between 2019-2021 and fetching a $550 million valuation, the startup had to settle for a $25 million capital injection led by Ribbit Capital, its largest shareholder with a 32% stake.

Late last year, Vouch, which is not profitable, made cuts that impacted ~25 employees, about 12% of the workforce. We reached out to the startup and received the following statement: “2023 ended up being a very strong year for Vouch; we grew GWP and topline about 60% YoY with strong underwriting performance (in-line with our and our reinsurance partner’s loss expectations). We also made a lot of headway on insurance product innovation (AI launch) and channel diversification (IMA Financial partnership). We did restructure a few of our teams last year and as a result of that we eliminated a few roles that no longer mapped to how we plan to expand the business, but overall we expect to continue growing headcount this year.”

In our conversations with Vouch sources, we were told that this statement is not in line with the messaging employees received in the weeks leading up to the layoffs, including in the bi-weekly all-hands meetings. For example, employees were told that the company was over $1 million behind its premium goal for Q3 2023.

When Vouch entered the market, it made it clear that it was looking to offer something different. The launch press release included “a new kind of insurance company” and Vouch stated that it is an insurance company, not a broker, adding that its “proprietary policies” were backed by Munich Re. Hodges provided some more color in a comment on YC’s website: “We are an insurance program manager (or “MGA” in insurance speak), and our insurance programs are back-stopped by Munich Re, one of the largest re-insurers in the world. We very purposefully didn’t set the company up as [a] traditional broker, because then we’d be reliant on a bunch of old-fashioned and off-line partners, which would undermine the experience we’re trying to create for our clients.”

In 2021, Vouch took a step further and alongside its MGA operations it launched a licensed carrier, Vouch Insurance Company. “[Vouch] is now the only business insurance provider for startups that has its own insurance carrier,” Hodges told TechCrunch. “This capability means we have a lot of control over how we build and underwrite our policies – which translates into superior coverage and a better experience for our clients.” Vouch Insurance Company began assuming risk in July 2021 through a reinsurance arrangement with State National Insurance Company and its subsidiary United Specialty Insurance Company, which offer fronting services for Vouch’s MGA operations. The carrier reported $10.6 million in premiums last year, compared to $8.7 million in 2022.

On paper, Vouch’s Silicon Valley roots and promise to offer something different seemed promising. But in reality, insurance is rarely considered different, and it rarely blossoms. “They are great at writing series A funded startups but once they grow the MGU pricing is out of whack,” a Vouch source shared. “Value to larger companies to work with Vouch is the access to proprietary paper. When that paper is unavailable or uncompetitive, doing business with Vouch loses its luster.”

One of the main themes that came up in our conversations with company sources is the relatively high rates Vouch advisors faced when trying to sell through the MGA. It’s unclear why the rates were higher – some mentioned inexperienced underwriters while others suggested that Vouch was limited by its reinsurance partners. We were also told that Vouch emphasized good underwriting. Regardless, Vouch ended up launching a brokerage solution that relies on a bunch of old-fashioned and off-line partners. For a while, Vouch communicated to employees to only use the brokerage channel when there’s a clear client need. Later, the startup told employees to place clients with other carriers if it means saving deals. Eventually, choosing between the MGA and brokerage turned into a free-for-all.

But Vouch’s biggest challenge isn’t underwriting, it’s distribution. Every Vouch source we spoke with said that the inflow of leads was not enough. However, for an extended period, certain Vouch leaders believed that if employees would simply work harder, they’d close more accounts. Vouch’s distribution is made up of several channels – partnerships, events, cold outreach, digital marketing, and now, independent agents. Before SVB’s collapse, the bank, which served over 40k customers and nearly half of all US venture-backed tech startups, was Vouch’s top referral partner from a volume standpoint. The startup would pay SVB bankers for every referral that turned into a client, but the volume and quality of referrals driven by the bank were not satisfactory according to Vouch sources. Today, YC is Vouch’s largest referral partner and that means younger startups with lower premiums.

To try to increase the flow of leads, Vouch is very active in the events space. The startup recently held a private fintech dinner for fintech founders who raised at least $20 million, and a month ago it hosted six events in one day. “It was pretty common for Vouch to sponsor a tech or startup event for $10k,” a Vouch source shared. “We were throwing a lot of happy hours and dinners as well – one to two a week.” Many of these events produced poor ROI and this added effort didn’t always translate to greater loyalty. “Renewing clients would ask us to bind with other carriers over Vouch for marginal differences in price,” a source shared. Based on information found on LinkedIn, one former Vouch employee managed 80+ events in one year across the country.

Lately, Vouch has put more emphasis on ROI for events, but it wasn’t translated into numbers. The startup is also focusing on higher premium numbers compared to just closing more accounts in the early days, and last year, it launched Vouch Horizon, “a tailored insurance offering” for Series B to IPO startups. One component of the new offering is brokerage access to a “curated marketplace of technology-focused insurance carriers.” Several Vouch sources were not thrilled about the new focus. “We’re now another Embroker,” multiple individuals have told me. Another source believes that Vouch should not go after larger startups since it has nothing unique to offer. ”Vouch had no business going after larger startups and should have chosen to grow with the base of early stage startups it serves instead.”

Offering insurance to larger and more established companies is no walk in the park and so far, Vouch hasn’t found a winning formula. “We’re going after companies that already have insurance and a relationship with a broker,” a Vouch source shared. And Vouch isn’t competing with the average insurance broker – it is going against Aon and Marsh, among others. Trying to tackle this segment with strictly W-2 sales employees with a generous base salary is not enough and that is one reason why Vouch announced a partnership with IMA Financial, which has become the first insurance broker to distribute the startup’s coverages. In a LinkedIn post announcing the partnership, Hedge said that since launching hundreds of brokers reached out seeking to distribute its products. While that may be true, Vouch needs brokers more than brokers need Vouch.

The growing focus on larger tech companies and seeking independent agents will help Vouch increase premiums, but winning over companies with more established operations and insurance relationships will be a challenging and time-consuming adventure. The challenge is even greater considering the overall startup landscape and collapse of SVB, which was viewed by some at Vouch as a potential acquirer. Regardless of what the future holds for Vouch, the brokerage unit and the recent launch into the agency channel are turning this “new kind of insurance company” into a traditional insurance company with a non-traditional valuation.