Disrupting the insurance industry

Raise podcast

Hosted by Rich Adam, Managing Director, Technology Sector, Raise delves into the remarkable journeys of Canadian tech startups and their approach to successfully raising capital. 

Disrupting the insurance industry

Co-Founder and CEO of Cover, Karn Saroya walks PwC Tech and the Raise podcast through his Series B raise and how his company is disrupting the insurance industry.

Karn Saroya, CEO of Cover takes listeners on he and his Co-Founders’ journey from building an app that sold high-end fashion on a small screen that was acquired by Shopify, to building a nationally licensed insurance agency that allows you to insure anything you own by taking a photo with your smartphone. Karn provides insightful knowledge and lessons for fellow founders learned through Cover’s Series B raise.

Rich Adam: This podcast has been produced by PricewaterhouseCoopers LLP and is for informational purposes only. Content discussed is for general guidance on matters of interest and should not be taken as professional legal, business, or investment advice. Welcome to Raise, a new PwC podcast series where each episode showcases a Canadian tech entrepreneur and takes a deep dive into their fundraising stories. I'm your host, Rich Adam, managing director of the technology sector here at PwC Canada. Excited to have Karn Saroya, co-founder and CEO of Cover. Cover is a nationally licensed insurance brokerage offering coverage for just about anything you can capture on camera and they specialize in auto, renters, and home insurance. Cover is also a license-managed general agent in Texas, selling their own auto insurance with more states to come later this year. Today, Cover has raised $27 million US through its Seed, Series A, and Series B rounds. Welcome, Karn.

Karn Saroya: Thanks for having me.

Rich Adam: Let's talk about the background and the genesis of Cover overall. You've got four co-founders, two based in Toronto, two in San Francisco where you are currently based. And, this is the second venture for all four of you.

Karn Saroya: Yeah, we built a much sexier business. Prior to Cover, we built a company called Stylekick, which sold high-end fashion on a small screen. So, exclusively on native mobile, sold handbags and heels and couture. Launched that into 80 countries. It was translated into 14 languages. Got to about a million actives. And then, ended up at Shopify before starting Cover.

Rich Adam: The team was acqui-hired, if you would?

Karn Saroya: Yeah, Shopify absorbed the team. At that time, we met Craig Miller and Satish Kanwar, who are part of the Product Leadership team. I think Craig actually is a CPO now. And, they were looking to augment their capabilities in mobile, so doubling down on experimental marketplace apps, working on point of sale. And, we were probably one of the few teams in Toronto that had meaningful experience in scaling a consumer app to millions of people. It was a natural fit. We came from an E-commerce background. Obviously, Shopify is a huge E-commerce platform and we were lucky enough to work with some super smart people over there.

Rich Adam: But you made the decision. The four of you still had the entrepreneurial itch to build your own business.

Karn Saroya: Yeah.

Rich Adam: So, took your leave from Shopify.

Karn Saroya: Right, yeah.

Rich Adam: And, started up Cover.

Karn Saroya: Yeah and it was not a decision we took lightly. We had a lot of respect for Toby as a CEO. He's obviously turned that business into something that's absolutely remarkable, even from the time that we were there. We have a lot of respect for Craig and Satish as well, so it wasn't something we took lightly, but we did have the itch. We felt that we had a rare skillset of being able to build very elegant mobile apps and consumer-facing products and it kinda tuned ourselves to that particular skillset and being able to drive many people through these apps and make 'em happy. That is a rare skillset. And so, we were actively looking for a place or another vertical to apply that. It was largely an iterative process for us to get to Cover. We built lots of apps. In the interim, we built a lottery app that allowed foreign nationals, or attempted to build a lottery app that allowed foreign nationals to participate in things like the Powerball lottery. We explored healthcare, we explored entertainment. And, ultimately, Cover was another experiment. It was, what is a business with consumer scale, but SaaS-type economics? And, insurance is one of those few things that fits within the intersection of those. And so, it was a very quick back-of-the-envelop math to show the LTV to CAC dynamics and make lots of sense. And then, we looked at the competitive landscape on mobile and nobody at that time was building anything really meaningful, especially in Canada. When we were walking around from brokerage to brokerage, wondering how these major brokerages were spinning off so much cash and able to afford office space in the FiDi, next to private equity funds and consulting shops, it really didn't make much sense to us until we dove into the details of the business. And so, the first step for us to validate that we could actually build something in insurance was to launch a toy app. And, that toy app was a simple 48-hour build out where we had a couple of views. A preamble that said, take a picture of something you want to insure. It had a camera view that allowed a customer to take a picture of something that they wanted to insure. Launched it on the Canadian App Store as a test. Within three days, we were ranked number one for car insurance, home insurance, life insurance, every combination of insurance-related keyword terms, which was insane to use because we were ranking ahead of TD and Intact and all of these guys that are billion-dollar market caps. And, when we started seeing people send us pictures and videos of their cars or homes, cats, all sorts of crazy things. I say this a lot, but when you're building consumer products and you see something that violates your expectations, is usually when you double down. What we had just observed building this thing was something that no insurance executive on Earth had ever observed because they had never attempted something like this. And so, we pulled the app down and then built it up when we were admitted to Y Combinator as a national insurance agency.

