In 2018, the insurance company Aflac announced that it would expand its venture capital fund from $100 million to $250 million over the next four years. But securing additional money for the initiative required building confidence in the program.
“The initial…months [and] even the first year…were all about trying to prove out the model,” says Bharat Rajaram, Managing Director at Aflac Ventures. “If you’re doing this for the first time…you want to take your time and prove that you can do something well. You can do quality transactions, and you can execute them…”
To build that trust in the fund’s first year, Rajaram said his team dedicated time to exploring the startup ecosystem and building the right sourcing network for potential investments. According to Rajaram, putting that foundation in place helped build the team’s credibility.
Aflac Ventures Fund officially began its operations in 2017. Prior to securing increased funding, Aflac Ventures Fund made eight investments in early-stage startups with ownership stakes ranging from 3 percent to 14 percent, according to a company press release.
Rajaram also says his team secured support by working with the business units at the company. He points to monthly meetings where business unit leaders can meet with the startups and learn about new technology in the industry. The Aflac Ventures Fund team also sponsors large “insurtech” conferences, bringing business unit executives along for the ride.
“[W]e have meet-and-greet sessions with startups and other players,” Rajaram says. “So it’s about maturing the organization. [It’s] about exposing the organization to more innovation, more of what’s happening in the outside world.”
Finally, Rajaram cites executive support as one of the crucial factors in growing the fund. He mentions Aflac’s CFO, Frederick Crawford, as a supportive champion from the fund’s early days.
“When [Aflac leadership] looked at everything that we’ve done in the first year, they were more than happy to take it back to the board, and say, ‘Hey, look, we just need to increase this allocation, because this program is going well,'” Rajaram says. “To that end, our board has been extremely supportive as well. [E]xecutive support and top-level board support [are] something that we’ve had in abundant measure.”
During a conversation with InnoLead, Rajaram shared more information about the goals of the fund, finding the right talent, and the role of Aflac Venture Labs.
Aflac Ventures Investment Strategy
When looking for investments, Rajaram says that Aflac Ventures starts by casting a wide net, seeking “as many startups as possible.” According to Rajaram, the team turns to relationships with incubators and accelerators in the insurtech space.
While the team meets with close to 1,000 startups annually, Rajaram says that his team rigorously screens these young companies before investing. He points to two main objectives that shape the fund’s strategy.
“[Firstly,] we have the objective of securing financial returns, as any other venture fund would. … If our corporate parent is giving us an allocation of money, obviously, we have to deliver a return on that,” Rajaram says. “[Secondly,] we have the strategic objective, which is: What benefit do you bring to the business?”
The Aflac Ventures team focuses on startups in the insurtech, holistic health, wellness, and employee benefits sectors. In order to assess the performance of these investments, Rajaram says his team utilizes both qualitative and quantitative metrics.
“[Qualitatively, we ask,] ‘What sort of things did we learn from working with this startup? And what did we learn about the industry? Did we learn something different about consumers or how things may be changing in the industry?”
Quantitatively, Rajaram looks at how many investments resulted in partnerships, changes in sales, and increased efficiency.
According to Rajaram, the Aflac Ventures team has not yet invested in a company that has folded. However, he says that the team reminds business leaders that venture capital involves risk.
“Every instance where we have our governance committees, or executive committees, or investment committees [meet], we try to reinforce the message that venture investing is risky,” Rajaram says. “[T]here’s going to be failures. … At the end, the right way to look at it is: What did we learn?”
Building a Skilled, Lean Team
According to Rajaram, Aflac Ventures is run by a team of four full-time employees. When starting the team, he says the company turned to experienced employees within the organization.
“[We] wanted to go with folks that knew the insurance industry and Aflac, as opposed to individuals from the venture background,” he says. “[Our] initial employees were all internal Aflac. [A]fter two years of running this, now we’re looking at bringing in outside talent to supplement the team.”
Rajaram himself has spent 10 years at Aflac, holding several roles in strategy and corporate development before setting up Aflac Ventures Fund. Prior to his time at Aflac, Rajaram worked in private equity and venture capital.
As the program matures and secures more funding, Rajaram says Aflac Ventures may create additional positions. However, they intend to keep the team lean.
Aflac Ventures Lab
This year, Aflac announced Aflac Ventures Lab, a new initiative that allows startups to partner with the company’s business units.
Rajaram notes that corporates often build proof-of-concepts and pilot projects, but are not necessarily skilled in pursuing these collaborative opportunities with startups. Large companies may not understand the startup’s needs, straining potential commercial partnerships.
“You will see a lot of programs out there today that say, ‘Hey, that’s an interesting startup, let’s get them into our incubator or accelerator.’ And then the [company] doesn’t know what to do with it,” Rajaram says “[We] take an approach of identifying the business problem first.”
Rajaram says at the beginning of the project cycle, the Aflac Ventures Lab team meets with the business units to set the cohort’s priorities. For the lab’s first round, Rajaram and his team agreed upon six problem statements. Focus areas have included customer experience, fraud detection, and claims automation. After defining problems to solve, Rajaram said Aflac Ventures Lab began the search for startups, partnering with the accelerator Plug and Play.
“We sourced over 200 companies…[and] narrowed that down to about 20 different companies. And then we took our business leaders to a session where these startups presented,” Rajaram says. “Each [startup has] a half-hour to present specifically on the topic at hand.”
At the end of the presentations, these leaders debriefed and picked six startups to join the program.
According to Rajaram, Aflac Ventures Lab manages the contracting process and legal work for these startup. Rajaram says that overseeing all of this administrative work allows the business units to focus on the projects. Aflac Ventures Lab also funds these initiatives and proof-of-concept tests.
“[Typically] in the business unit, you’d have to go up all the way [to the top] to get money to run a project,” Rajaram says. “[Here,] Aflac Ventures Lab is going to fund this project. … It allows the business unit to quickly test a project.”
Aflac Ventures Lab seeks to have its first round of startup partnerships completed by the fall of 2019. According to Rajaram, the team hopes to complete two cycles of the initiative a year — each with a different set of problems to solve with business units.
“The idea here really is to bring innovation from the outside in,” he says. “What does Aflac need to do in the future? [We use] that as an orienting mechanism — as a compass to determine where we are going and how far.”