[Raised $165 million] Ep.107 - The First 100 with Travis Hedge, the co-founder of Vouch Insurance | B2B2C | Founder-led Sales | Ycombinator

Travis Hedge is the co-founder of Vouch Insurance a provider of business insurance to startups and high-growth companies. In under 10 minutes, founders and finance teams can apply for coverage customized for their startup and industry vertical. Vouch offers 10+ lines of proprietary coverage, from General Liability, EPL, and D&O, to Cyber policies. As the underwriter of these insurance policies, Vouch removes any hidden third-party fees and handles all of the paperwork from start to finish. San Francisco-based Vouch has now raised a total of $165 million since its 2018 inception.

Today, Vouch has more than 4,000 clients.

Where to find Travis Hedge:

• Website: Startup Insurance for Venture Backed Companies | Vouch

• LinkedIn: Travis Hedge | LinkedIn

Where to find Hadi Radwan:

• Newsletter: Principles Friday | Hadi Radwan | Substack

• LinkedIn: Hadi Radwan | LinkedIn

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Transcript

Let's do it. Broadcasting from around the world. You're listening to the first 100. A podcast on how founders acquired their first 100 paying customers. Here's your host, Hadi Rodwan. Travis, good to have you on the show. How are you doing today? I'm doing great. Thanks for having me. How are you doing? I'm doing excellent. A fellow insurer like myself, we've been in the industry for a while. We've seen the ups and downs, but Travis Hedge is the co-founder of Vouch Insurance, which is a provider of business insurance for startups and high growth companies. And in under 10 minutes, founders, finance teams can apply for coverages for their company. in across more than 10 different lines like general liabilities, directors cover, cyber cover and I believe you're an underwriter of your own insurance policy which means you're direct to the customer, no paperwork from start to finish and you've raised a big sum of money 165 million since your inception date in 2018 and you've covered more than 4,000 clients. That's an amazing feat. Good to have you on the show. Tell us, how did Vouch come to fruition? Yeah, so first of all, thank you so much for having me. Really excited to be here today. Look, the story of how it came to fruition is a little bit of a winding path. I mean, my parents, neither of them graduated from college. They started a small business in Columbus, Ohio that was an insurance agency serving other small businesses. So I grew up wearing a sweater vest to career day, saying I wanted to be a broker like my dad, but ultimately... The thing that really inspired me was just, they reminded me every day how lucky I was to have the opportunities I had in life because of entrepreneurship. And I saw the impact that had on my family, our community, et cetera. And so I was always very passionate about just helping entrepreneurship thrive in the world. And so actually my first startup was an attempt at that. It was a bipartisan political platform to help people advocate for entrepreneurship on both sides of the aisle. You can imagine why that didn't work out, but it was my first go at it. That's been a few years licking my wounds, learning how to be a good entrepreneur someday. So I spent some time building out the Venture Arm at Nationwide Insurance, was fortunate to join SVB Capital and was investing in fintech and digital health there. But the entire time was really thinking about what was that next business to go build and talking to folks about the problems they were experiencing. I just starved a line over the 2016 to 2018 window where a few things happened. I think thing one just... talking to the entrepreneurs that we worked with and had friends kinda tell me about their experiences in buying insurance, very clearly not only was it a broken process, email, PDF driven, but the coverage itself really wasn't designed for the risks of these businesses. And that shows up actually, if you look at the macro picture, commercial insurance as a percentage of GDP in the United States has dropped by more than a third. And when I look at it, it's largely because the industry has not really kept up with emerging risks in the economy. And so there's a big opportunity there. Thing number two is, was fortunate to see a lot of businesses that were taking a verticalized full stack approach and the kinds of business models and opportunities that can unlock. And then look, thing number three is I was fortunate to have a few friends at Ribbit Capital, YC and otherwise that were thinking about this problem too. And I was fortunate to meet up with my co-founder Sam. He had taken his last business public and was that really experienced, credible co-founder that I needed to bring this idea to life. And so... was, you know, again, very, very fortunate to kind of have the right people around the table and we saw the problem and the opportunity pretty clearly and press go and spend a year heads down building before we launch our first product in August 2019. Yeah, amazing story. And insurance is hard to build because one, it's a regulated environment. So it's not only about throwing technology on the problem, but also make sure to align everything together. The US market is the biggest market when it comes to insurance. there's a couple of lines that are very huge like life, commercial, health. How did you decide which line of business to go after? Cause all of them have the same problem. They're all broken. They have paperwork. They have underwriters who are slow. And then second, how did you pick your ideal customer profile like the tech firms? Yeah, so a couple of things on that. I think thing one, My experience to that point had largely been with personal lines insurance. And that was where a lot of the initial, well, depends on how you define insure tech 1.0, 2.0, but that's where a lot of