October 8th, 2014
by Paul Gores
American Family Insurance fosters start-ups through venture capital arm
A company with almost $7 billion in annual revenue and 7,500 employees might seem an unlikely choice to win an award for entrepreneurship.
But American Family Insurance Group, while selling home and auto coverage and other insurance products, also runs a venture capital arm that is focused on supporting entrepreneurs — start-up firms with innovations and technology that can benefit the company and its policyholders.
The unit, American Family Ventures, expects to invest $50 million over the next four or five years in new companies.
“We’re on track for that pace. We’re about one-third through,” said Dan Reed, director of the venture capital arm.
For its efforts, American Family Insurance Group is the winner of the 2014 Distinguished Performer award for Entrepreneurship among Deloitte’s Wisconsin 75. The award recognizes “an individual or company whose efforts have been exceptionally entrepreneurial while positively impacting the success of the organization.”
American Family has been making venture capital investments since 1983, but it now has a five-person team that is dedicated to identifying start-ups whose ideas and inventions can be applied to the insurance industry. Operating quietly for years, the ventures unit — officially called New Ventures LLC — has made a splash this year with a new website, www.amfamventures.com, and media coverage.
Before the press coverage, most of the start-ups were found by the team. Now, the number of start-ups approaching American Family Ventures with ideas has at least doubled, Reed said.
“The most challenging thing is we’ll look at maybe a thousand deals this year and we’ll probably fund 10 to 20 of them,” Reed said. “So we have to say ‘no’ much more often than we get to say ‘yes.'”
Reed said because the investments have to be something that could benefit policyholders, “We end up having to pass on some deals that are pretty compelling but just aren’t thematically relevant for us.
“That’s tricky because there’s clearly a lot of passion in many, if not most, of the start-ups that we see,” he said. “It can be hard to say ‘no.'”
The company said American Family Ventures, whose investments typically range from $200,000 to $2 million, takes a minority equity position in promising early-stage companies that it expects will generate both strategic advantages and financial returns.
American Family Ventures invests in start-ups involved in data analytics, innovation within an insurance context and connectivity. One example of an investment with the connectivity theme is Revolv, a provider of “smart home” technology that allows homeowners to operate systems in their house — for instance, to turn on lights or adjust the temperature — remotely via a mobile phone.
This summer, American Family announced it was partnering with Microsoft Corp. to launch an accelerator for start-ups focused on home automation.
Among American Family’s other innovation efforts is to serve as the primary sponsor for gener8tor, an accelerator program for tech start-ups in Madison and Milwaukee. American Family provides mentorship for program participants and has the option to invest in companies whose products or services are expected to be valuable to the insurer’s customers.
Joe Kirgues, co-founder of gener8tor, said American Family Ventures has helped start-ups create 125 jobs in Wisconsin over the last two years, and added that it “has had a tremendous spillover effect to the benefit of Wisconsin entrepreneurs.”
“They truly deserve this award,” Kirgues said. “They are great people, and we can’t say enough about them and what they’ve done and how glad we are to work with them.”