Rich Adam: So, the four co-founders, Canadians, but you've split your business between San Francisco and Toronto.

Karn Saroya: Yeah.

Rich Adam: Talk me through a little bit about the decision making that went into that. Obviously, Silicon Valley and the proximity to that has gotta make things like fundraising, which certainly we're gonna jump into here shortly. But how did you want to be able to kinda split the business and how have you organized it between a number of employees in each location?

Karn Saroya: So, we're about 130 employees now. And so, it all harked back to the decisions that we made, from finishing YC, raising some money, and deciding how we wanted to structure ourselves geographically. We actually didn't open our Toronto office, I think, for the first year and a half of our business. I was a proponent of this particular philosophy, but I think I've kind of loosened up on it. I've always been a proponent that you should be in the Bay Area, through product-market fit. And, the network access that's afforded to you in the Bay Area is 1,000 X greater than what you would be able to garner anywhere else. And then, once you've hit product-market fit and you're ready to scale, it doesn't really matter where you are. I've kind of loosened up on this. I think that you can find product-market fit now not to be in the Bay Area and still be able to fundraise, but the bar is still higher, from a relationship management, relationship-building perspective, to continue to fundraise and be relevant and top of mind. So, when we started, it was, hey, we tried building a business in Toronto. Capital is relatively scarce. Folks couldn't really fund consumer businesses when we were in Toronto, and so it made it harder for us, generally speaking. Folks fund consumer businesses all the time in the Bay Area, especially businesses with SaaS-type economics. And so, we were like, okay, well, let's bet on the Bay Area. We've got the cash. Fine, our burn is going to be accelerated a little bit, but the dividends will be there. And then, the next inflection point was actually post product-market fit. People pay us for what we sell. We sell insurance, we sell an elegant onboarding, excellent customer service, extensibility into every other policy that you want to buy, and it is best in class, in my opinion. And so, we looked at that, we're like, okay, well, we know the Toronto market really well. If we launch an office in Toronto, we have a ready-made kernel of folks who are high-caliber that we can bring in immediately and have those folks kick off this virtuous cycle of continuous high-caliber current. And so, it was a concerted decision to do that by moving on Anand here, who is our CTO, and kicking off that process. And so, to give you a sense of the split between the two offices, in San Francisco, we have insurance product management, we have insurance sales, insurance operations, sales engineering that's associated with automation on the sales front. And then, in Toronto, actually, a lot of our infrastructure work happens. We built the rails of a modern insurance company, had been in Toronto. It's extensible anywhere in the world. We can sell an intangible thing, trust, anywhere in the world, based on what we've built here. Our client-facing apps, our consumer apps, are built here. Our design and growth teams are based here.

Rich Adam: Was the vision for Cover to always be a venture-backed business? As a scaling B to C business, it's almost the requirement, but was that always the outset?

Karn Saroya: Yeah, look, there are tons of insurance brokerages. There are tons that spin off lots of cash that have compounded over decades and decades and built up books of business that do this. I think we would be less excited by that prospect. Speed, elegant products, differentiation fundamentally changing how you buy a thing that backstops most of the risks that you face in life, that was more compelling to us. And, it was very hard for us to see how we could do that quickly without raising venture.

Rich Adam: Interesting, without raising venture.

Karn Saroya: Without raising venture. Yeah, I think it would've been impossible for us to even get to a hundredth of the progress that we've made thus far without having done so.