investment has gone over the last decade or so. And if you look at personal lines or even SMB insurance, it tends to be a more commoditized space. So you have razor thin margins, razor thin margin for error. Whereas commercial lines, underwriting is very different. It's more complex. wider margins because of the uncertainty and the severity in the business. Because of those complexities, and it was a much more complex and globalized value chain, it was a much more complex problem to tackle in certain ways. I'm not minimizing how hard other lines of insurance are. Actually, we felt that complexity was part of our opportunity, in that if we could build a business that effectively uses technology to bring those complexities together, bring elite people from both technology and insurance to the table and build a culture that can helps create compounding advantages over time. And so, as it relates to identifying our ideal customer, the inspiration for the business was in a lot of ways talking to entrepreneurs and investors and the struggles they had. So it was funny early on, I remember talking to our chief product officer about our ICP and I was like, what are you talking about? It's early stage startups, like it's pretty straightforward, pretty narrow. But what he helped me really refine was, no, it's actually new companies that do not have insurance yet, they're first time buyers. Now, second time founders were actually the best persona for us because they knew insurance was important, they would need it. First time founders, we've had to help educate them on why it matters and typically find them at those milestones where they're required to carry insurance. An investor joins the board, an enterprise customer is requiring it in a contract and just reducing as much friction as possible. And so the other angle on this for us, you mentioned the regulatory component. We looked across the US, it's regulated state by state. which again that is a complexity that if handled well can create durable advantages over time. And we looked at one, where do our customers sit? You look at venture capital funding as a proxy and kind of create a list of the top states for venture capital activity. And then where are their insurance regulations that allow us to have a clear path to market? So Utah actually stood out as a very clear candidate for us to launch in. They're a file in new state, which meant that we could plan a very specific launch date. It has a very healthy venture ecosystem. And so I'll tell you more about kind of how we ended up tackling that opportunity. But you know, my ICP out of the gate was venture backed, early stage technology companies, seed in series a in the state of Utah. So if I recall the target list was like 260 companies to start with. Amazing. And going back to the early days of you identified your ICP, you took an assumption and you went out to prove that right. Where did you find those customers and how did you convince them? to buy commercial insurance. And by the way, is it mandatory for every firm to have those or is it optional and you need to educate them to buy it? Great question. So business insurance is not like auto or health insurance in the US where it's required, just required to get in the car. Tip it, what we found actually, this is one of the first user research things we did, two thirds of repeat or experienced founders knew that they needed to get business insurance at company formation. Zero, literally zero percent of first time founders we talked to. knew that they needed to do that. And so it's typically not until if you're a B2B company, you know, you're shipping product that is required or that you raise that series A and investor joins the board. Certainly some education in the early days. I think the other challenge as a new insurer is it's a trust-based business. And so people are often making their decisions on trust. And when you're a new entrant, you have to do everything you can to build that credibility and trust. And so thing number one for us was actually identifying critical distribution partners out of the gate. So at the time it was Y Combinator and Silicon Valley Bank were our two kind of key communities and channels. And third credibility really helped us jumpstart the business out of the gate. You know, I think thing number two, it's the people. Any business, like any startup, I've listened to a few of your episodes, like a lot of the times it's just getting out there and building those first 10 relationships. And for us, you know, I'm going into Utah, a place that, okay, I'd gone skiing there before, but like I didn't really know anybody. And... I was fortunate that I had a really good friend who became one of our early employees actually and now is one of our investors who was from Utah, a guy named Stuart Doane. He introduced me to a couple of his friends there. Sorry, I get a little emotional because these people really went out on a limb to help us and just welcomed us with open arms. I remember he introduced me to a couple of investors in the Utah market and they were just people that wanted to genuinely help. Diogo at Album, actually he was just here, caught up with him a couple of days ago. He was just one of those people that opened it up and said, hey, here's five companies my portfolio you should go talk to. And I was doing everything I could to just help add some degree of value in those moments. I remember TaxBit was our first ever client, one of Yogo's portfolio companies. Met with the twin brothers at a Hawaiian barbecue restaurant in Utah. And we're talking fundraising, we're talking everything about the business, and ultimately they didn't need to switch insurance providers, but they did because they wanted to help out a fellow startup trying to get off the ground. Similarly, I remember Shift Health, a YC company in Utah, was our second client. Both signed up on day one and we