Nicolás Pardo Lanzetta, Head of Colombian insurance intermediary RedSeguro spoke with LAVCA about sourcing financing and where he sees the biggest opportunities and challenges for creating and growing a business in Latin America.
LAVCA: Please summarize your business. Where is RedSeguro headquartered? When and how did the company get started?
Lanzetta: RedSeguro was founded in Bogotá – Colombia in August 2010 with the vision of becoming an online mass insurance broker focused on individuals in Latin America, replicating distribution models already successful in Europe and the USA. The company specializes in offering individual insurance products through the Internet and its Call Center, providing its customers with a fast, easy and transparent way to quote, compare, and buy insurance. Currently RedSeguro is focused on car and home insurance, products that have high penetration in the market and/or have an interesting growth potential. To date RedSeguro operates in Colombia, but envisions penetrating neighboring countries in the future. Currently RedSeguro is the leading online insurance broker in Colombia.
LAVCA: What is the opportunity like in Colombia for an insurance intermediary like RedSeguro? Why was this market a good place to start?
Lanzetta: Insurance brokerage in Colombia is an interesting size market that has consistently grown over time; however insurance penetration rates and per-capita consumption remain low compared with similar countries in the region, demonstrating strong growth potential.
Nonetheless, the market currently suffers inefficiencies that make insurance purchasing a complex process, particularly for individuals. 1) Big price and quality differences: Insurance premiums and quality vary significantly across insurance companies, reinforcing the importance of aggregation and comparison before purchase. 2) Low transparency: Difficulty for individuals to get market visibility in order to access competitive insurance offers. 3) High fragmentation: Few players have the resources to provide high-quality service, and large players are typically concentrated on corporate business rather than on individuals. Individuals are usually catered to by many small players which mostly focus on individuals, but struggle to provide value-added services and competitive offerings. 4) Low-tech: Inefficient processes by traditional brick and mortar operations make the services slow, complex, and costly.
LAVCA: Who do you view as your competition? What do you see as your competitive advantage?
Lanzetta: Globally there are interesting companies that offer online insurance comparison services that make markets more transparent for consumers. Some of the most relevant ones are in Europe; companies like www.moneysupermarket.com, www.confused.com, www.comparethemarket.com, among others, are in the UK market where this industry has probably most developed.
In the US you have interesting cases of insurance companies that have very effective online channels, such as Geico or Progressive. Although they are not comparison sites, they are clearly good examples of how the insurance industry has migrated to the online space.
Locally, however, most of the players are traditional insurance brokers that have marginally tapped into the online market or haven’t done it at all. RedSeguro is innovating by streamlining its sales efforts online and through call center operations, achieving very interesting growth rates.
LAVCA: What is the talent pool like in Colombia/Latin America? Are there certain roles that are easier to hire for than others? Why?
Lanzetta: Absolutely. In our experience it has been challenging to hire talent, for instance, in Software Development and Digital Marketing roles. As recent studies show, there is a shortage of supply in software engineers and, additionally, we have found quality to also be an issue. In Digital Marketing roles the challenge is to find people that have sufficient experience in a field that is relatively new in the country.
LAVCA: What financing have you received thus far? From whom and at what point? What resources have you used in your search for financing?
Lanzetta: I founded the company with the backing of two angel investors with which we initially ran “Pilot Phase” (MVP). In this phase we aimed to locally adapt and prove the business model would work in the Colombian market. The sales results were exceeded by far and our cash burn was much lower than expected. This meant we could continue growing on the Angel funds received initially and build traction before we went to search for more funding.
Once this phase was completed we went for our Series A round in which we raised capital to scale up the business. We closed the deal with Axon Partners Group, a venture capital fund headquartered in Spain, that invested equity into RedSeguro via the fund that they manage in Colombia (Amerigo Ventures). The Series A round was closed in May 2013 and on December 2015 we closed a follow on round with them, to fund our growth plans for 2015 and 2016.
LAVCA: What made it the right time to receive your first investment? Did you engage with multiple offers/investors before deciding on one? Why was your investor a good fit?
Lanzetta: We felt it was the right time to go for a Series A round because we had already proved and fine-tuned the business model and we had managed to get results that we believed would be interesting for investors. In the fundraising process we engaged with different types of potential investors; from VC funds, to insurance companies, angel investors, family offices, and wealthy individuals. Upon closing we had three separate offers from investors that had very different profiles. We were inclined to bring a VC on board because we felt that they would be a partner naturally aligned with the founders’ goals, and would also have the resources and willingness to continue investing if the business required it. Additionally, we wanted to bring on board a hands on investor that would add value to the company. These were the two main reasons why in the end we pursued the deal with Axon Partners Group.
LAVCA: How have you/do you plan to use the financing? In general, how do you plan to grow the business? Do you have plans to expand internationally?
Lanzetta: Until now we have used the funding in three main areas: 1) Solidifying and scaling up the team; 2) Increasing our marketing efforts; and 3) Strengthening our IT and platform capabilities. The resources have mainly been used in Colombia but we have plans to expand internationally in Latin America, and currently have a few ongoing projects on this front.
LAVCA: What has been the best (non-monetary) support/advice you have received from your investors?
Lanzetta: Starting and running a startup is an exhilarating experience in which you have many ups and downs. It is key to have investors that are by your side in good times, but most importantly in challenging situations. They can be very helpful in supporting strategic thinking and help you keep your eye on the big picture.
LAVCA: In your experience, what are the biggest opportunities and challenges for creating and growing a business in Colombia/Latin America?
Lanzetta: There are interesting opportunities in Colombia and Latin America to launch innovative companies that acknowledge the needs of the growing middle class, and give them access to products and services that may have not been available to them in the past. Many times traditional companies do not decidedly attack these segments which generates an appealing opportunity for entrepreneurs.
With respect to the challenges, I believe regulation issues can never be underestimated as is resistance from traditional players in the market that may see your venture as competition. Regarding internal issues, which is probably one of the main challenges anywhere, a recurrent challenge is recruiting talent and putting together a top level team.
LAVCA: Has regulation been a help or hindrance in creating and growing RedSeguro?
Lanzetta: In our case regulation has been an issue slowing down automation of processes, given the traditional paper-intensive nature of the insurance industry in Colombia. Although we have found ways to adjust operations to reduce these frictions, it is something that hinders the rapidness that we expect to develop for our customers. There are initiatives within the government that will hopefully make processes easier and more transactional.
LAVCA: Do you have any advice for investors interested in RedSeguro?
Lanzetta: We are always keen to hear from potential investors that, apart from funding, can also add value and contribute to the growth of the company. It is very important for us to have shareholders who bring extra value aside from the capital.