Coverage raises $42M Series B led by Sequoia and Keith Rabois to disrupt insurance brokerage with flat-fee model

really. Stop making excuses.

Uh, JD JD here.

He is the co-founder of with coverage.

An absolute dog. An

absolute dog.

We got some breaking news from him. JD, how you doing? Good to see you.

He's back.

Good to see you guys.

Welcome back to the show.

Glenn has [clears throat] energy for 60 whatever. Oh yeah, that's why I was like, I need to know this guy's workout routine.

He's like, jet lag doesn't exist.

There's a couple of these corporate athletes. Strauss Zelnik, the CEO of Take 2, maker of GTA, is uh absolutely diced. He's in his 60s. He's on the cover of Men's Fitness every once in a while. There's a couple people that figure out how to just keep that motor going. I'm a big believer in the 65 to 95 era of a business person's career. Warren Buffett testosterone. Everything Everything before that was a warm-up.

Everything else is a warm-up. 65 is where the real game starts. That's where the compounding begins. But you're much younger than 65. But you have some breaking news for us. Give it to us.

It's all peptides. You would peptides. [laughter]

Okay. I guess that's the news. But no, tell us about the business. Tell us what's going on in your world.

Yeah. So, uh, we are arguably in the most boring of the enterprise businesses you could possibly be in. I think enterprise businesses. [applause]

It's not boring to us.

Not boring to us. That's why we're here every day. That's why we have a gong. And I know we're going to ring it.

Yeah. So, we run insurance. We're We're modernizing insurance brokerage. Basically, we replace the traditional insurance broker with a ramp for risk management. Oh, wrong side. Rampage.

There we go.

And uh we just raised $42 million series B from

founder No. Great stuff. Can't even get a word in. We're just having too much fun.

Hit him with the flashbang. [laughter]

That was American Eagle.

Watch out. Watch out, JD. Watch out. [laughter] [laughter]

Anyways, once you uh once you get your bearings, you can continue. [laughter] who did the deal.

It's been awesome. Um, I'm teaming back up with Keith Boy, who is my co-founder at Open Door, and we brought on uh Sequoia as a new investor.

Amazing.

The PayPal mafia coming together. You're a made man.

Yeah. You know, it's uh I think it's the first time Keith and Ruof have co-led a deal together. Uh so, it's the first time they coled something since uh since since PayPal. Yeah.

You're you're you're a wise guy

bringing getting the getting the band getting the band back together.

That's fantastic. Um well, uh walk me through $42 million series B. What does that actually mean? Because insurance like at some point you have to have reserves. There's is there like are are you acting as an intermediary and there's a different financial institution that's dealing with uh the actual uh the capital that goes towards that. Is this capital going towards the operations, the hiring, building of the product or is it actually like if there's a insurance claim, you're paying it out of this $42 million. How how does that all work?

So, what's cool about our business is everyone else in the industry gets paid more

the more money that you spend on insurance, right? They're they're brokers.

Um, we don't bear risk. We're just helping you be placed with the right

insurance carriers. Yeah. And [clears throat] so what we've done which is actually like shockingly innovative and say hey instead of charging you based on how much you spend we're going to charge you based on how complex you are and how much you know servicing you need and how much you know product you need. Uh and so we replace that with a flat fee

and then say hey we're going to net out all the commissions from your from your policies. You're not going to pay commission um as much as legally possible

and it's just one fee for us for service. And what that does is it aligns incentives and as a result you know over 700 companies now have moved over from you know Gou Puff and Eight Sleep uh to you Chomps Bombas tons of these incredible businesses.

I thought you were saying I when you first said that I was like wait go had a had a had a enterprise insurance product. [laughter]

No no no

so so we don't do the insurance.

Yeah. So so almost like asset light. I don't know exactly the term but more of like meteor platform technology company but uh at the same time I feel like I've heard so many amazing stories about

it's really hard but once you get the insurance business actually up and running you wind up with Berkshire Hathway or what's happening with Apollo like you just have this this float and this cash machine that can go towards other things. Is that enticing to you even if it's going to happen when you're on when you're in your 65 to 95 year old run? Is that something that might happen decades from now or is that just like never in the picture because it's fundamentally incompatible with what you're doing?

I I think you have to start with your customer, right? Like when you go from like the like, oh wow, that's really enticing. You start like twisting upside down to find a way to make a bad business like decision.

And this is kind of what I think some of our earlier competitors did in the last round of insure tax is they said, "Well, let's that looks really nice. Let's go after that." and then they were fundamentally misaligned with their customers. Our job is never to our job is to get you the cheapest insurance possible for the best coverage, right? As soon as we start selling our own book, there's no way for us to be able to do that job.

And so, we don't do reserves. The 42 million we've raised is for product development and sales and growth.