put a ton of legwork. I spent the entire summer of 2019 living in a hotel in Lehigh, Utah, just pounding the pavement, going up and down the highway. I think it's I-15. Meeting startups and meeting entrepreneurs and helping founders with their pitch deck. And look, there was a kiln as coworking space in Lehigh where I would just go door to door and talk to found, they probably got really sick of me. Like. asking them about their insurance. But ultimately, it was that work in the lead up that on August 19th, which was our YC demo day, allowed us to, we launched on demo day. And we had the next day, had a panel event in that coworking space, bringing some employment lawyers, et cetera, talking about why insurance matters. And I actually remember, so we signed our first two customers, tax bit and shift, on day one. And I think it was day two, maybe day three, I don't know, it's getting a little fuzzy now. We did this panel. and we closed our first customer in the room on the phone. I helped them buy insurance on their phone in 10 minutes. And that was just a really cool experience. I remember walking out of that room, telling my co-founder Sam, oh, we're gonna close 10 more customers this week. It took me like, I think three weeks to get there. You know, the ups and downs, and I remember in those first six weeks, we had one week where we didn't sell a single policy. And that really forced you to look in the mirror and, you know, are we doing the right things, pursuing the right strategies here? But it ultimately inspired the team to just work that much harder. I remember There's another group I should talk about called FounderPod. And I'll talk about Diogo as someone who really helped me as a venture capitalist that just was willing to give first. And then this guy, Jeff Erickson, who at the time was at Carta, he was just Mr. Utah. And I remember going to meeting him at a pitch event one morning and he said, "'This is awesome. I got to introduce you to Matt Roberts. He's running this group called FounderPod." And that group welcomed me with open arms. And it was a Founder Slack group. That to this day, I see questions around, you know, who should we use for insurance, et cetera, doing monthly meetups. And I think probably 10 of our first 20 customers came from the FounderPod community. Actually, the first question I asked during onboarding for every new employee that comes into Vouch, I hold the like, you know, go to market onboarding session. And I ask about a community that's had an impact on your life. And I tell the FounderPod story because these founder communities have just been, you know, critical to our story even to this day. So I got, I just want to shout out Diogo, Jeff. Stu, Matt, like they were the people that really believed in us early, not to mention the Woodward brothers at Taxbit, and Lance at Shift Health. But it was just kind of that grind. The last bit of this, I know this is about the first 100 customers, we didn't reach 100 until I think it was January, so three or four months later. I remember because we actually got like cupcakes for everybody with the 100 emoji on it to celebrate. Big part of that was actually our friends at Silicon Valley Bank. We launched in California, big market for us in November. And I remember we're on our way to our first, you know, proper company holiday party. And we've been working to get this announcement email out through SVB. They're gonna email all of their customers on our behalf announcing, hey, vouch insurance is live in California. That's a big win for us. And that email ends up going out, like literally as we're in an Uber on the way to the holiday party. So we're now all like pulling our laptops out, scrambling to handle these leads. If you look at our growth curve, that was the inflection point in the business. Thank God we were able to refine the product and the lead up to that. And it was in a place where it could handle that volume. And I think from there to a hundred and it just, uh, we can talk about what a crazy ride it's been ever since. This is an amazing story, which tells like a lot of companies early on, which are D2C might go with the easy strategy where they turn the Google ads on pay money. and then they get leads into the door. But what you've done is completely different. You actually went out and tried to get in front of the customer. And why do you think it's important? I mean, today it's a world of Zoom and Bloom and all of these virtual meetups. How did it shape your early days when you went out and spoken to these people? And would that have changed if COVID was there? Yeah, so, and actually I left an important part of that story out. We were in stealth mode still for that first month. So we launched the product at Demo Day on August 18th, but you had to have a password to get to the website. And so the Google AdWords wouldn't, I mean, probably could have been an interesting experiment to try there. It also had to do with the trust dynamic I talked about earlier. Utah is a tight knit trust-based community. And so I had to go build those personal relationships, I felt. And the other thing is, in this business, I think who your initial customers are really matters. Being able to go get some of the most important, biggest seed stage companies in the Utah market allowed us to kind of plant that credibility flag and get capture the attention of other entrepreneurs and investors in the market. I think we would not have been able to convince our friends at SVD or otherwise to help on our behalf. If we hadn't shown first that we can earn not just the trust and respect, but the advocacy of those clients. And I remember bringing some of our partners to these events and Realizing like I need to show them firsthand just how excited people are about this product And it was that kind of in-person magic that helped level up their conviction You know ultimately Kovat happened