Rich Adam: Okay, so take us through the most recent round, the Series B round, $16 million US. Talk to us about how it came together. How did you attract and choose the investors that you did? One thing that we hear from founders all the time is that you don't meet somebody and get a check in that first meeting. It's about building up a relationship. It's building trust.

Karn Saroya: Yeah, that almost never happens, unless is a very compelling deal and there's a lot of FOMO around it. Sometimes, it'll happen, but, for the most part, it is a relationship business. We made a concerted effort post Seed Round to be very clear about what KPIs we were driving towards, as we were looking to raise our Series A, what sustainable growth looked like. And, all we wanted to do was, we did simple things, like keep people on an investor email and abreast of the progress, what we were working towards, what our capital position was. And then, at one point or another, one of these investor updates just happened to mention that we were raising a Series A and that we would open up a process that is two weeks long and we would be taking partner meetings this Monday and the following Monday and we'd close it. We had set ourselves up in a situation and people were familiar with us. They understood what we were building. They knew that we could execute. And, they also knew who they were competing against as part of this deal, which is as clean as you can get it. And so, we raised our Series A in 2.5 weeks just using that format. And then, you do that, you meet a lot of people and whether they participate in your round or not, you're gonna get lots of nos. But you still need to be in the mode of, hey, what are the numbers that I really need to hit? What's important to this business and to keep us a going concern? And, you keep people in the loop. And, if you keep 'em in the loop, one, it's no longer a cold start for them to have to explain it to their partnership. It gives 'em an opportunity to build a thesis around what you're doing and build some conviction moving into the next round.

Rich Adam: So, what was that period of time from when you started your email communication, to the investor base that you had started to build out a relationship with, to when you just so happened to mention that you were planning on raising a Series A?

Karn Saroya: Well, I think we've been raising at one year cadences so far.

Rich Adam: Okay, so a year's worth of relationship building over that type of communication, possibly adding new investors to it as you met them or they called upon you?

Karn Saroya: Yeah. We've added new investors every round. And, I think we had something like six tier one VCs in our Seed Round. That's a good Seed.

Rich Adam: That's a very good seed.

Karn Saroya: That's a good seed 'cause you have a lot of bidders on the Series A. And then, so on and so forth. So, it ends up being, now, some of these funds I've known for as long as I've been in the Bay Area.

Rich Adam: The due diligence factor and as you go from Angel, who is really just basically investing in you and your co-founders, to Seed, which is more of a concept and an idea, A, you've got the next round of diligence. You've done a Series B. The questions get a little harder. The scrutiny over numbers and things get a little bit greater. And, talk us through that a little bit, in terms of how you see that shift as you've gone through from series to series.

Karn Saroya: It's along the spectrum of underwriting a founder and the market and the approach to that market and quantitative diligence and how you're stacking up against the metrics that they would be, investors at the growth stages would be looking to underwrite.

Rich Adam: I like your use of underwriting. You get the insurance industry just coming through.

Karn Saroya: The very early days, the Bay Area's more like this and I think Toronto's starting to get there, you are placing a bet on a founder or a founding team and the potential business that they could build. And so, the conversations that we had post YC, we raised about three million bucks over the course of a week and a half or two weeks, something to that effect. Some of those were longer running conversations with larger institutional investors that were writing larger checks and wanted a position for the Series A. But there were a lot of 100K to 250K tickets that were 15-minute conversations. And, it was, hey, we know what you've accomplished in the past. We actually are super bullish on this particular space. We think your founding team is great. And, off we go. That doesn't happen as much at the A, the B. You can certainly get term sheets that are preemptive if there is somebody out there that has built the conviction around your business and your space and wants to be part of the journey. But it starts to tilt towards, hey, what is it you're growing exactly? Is it top line, is it some other metric? How correlated is that with you continuing to be a going concern? And, how does that pair up with the other vintages and the universe of other deals that someone with deal flow access would consider? And so, increasingly, you're thinking about all of the output. Your board decks as being, effectively, literature. That painted picture, this tapestry of where your business is going. And, you yourself need to be compelling with the narrative and understand the numbers down pat, but all of the literature you produce, in conjunction with you building your business, needs to convey that as well. And then, so going through the A, the B, C, and beyond, it comes down to, hey, what are the basic KPIs? Things like payback period start to matter. Underwriting losses, or profits, in our specific case, matter. A path to a significantly-sized business. And, how you underwrite $1 billion exit, or a $10 billion exit, needs to come into focus.