Um,

unfortunately, we haven't found a way to spend money yet as a company. We didn't we haven't touched a penny of our series A when we raised this. It was kind of more to say

we were profitable last year, which is crazy. That's

um

Wow.

But I'm confident we will solve that problem this year.

Yeah.

How do how does the how does this actual sales cycle uh work? People are you know signing up uh with you know for a specific insurance plan and then there's like you know it's cyclical like h how how does that motion working for you guys?

Yeah. So usually it starts with an introduction or like you know someone saying hey you got to talk to these guys they're awesome. Um, and our first conversation is they're already on board on the product. It's get them on, we'll show them exactly how it works. Instead of like going through PDFs and everything else, you see everything in one place. And we're going to do this very strong like in detail risk analysis saying top to bottom. Here's your company. Here's like the opportunity for someone to get hurt slipping and falling in your restaurant. Here's what happens when someone in your manufacturing facility, you know, might get injured or if a product injures a customer. All the different cases if you might need a product recall.

Yeah. and running through those scenarios and saying this isn't is where you are currently covered and not covered and how we can fix it and also here's how you benchmark against everyone else just like you. So instead of working with that sort of generalist insurance broker, we bring on this specialized team almost like the Navy Seals of you know product recall and say here's exactly what you need to do to deal with this when it happens. And for us risk management doesn't end with insurance products. It goes through like what do you actually do when that happens? What's your playbook for dealing with a product recall? Who what lawyers do you need to talk to? How do you actually like file this with, you know, the relevant regulatory bodies? There's a whole bunch of stuff and we do this for customers in kind of every single uh industry that we work with from, you know, aerospace and defense to healthcare to construction to consumer brands.

How do you think uh is insurance playing a factor in like these legal cases with the big AI labs? I saw Enthropic paid like a billion dollar fine for scraping some books and it's just something that if I'm underwriting Anthropic at seed it's like how am I going to predict that they're going to scrape books that they shouldn't and this lawsuit's going to happen it's going to be this huge settlement and that feels like something that would be way out of coverage but are people even thinking about insuring for these like entirely new dynamics that can happen only in the AI age?

Absolutely. And there's really cool um new carriers who are kind of stepping in. And we've seen whenever there's a new innovation in kind of business, some new insurance company that becomes a giant leader is the first one to come in and step in and say, "Hey, I'm willing to take a understand like really understand this and take a bat."

Interesting.

And so Coalition did this with cyber insurance. It's now a five plus billion dollar company where no one else really understood what cyber insurance meant. Yeah.

They came [clears throat] and did that. Now they're doing, you know, really well across DNO and a number of other spaces. Interesting.

Same thing with crypto that's been more kind of broadly adopted, but you know, sure is like relevant and amazing there.

Oh, interesting. And in that in Walk me through the that that cyber insurance example, like do they have to raise money? Are they raising debt? Like how do you if you weren't doing what you're doing and you were just building a pool of capital to insure uh companies directly, what does the what does the buildout of a company like that actually look like? I've never really

Yeah. You you literally need to raise tens to hundreds of millions of dollars of equity

and then [laughter] yeah to collateralize the issue and then partner with so you start by partnering with existing insurance companies if you can. Yeah.

But if they don't understand it and unwilling to underwrite it, you have to just raise huge pools of capital.

Mhm. Wow.

I mean this is the oldest business of all time. It's is basically Lloyds of London is a syndicate of people who

were just pooling capital for these literally pooling

capital for risk for ships.

Yeah. Yeah.

Yeah.

Traces all the way back to the dawn adventure, the whailing and whatnot. Fascinating. Fascinating. Well,

these crazy things in insurance, too, where like the words that are used don't make any sense. You're like, why would trucking be called marine?

Well, it's because

it's you're shipping you're literally shipping things, you know, on ships over water. They just adopted it.

Wait, so marine insurance refers to trucking like physically?

Yeah, like it's called inland inland marine. Inland marine.

Interesting.

Wow. Wow. What an awesome industry. Uh well, congratulations on all the progress.

Where where are you guys uh where are you guys seeing the benefits from AI in the business, not on the product side, outside of coding? I think what's really cool is um like we we we can measure this stuff, right? And like I think last year I would have said, "Oh, we get rid of data entry. We get rid of whatever." Now I can say each person in our team is writing three times as many emails today as they were 6 months ago.

Wow.

Like we've scaled the business. We're breaking the scaling laws of financial services through AI where we're pulling in all the context and it's becoming much less human reliant on the day-to-day operation of the business. So that people are actually just focusing on like high-end problem solving uh strategy the things that you know people are good at but I have no idea how sort of the you know entry level kind of paper pushing jobs are going to keep doing this because we just don't need them.

Interesting. Where are you building the business?

So the company's based in New York. Um I'm the odd man out in Austin.

Okay.

And I think

in San Francisco if you're building a like model company

Yeah.

you got to be an SSF. Yeah,

if you're building applied AI

uh in financial services, it's just much easier to do that in New York. Like the people actually understand what that means.