like six months later We had to transition very quickly to be in a remote company But you know it's been exciting to now try to rebuild that in-person magic over the last couple years Yeah for every entrepreneur out there. They want to identify their Silicon Valley bank They would say my ideal customer profile is sitting with this partner. How can I get them to? you know, promote my product or give me a shot. If you were to distill it to a process, to a framework, how do you think you can get in front of a Silicon Valley bank to sponsor or promote your product? Yeah, fundamentally what we're talking about is channel partnerships, which, you know, we have this, I have this conversation with like YC founders all the time. It is very easy to get distracted by that shiny object of a channel partner that can completely change your business. we had some unfair advantages that we'd spent years even prior to launching Building Up that allowed us to pursue that strategy. It's not one that I can really recommend for everybody. It always needs to start with, to your question earlier, who's your ICP, what's your ACV, and that informs your sales motion, et cetera, as to whether or not channel partnerships are even the right strategy for you. If they are the right strategy for you, I think it starts with understanding what matters to them. Is this a business that is motivated by economics, by LT, meaning they want... cash for leads? Are they motivated by adding a stickier product to, you know, there's, I think a McKinsey report that they all look at saying each new product that's, you know, decreases churn by 7% or is it a co-marketing play where they just want to show up and market alongside you? Typically, you need to have built a material brand and presence in market for that last one to matter. And so, you know, the lesson for us was, okay, I had, you know, had worked at SUV Capital, the venture arm for the bank for a few years. I kind of knew what mattered to them. And it was largely the LTV angle of additional products and value on the platform. But then thing number two is understanding the decision makers. Cause typically these are going to be massive orgs that you got to navigate like an enterprise sales process and make sure that you've got the right champions at the top of the org as your advocates. And again, like we were very, very fortunate that, you know, we had the CEO, we had the head of the business units, not just as our biggest advocates, but the ones kind of pounding the table to make this happen. And so. without their support top down, I don't think it ever would have been as successful as it was. You know, I'm incredibly grateful for that. One bit of the story I left out that I just think a little important, you know, I had tried to go start Vouch in 2016. And SVB, the partners at the fund told me like, hey, why don't you spend a couple of years like, try to find that company to invest in, et cetera. If I had gone out to try to start this thing by myself as like the junior investment associate, it would never would have gone anywhere. So. I'm just very thankful that I had those years that laid the groundwork and the credibility that allowed us to build those relationships when the time came. Knowing what you know today, if you go back in time, you have limited funding. Is there any errors or failure points you would have undone? Because I mean, errors are good if they're not fatal because you learn from them. But if you go back, what are things that were very challenging you could have avoided? Oh man, there's such a long conversation there. You know, gosh, these almost feel like cliches. I would put it into two buckets. Thing number one is not getting the scope and urgency trade off right. And this was a lesson I learned in my first startup and I continue to learn to this day of it's one thing to have the big aspirational vision of what you want to accomplish someday, but really breaking that into the bite size chunks that you can accomplish one at a time. I think where I've gotten the business into trouble in the past is when I've tried to bite off too much. Continuing to learn that lesson around How do we scope things appropriately? But not too small because then you lose the ambition in what you're trying to accomplish. That balance has been a journey for me to get right. Thing number two, and actually let me give you a specific example on that. Early on, I had wanted to craft our quote screen to give our client a recommendation as to whether or not they're appropriately covered. And we spent a bunch of time working on it, thinking about, is it a needle? Is it a, who knows? But ultimately, through talking to our customers, what we found is that early stage buyer, they're just there to check a requirement box. Like they don't actually care as to whether they're appropriately covered. And so, okay, eventually you learn that lesson, you hone it in and you go, great. Well, now that we're serving much larger customers, we're dusting all that old work off and bringing it back because they do care about that. That serious CFO does care. So it was the right idea, but at the wrong time. So then you've got thing number two for me, which is about people. This is one where I think we've gotten a lot of our hires right. I mean, that's the thing I'm most proud of here is our team. But I think you can get in trouble when you think about people related decisions as, you know, I think about the type one, type two framework that Amazon uses. And if a type one decision is, you know, hard to reverse, you better measure twice and cut once, your most important people decisions, I think, fit that mold. And I think sometimes I felt a little bit victim to, well, you know, hire fast, fire faster, right? That's like an adage in our world. For leadership roles in particular, that can set you back six to 12 months. And I would much rather make my life really