Foxe Capital’s Blader: ‘A lot of interesting’ firms built during ‘hype cycles’ amid AI boom

By James Thaler

June 20 - (The Insurer) - Foxe Capital managing partner Ruth Foxe Blader has said that strong businesses are built during “hype cycles”, while lauding the amount of capital that AI is attracting to insurtech.

Speaking to The Insurer TV on the sidelines of this month’s Insurtech Insights USA event in New York City, Blader said that regardless of the investment cycle, she is always looking for businesses that “fundamentally change industries”.

“First of all, lots of interesting things get built during hype cycles. So I don't actually care if people throw a lot of money at AI indiscriminately,” said Blader.

“As an investor, I think that that can yield very rapid and transformational innovation,” she commented.

“I don't want to throw money at the wrong opportunities. And so, when we think about things, we look (at), ‘Is this just (a) wraparound an LLM, how much does the application layer stand to generate in terms of demonstrable value?’

“I think one of the things that we're seeing in artificial intelligence in other industries, which will definitely impact the insurance industry, is that it can be very easy to acquire customers, and it can be very easy to lose customers,” Blader explained.

“Because the moat is just not that big if you're building on a level-one LLM which is not your own,” she added.

Blader described the AI boom as “a technological moment which is going to fundamentally transform society”.

“And so, we're thinking in the context of every investment,” she said.

Blader added that in the last five years she has been focused on helping founders “retain optionality in terms of exits and be very, very conscious of paid-in-capital".

“What that means in the insurance space particularly is sometimes we're building enterprise (software-as-a-service) companies, and those multiples are very well known,” she explained. “But sometimes we're thinking about things like brokers and MGAs, and those multiples are well known too.

“And so, helping founders think about the exit multiple, the exit valuation from the very beginning, and targeting an outcome which is going to be beneficial – both to my LPs and also to the founder – is something that we can craft in the context of the current macro narrative,” she said.

SERIES B THROUGH D 'VERY, VERY DIFFICULT'

Discussing funding, Blader said the environment for Series B through D companies is “very, very difficult".

“If you haven't reached the requisite KPIs to successfully raise your next round quickly from good investors, if you're not on a path to profitability and you're not at a scale which could be potentially interesting to an acquirer, I think there's going to be a lot of tears,” she commented.

Blader noted that broad-based market corrections mean that funding contractions happen “across the board".

“So it's very difficult to cherry-pick specific assets unless that asset has differentiated itself in terms of the underlying unit economics of the business,” Blader said.

“This particular cycle was really marked by the ability for companies to raise significant amounts of capital at high valuations before they establish product-market fit,” she continued. “And product-market fit is the first fundamental of a venture business, then you have to figure out distribution – there's still a lot of stuff to figure out.

“Even if you can get customers to buy your product, and you can get them to buy your product efficiently, there's still a tremendous amount of … work on the unit economics.”

Blader also noted that incumbent competitors in industries like insurance and financial services have “massive advantages in terms of balance sheets, cost of capital (and) access to markets".

“So, it's going to be an uphill climb, and I think that there will be a combination of companies going out of business, being acquired (and) not very successful acquisitions,” she said.

“Some will make it through, and will just tighten their belts and figure out how to run efficient businesses and be successful. We'll see the whole range of the Tolstoy (quote that) all unhappy families are unhappy for different reasons,” she added.