Summary List Placement
When Hippo cofounder and CEO Assaf Wand considered taking his insurtech public, he didn’t know whether to pursue a traditional IPO or explore a merger with a special purpose acquisition company, or SPAC.
But the choice quickly became clear when two of the biggest names in tech, LinkedIn cofounder Reid Hoffman and Zynga founder Mark Pincus, entered the picture with their SPAC.
The chance to work with Hoffman and Pincus was like a basketball fan being asked by Michael Jordan to play on his team, Wand said.
“When we had this opportunity, you’re partnering with your idol,” he told Insider.
On Thursday, Palo Alto-based Hippo announced its intention to go public in a blank-check deal that values the tech startup at $5 billion. The home insurance company will merge with Reinvent Technology Partners Z, a SPAC raised by Hoffman and Pincus that went public last November.
The SPAC market has exploded over the past 12 months. More than $73 billion has been raised by SPACs through the first three months of this year, according to SPAC Insider. This comes after a banner 2020 for the market that saw a total of $83 billion raised across 248 SPACs.
But not everyone is enthused about what the sheer volume of SPAC activity might mean for average investors left holding falling shares long after hedge funds have taken their early gains in the deals, as Insider recently reported.
“We were very skeptical on SPACs at the beginning when we started the process,” Wand said. But “we started drilling into this thing and found that it’s actually very interesting and fascinating. It’s not about SPACs. It’s about specific SPACs, it’s about specific partners.”
Hippo looks to differentiate itself from more traditional competitors like State Farm, Allstate and USAA — carriers that collectively handle about a third of the entire market — by using technology like aerial imagery throughout its underwriting process. It also provides a line of smart home devices that alert homeowners to potential insurance risks.
‘We didn’t do a SPAC-off’
Hippo met with “very, very few” investors before the partnership with Reinvent Technology Partners came to fruition, Wand said. “We didn’t do a SPAC-off.”
Instead, Wand and Hoffman initially met through Hippo’s existing network of private investors, a spokesperson for Hippo said.
While Wand said that most of the official conversations that began around last December and early January were conducted virtually, his preference for in-person meetings led him to track down Pincus in Aspen, Colorado, where the two had a socially-distanced lunch meeting to discuss the deal.
SPAC sponsors have been a major selling point of the market. In a blank-check deal, a private company goes public by merging with a publicly-traded shell company, many of which have been raised and led by high-profile people in their respective industry.
The past year has seen a laundry list of SPACs sponsored by well-known people, including everyone from hedge-fund billionaire Bill Ackman to former NFL star Colin Kaepernick.
And while Wand said the deal wasn’t solely about raising capital — Hippo has previously raised a total of $709 million — the merger will mean the company sees about $1.2 billion in extra cash. The deal includes $550 million in private investments from participants including Dragoneer Investment Group and Lennar Corp.
But the extra capital doesn’t necessarily mean Hippo will look to continue a series of acquisitions that saw the company buy Spinnaker Insurance in September, its largest carrier insurance partner, and Sheltr, a tech-enabled home maintenance platform, in 2019.
“We’re constantly looking at what’s going on because it is interesting, but we need to get ourselves to a very high level of conviction and really strong alignment with the team and find someone who’s going to talk with us and not just to go on the exit and leave,” Wand said of Hippo’s approach to acquisitions.
Hippo is the latest in a string of insurtechs going public
Hippo’s SPAC move comes on the heels of another recent insurtech merger with a blank-check company: Metromile’s tie-up with Insu Acquisition Corp II. Metromile, which focuses on auto insurance, officially began trading in February. Mark Cuban and Chamath Palihapitiya also participated in the Metromile merger through a private-equity-in-public-equity (PIPE) deal.
Among the other insurtechs to make their public market debut over the past year: Lemonade, a home and renters insurance provider that had a $319 million IPO in June; auto insurer Root Insurance, which raised $664 million in its IPO in October; and health insurance startup Clover, which was taken public through a merger with Palihapitiya-backed SPAC Social Capital Hedosophia Holdings Corp III in January.
To be sure, the public markets have not always been kind to these insurance startups once they debut. Metromile is down some 40% since it went public on February 10th.
And while Lemonade is trading above last summer’s IPO price, the stock has taken a roughly 50% hit this year, as has Clover’s. In early February, meanwhile, CNBC reported that the SEC had opened an investigation into Clover on the back of a short-selling report, although it was not clear what prompted the inquiry.
Private funding for insurtech companies, on the other hand, grew 64% from the first to the second half of 2020, according to a report from CB Insights.
Hippo’s SPAC deal will also bring Hoffman and Pincus’ significant network of contacts to bear at a time when Hippo is interested in revamping its board, Wand said. While the CEO said he spends roughly a third of the time on his calendar on recruiting, the experience of Hippo’s sponsors at LinkedIn and Zynga will be helpful as the company looks to grow upon going public.
“I could never reach the individuals that they have in their network. They’re working with us to basically fill in and build the most diverse and most sophisticated board that they can,” Wand said.
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