Yeah.

And so for us, we're we don't sell software, right? Like we're building a competitor to Marsh Aon locked in these kind of 50 to$100 billion brokers

and we're coming in and saying look like we can't sell software to you. You can't buy software. You have no idea how to even deploy this. You have like 10 different factions in your org to do this. Mhm.

If we were to do that, we would do that maybe in San Francisco. In New York, you get to go headtohead and say, "Look, I'm just going to go after your clients, and we're just going to do your job better.

Your lunch." [laughter]

Yeah.

Your lunch is for Martines.

Yes. Uh that's amazing. Well, thank you so much for stopping by and giving us the

It just makes so much sense going in and uh you know, talking with coverage and having them not just be incentivized for you to spend the most amount of money, but for to get the best plan and actually get the most out of it.

Uh it's just uh I love I love the alignment. I appreciate

I'm waiting for you guys to do your first like events so I can show you. You know, we'll cover all your like awesome giant conferences with the fireworks and stuff you're inevitably going to want in there.

Yes. If I catch on fire,

well, we need we're trying to get our intern catches on fire.

We want to get a fog machine. We want like a CO2 cannons in here.

That could be very risky. Suck all the air out of here.

We're insured for [laughter]

We're not doing that yet without good insurance.

So, we'll talk.

I actually own two industrial snow machines, so if you ever need to rent one, just take these out.

Well, we needed that during Christmas. Where were you when we were dressed up [laughter] as Santa Claus? We needed We We had the fake snow going over the show. Uh but the next year, real snow for real snow. I'm shipping it out.

Thank you so much. Have a rest of your week, JD. Talk soon.

Goodbye.

Let's kick it over to this video by Storm Crew on YouTube. [applause]

The boss asked me to take on 10 robots by myself. An individual has assembled a set of 10 unitry or humanoid robots, got in the boxing ring, and fought them. And the results are very very interesting. We'll have to sort of click through a little bit of this video, but he fights incremental amounts of

somebody to do this forever.

I've wanted to do this personally. I want to fight the humanoids. Look at this. So, it's one-on-one and it's not too bad. He can just hold it off. He's just he's just holding. Can't do anything. Now, keep in mind this is the unit tree. I believe it's the G1, the the cheaper, smaller version. Now, he's one on three. Let's see what happens. He's kick. They're kicking. Oh, he does the pull rush. That's a I had not thought of that strategy. Oh, he's pushing them over. And with these small unitry guys, once you get them down, they can get up, but they're pretty easy to pin. He starts He starts fighting five. This is one on five now.

He needs a flash. [laughter]

It is. They are hitting him. They are hitting him. He's taking some blows. Oh, he knocks one down. That's a good hit.

Their movement looks surprising.

Oh, he picks it up. Oh, we're going WWE mode.

He picks it up and slams it down. Oh, he gets back up. He's got to throw it back.

They really They need bigger robots because it looks like he's just bullying

when they when they pop up. That is That is a scary animation. Okay.

Picking up and throwing it out of the ring. Oh my [laughter] god. Slammed onto the ground.

Yeah. Slammed onto the ground. Well, he finally

Okay.

He's fighting like six or seven here. They're really closing in at this point. This This is where it starts to get intimidating. I feel like seven, you know, you can't keep your eyes on all of them at the same time, but if you use them against each other. Yeah. Creating the pile, the pile method, that's what you want to go for. You want to create a heap of of humanoid robots,

benchmark, the Terminator benchmark.

Terminator bench.

This is the only benchmark I really care about.

Who wins, AI or humans? But then he adds the G2, which is the newer unitry robot. And this one is a little bit more athletic, and things start to get a little bit riskier.

Do we think they're I imagine all of this is tea operated. Uh I this seems like some sort of ad integration or some AIL.

We're ad appreciator.

I don't know what's going on. Let's skip to the final bit. I think we can skip ahead. I think it starts at 208 maybe. Uh we can see robot 10x.

That was a clean

Yeah. So So he's boxing the big guy and he hits. Yeah. It's it's pretty he gets knocked on the ground. It's not looking good for humanity. very very rough. Uh if we skip to

I think he's getting a little

fatigued.

Oh yeah, he is.

He's running out of gas.

It's tiring. I think he I think I think the conclusion of this

headbutt from Look at that. That looks very dangerous. Uh I think the conclusion of this video is that he loses. You know, who knows how scripted this is. It's a lot of fun.

Yeah. A lot of cuts.

A lot of cuts. You know, it's mostly entertainment, but uh it's good entertainment. Challenge yourself to fight robots with difficulty levels ranging from one to 10 robots. See how many you can ultimately KO. That could be a good uh that could be a good sort of you know those VR centers where you go and do VR in person. Yeah. You could go and do this in your local put that