Rich Adam: How far up the curve did you have to bring you and your team in preparing for that? Obviously, this business has gone further than your previous business, and so you're kind of really building new muscles, if you will, in a lot of ways.

Karn Saroya: But I think it's actually not all that different from what we've been doing for the, building businesses for the last six years. It is coming up to speed on something you're relatively unfamiliar with really, really quickly, making a judgment call, and executing on that. There isn't really much opportunity to waffle. So, what was nice is, we were part of this ecosystem of folks that have scaled businesses, and so we had very early investors. Some of the Angel checks that came into Cover are folks who built multi-billion dollar businesses and are now billionaires and have gone the fires of startup hell and then came out on the other side relatively unscathed, or at least I think unscathed. That was instructive, that was super helpful for me framing my approach and setting my own bar for expectations when it came to intermittent fundraising.

Rich Adam: One of the things that we always seem to come back to when people talk about being able to really have their choice of investment partners is that they're looking for things more than just the capital, more than the money. And, you talk about some of the people, even at the Angel rounds where they've been through the fires and they have come out seemingly unscathed. And so, when you're picking your partnerships, how do you evaluate those things? Assuming that the capital will all kind of net out, how do you make some of those decisions?

Karn Saroya: So, at the very early stages, what I optimized for were operators, prior operators who had built things, generated a dollar revenue, acquired a customer, built a product. Whether they failed or succeeded, I find their war stories instructive. They don't necessarily map one to one with what we're doing, but it is useful framing. And, those conversations are always amazing because you can be candid. There is no fluff. You get right to the point. Moving forward, and I think what you see is part of the evolution of the growth stage venture ecosystem is folks need, because the world is kind of a wash in money right now. I don't know what it's gonna look like over the course of the next year or so. But, right now, it's a wash in money. And so, to differentiate yourself, you've gotta invest in taking a position on certain things through your think pieces. But you also have to invest in taking your fund and building a platform on top of it. And so, whether that is assistance in executive hiring, whether that is helping you prepare for future fundraisers and helping you frame what that is, whether that's quite literally, in the case of Social Capital, when we didn't have, they funded our Series A when we were four people working in an apartment in San Francisco. We didn't have BizOps. We didn't have any of the other functions that were necessary for us to continue to scale, but if you have the privilege, benefit of having funded multiple businesses that have scale and achieve billion-dollar evaluations and beyond, then you know what these companies are gonna need to have to put in place. And so, very quickly embedded in FTE for growth, embedded in FTE for BizOps and helped us scale those functions and pulled those people away, continue to help as a hire. And so, differentiation is starting to happen and I think Social Capital and Resen were amongst the first to start to do that.

Rich Adam: As you mentioned, Social Capital, Tribe, number of different investors that you've had through the different rounds. You have no Canadian VCs on your cap table.

Karn Saroya: Yeah.

Rich Adam: Love to get a little bit of feedback, in terms of, do you have any relationships with the Canadian VCs? Was it a conscious decision not to take Canadian VC money? And, a little bit of that dynamic on both sides of the border.

Karn Saroya: The Canadian VC ecosystem is an order of magnitude better than it was six, seven years ago. The folks who are running these funds, whether it's Georgian, Inovia, I think Portage, have the specific sector focus, they're sophisticated. If they don't have operators on board, they find operators to be on board. So, there is much more depth now as part of this ecosystem and it's to the benefit of Canadian entrepreneurs who are looking for capital locally. When we were fundraising for Cover, we never really got to the point where we needed to go talk to Canadian VCs. There were certainly folks that were coming to YC Demo Day, like Matt Golden, from Golden Ventures, and Boris Schwartz. And, like anything else in a competitive market for capital, these things go really, really quickly. And, I actually relish the opportunity to work with a Canadian VC. So, I actually relish the opportunity to launch a Canadian insurance company at some point. And so, it was different back then. I think it is way, way better now and I think you've got more sophistication that's happening all the way from Seed through growth in Canada.

