Stack Capital has invested $8 million USD into preferred shares of Newfront Insurance, Inc. (“Newfront”), a leading provider of insurance, retirement solutions, and employee benefits. Recently recognized as the winner of the 6th Annual Fintech Breakthrough Awards program for 2022, and member of the Forbes Fintech 50 list for 2021, Newfront is modernizing the insurance and benefits business through its innovative software-driven platform.
For the most part, the insurance and benefits brokerage industry can be characterized by old-school workflows and processes that have failed to keep up with new technology, which has resulted in lower productivity. This is precisely the opportunity for Newfront, as it brings an updated technology platform to an otherwise out-dated industry.
Newfront is revolutionizing the insurance and benefits brokerage business by delivering a better experience for customers and, at the same time, providing insurance professionals with the necessary tools to enhance productivity. In fact, insurance professionals on the Newfront platform have benefitted from growth in average book size that is 2x the industry average.
THE EVOLUTION OF NEWFRONT
Originally, Newfront started out as a business at Y Combinator (a renowned California-based accelerator), and its objective was to modernize the insurance and benefits brokerage businesses serving the US market. Over time, it built a great technology suite that was designed specifically to give insurance professionals the tools to become more efficient.
The company graduated from Y Combinator a couple of years ago and although it was on a strong growth trajectory at the time, the Newfront management team quickly realized that its technology platform was superior and more streamlined than many of the other large industry players and decided that getting on the fast track to scale would be the most prudent way to grow the business. To that end, Newfront merged with ABD Insurance and Financial Services in July 2021, a transaction which married the best in-class technology platform in the industry with an already established, high-end brokerage business. Today, Newfront employs over 750 individuals, and its client list includes some of silicon valley’s top firms.
WHAT MAKES NEWFRONT UNIQUE
While many new start-up companies within the insurance and benefits industry have been built specifically to displace the insurance professional (the B2C route), Newfront has instead chosen to ‘partner’ with these professionals, who collectively account for an estimated 98% of the market. By building a technology platform from the ground up, Newfront has created a solution that provides customers with a better experience and insurance professionals with the necessary tools to increase productivity.
By virtue of being a graduate of Y Combinator, Newfront has a strategic competitive advantage over its peers due in large part to its entrepreneurial spirit. In its early days, Newfront, as the ‘new kid on the block’, focused most of its time and resources on winning the business of smaller tech organizations that traditionally had been under-served by the larger insurance and benefits providers.
As it turns out, this approach worked out very well and has put Newfront in a great position today as some of the fastest growing tech and healthcare tech companies are already clients. Being able to grow alongside its hyper-growth-oriented clientele is a distinct advantage for Newfront and is especially important given that the insurance and benefits business is extremely ‘sticky’, with customers staying in place over extended periods of time. For example, Newfront may have started off providing an insurance and benefits solution to a $20 million market cap business; over time, that same business may have grown into a much larger entity – $200 million perhaps - which is a boon for Newfront. One last point to consider concerning the brokerage business - Newfront takes no underwriting risk on its books. If, for whatever reason, one of its clients is unhappy with the underlying product, it can easily switch carriers to another plan.
COMPELLING INVESTMENT OPPORTUNITY
We were initially attracted to the Newfront opportunity based on our prior knowledge and experience with People Corporation, a Canadian-based peer that we were very familiar with from our time managing capital in the public markets. We’ve taken all that we learned from our experience with People Corporation and applied it to our analysis of Newfront; for the record, People Corporation was acquired by the Goldman Sachs Merchant Banking Division in 2020 for over $1 billion (CAD); interestingly enough, Goldman Sachs was also the lead in Newfront’s latest financing round.
With over $250 billion worth of market capitalization across established industry players such as AON, Marsh, and Willis Tower Watson, Newfront has a large addressable market to tackle and its modern platform, which marries the ‘old-world’ insurance brokerage business with new technology to help drive efficiencies, is perfectly suited to win market share. Newfront has been organically expanding at a rapid pace, in addition to new insurance professionals becoming part of its platform on a regular basis. The appeal for insurance and benefits professionals is obvious; not only do they gain access to higher-end technology that is beneficial to clients, but they also gain from better tools and processes to enhance productivity. This is precisely why Newfront insurance professionals have been able to generate average book growth that is 2x the industry average. As a final point of differentiation, the ability for Newfront to provide employees with equity compensation serves as another advantage to help attract talent and galvanizes the entire organization towards a common goal of growing the business.
Given the recent volatility across financial markets over the past several months, and the noted shift by investors from a world of ‘growth at any price’ to one of ‘growth at a reasonable price’, it is comforting that Newfront falls into the latter category and exemplifies a company that lives within its means. Not only is Newfront already operating profitably, but it’s also taking some of those dollars and reinvesting them back into the business. Furthermore, Newfront has contracts in place with built-in inflation adjusters to help preserve future revenue growth and mitigate the impact of today’s inflationary environment.
In conclusion, we believe that Newfront represents an extremely attractive investment opportunity given that it’s already profitable, possesses a high growth rate, and has already established a very ‘sticky’ existing revenue base. We’re also very pleased to participate in Newfront’s Series D financing alongside other prominent investors such as Goldman Sachs, B Capital, Susa Ventures, Y Combinator, Index Ventures and Tony Xu (CEO of Doordash).
With an organization and platform that constantly strives to increase efficiencies, Newfront is well-positioned to continue building on its role as a modern insurance and benefits provider and we are confident that the company is poised to capitalize on a significant market opportunity in the coming years.
Leader in the modernization of the insurance & benefits business
· Innovative technology platform for insurance & benefits professionals that delivers the necessary tools for them to become more efficient and productive
· Business model ‘partners’ with insurance & benefits professionals, as opposed to displacing them
· Insurance professionals currently on the platform have benefitted from growth in average book size that 2x the industry average
· Over 750 employees; some of silicon valley’s top businesses are already clients
Large Market Opportunity
· Over $250 billion worth of market capitalization across key industry players such as AON, Marsh, and Willis Towers Watson
· Highly fragmented industry – Newfront is perfectly positioned to win market share as its platform successfully marries the ‘old-world’ insurance brokerage business with new technology
· Ability to quickly scale alongside its existing tech & health-tech clients, in addition to acquisitions
Attractive Growth Profile
· Already profitable
· Growth rate that significantly exceeds the industry average
· Sizable and established client base, which is extremely 'sticky' and offers organic growth potential
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