Rich Adam: We certainly are seeing that in the numbers from this past quarter. Record-breaking numbers of investments. Can you talk a little bit about what you've learned, both between Stylekick and now Cover and the various rounds of raising that you've done, what you've learned around board governance and how you structure your board?

Karn Saroya: I don't think I've nailed this yet. The board is three of our co-founders and Arjun Sethi, who's a GP at Tribe. And so, actually Arjun's been our only other board member from Series A through now. My expectation though is that we probably will add at least one independent with domain expertise in insurance. One of the things that folks tend to undervalue when they're building software on top of an industry is how useful that actually is. There is a naivety to be like, oh yeah, I'll go figure out how to build an insurance company without ever having worked in insurance. And, I actually did that. I'd present myself top insurance product manager. I got a program launched in Texas without knowing anything on insurance. But would things have gone a lot faster if we had some folks around the table to point out some of the pitfalls that we should've anticipated having that skillset there? Absolutely. So, an independent, whether it's from financial services in tech or insurance, I think is super important for us. And then, we'll likely add at least one more board member as part of our next raise.

Rich Adam: What would you say yourself, as CEO, and your fellow co-founders have learned through the Series B at least?

Karn Saroya: It's amazing how quickly your job changes. You're starting off, you're a couple of people working on a thing and trying to find the nugget of value that you're trying to build and compound on top of. And then, all of a sudden, you're a manager. And then, you're a manager of managers. And, the surface area of the things that you do has to continuously narrow. Otherwise, you end up being a rate limiter to just about everything else that happens at the company. I very quickly realized that at some point or another, outside of some product thinking that I do, I'm largely a salesperson. I fundraise, I hire, for the most part. I position ourselves and I talk the company through the narrative and the potential arc of the business. It is largely sales for me. We have become accustomed and accepting of that. And then, everyone else, whether you start as a CTO or a VP product, has to scale into that as well.

Rich Adam: Yeah, without question, people sometimes think sales is a dirty word and they've got used car salesman connotations that go with it or something, but anybody who elevates themselves through any organization has to realize that they become a spokesperson for that company.

Karn Saroya: That's not to say that there isn't merit in having a very detailed mental model of what is going on with your business and what the primary levers are that move your business forward. I think that's fundamental. And, I think that having keen product sense is also important, but yes. If you're in college right now and you're considering what to do, the pecking order for me would be engineering or a computer science discipline first. And, if barring that, you should learn how to sell because you will be selling your entire life.

Rich Adam: Great advice. Well, with that, let's jump into the rapid fire questions.

Karn Saroya: Sure.

Rich Adam: What is your go-to resource for all things fundraising?

Karn Saroya: Other existing investors and other entrepreneurs.

Rich Adam: What was your biggest learning from your most recent fundraising experience to date?

Karn Saroya: Sure, you want to keep things very tight and not let them run on. What's valuable is getting to a yes or a no, so that you can recalibrate and adjust your strategy.

Rich Adam: Run a tight process basically, right?

Karn Saroya: Yes.

Rich Adam: What would you do differently if you were to either redo the process or do another round in the near future?

Karn Saroya: I would've paced our capital raises differently. We probably raised too much too early and raised a little less than we should have at the growth stage. So, the most dilutive events for any entrepreneur are gonna be the Seed and Series A. Not to say that we did badly, but we probably had more cash on hand than we needed.

Rich Adam: Interesting, so what advice would you share with your peers or fellow founders who are looking to raise.

Karn Saroya: Think about what you need and double it. That's probably okay, don't triple it.

Rich Adam: Great stuff. Anything else you'd want to share with listeners?

Karn Saroya: Yeah, I think, specifically, this is a Canadian founder-focused conversation. If there are folks that are out there thinking about how to run a process, you should reach out to me. It's just karn@cover.com. I'm super helpful with this and I tend to invest in Canadians as well. That's my own plug. But, yeah, otherwise, I think it's a good time to be raising, so go out and do your thing.

Rich Adam: Thanks very much, Karn. Appreciate your time today. All the best to you, your co-founders, and the entire Cover team and look forward to seeing you guys continue to grow and scale.

Karn Saroya: Thanks so much for having me. I appreciate it.

Rich Adam: Thanks for listening to Raise. You can get more details at pwc.com/ca/raise. If you enjoyed this episode and wanted to hear more, please subscribe on iTunes, Google Play, or your preferred podcast platform. Until the next time.

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