painful for a few months and step in and kind of try to, my best to fill that gap to find the very best person than wanna make that hasty decision because you need somebody in the seat. So things I heard from all my entrepreneur friends going into the journey, but didn't really appreciate until I made those mistakes myself. One follow-up question on this. So... As you're building an insure tech, there's the insurance element and then there's the technology element and you have to get the balance right because at the end of the day, you're selling to people a promise. You're promising them in the future if something happens, you're going to pay a claim and the single source of truth is when the claim happens, are you going to pay? So how did you challenge yourself to build enough insurance but not... too much technology so that it becomes overwhelmingly that the tech is the focus and not the insurance. It is the most important tension in our business. Growth and underwriting is also very important. Again, I think it's one of those things that if you get it right can be a competitive advantage. And I talked to a bunch of other founders that have worked through this problem, you know, and got some advice like, oh, well, you want your insurance people to report into your tech people. And, you know, there's some tips that I think are valid there. But ultimately, I think it starts with culture. And how do you create that respect between people that are coming from technology or coming from insurance and are speaking different languages, but I find are oftentimes actually talking about the same concepts. And so it started, so I remember the first thing Sam and I did when we started the company was map out our core values and, you know, really make sure that this was something we hired against and celebrate and reinforce consistently. So I'd say that's thing number one. I think thing number two is actually a business model choice too. We decided we knew we wanted to be an underwriting company. And the lean startup thing to do would have been to just focus on, well, first, let's focus on distribution. Can we find customers? Then we'll become an underwriting company. And we've seen a lot of our competitors follow that path. The problem is when you do that, you're not building the DNA as an underwriting business from day one. And so that's why we raised so much capital. We knew we wanted to have that skin in the game and we've taken a more kind of diligent growth path as a result. If you're running an underwriting business. you cannot just optimize for growth at all costs. You have to, frankly, your loss ratio matters more than your top line growth. And we're very fortunate that we've had the experienced folks around the table with enough respect for each other and a culture that can challenge and get to the right answer so that we're consistently making those decisions. And our chief insurance officer, John, is not just looking at me as the growth guy, and we gotta do this together. And so that's been a big part of it. Not to say we've got it nailed and all the perfect answers. It's a continuing ongoing challenge as you grow the business and bring people in from multiple walks of life and multiple geographies. And, you know, to our point earlier, getting them together in person and building that camaraderie. All of the O's ingredients really matter, but I think it starts with culture and it starts with business model choices. Excellent answer. Thank you for sharing these insights with our listeners. What is a principle that you live by that has served you well? or a core value that you've shared with your organization that this is what we live by? There's a few answers to that, but actually the thing that I talk about a lot that isn't in our core values is entropy. I believe in entropy for individuals, for organizations, for society, and that we are either actively contributing to the growth or we're contributing to the downfall. There's no such thing as neutral. And so we have the opportunity, you know, as individuals to positively impact each other's lives and positively impact the company by taking initiative, by driving, et cetera, and we have the opportunity as a business to play our small part in helping the world move forward because it's our clients that are building the future and I get excited about that. But it's our small part to play to help, you know, chip away at moving the world forward and not letting all the progress we've made as society fall by the wayside. One last question, Travis, what's next for Vouch? Yeah, so, you know, for us, the journey started with very early stage companies, and the plan was always to grow with them as they grew. You know, in 2021, it became clear that our clients were growing a little even faster than we expected. And so we very quickly started putting the capabilities together to grow with them. And it's been a journey to get to the point where we can very proudly say that we can serve, you know, pre IPO companies better than anybody else. And so we launched our Horizon business a few weeks ago. to really plant that flag about these are the capabilities that you need as a Series C, Series D CFO to manage risk in your business. So that's the big thing for us. And I think the other big thing is continuing to innovate on the coverage itself. So over the next few weeks, we'll launch really first of its kind coverage for artificial intelligence. And we've got a whole pipeline of, you know, what comes next after that to make it so that again, to your point earlier, it's almost like you saw my onboarding slides for the company. We are selling a promise, not a product. And that promise is only as good as the coverage itself. Amazing, we'll put these information in the show notes. Travis, how can people reach you? Yeah, just go to vouch.us. And if you ever wanted to get in touch with me personally, just reach out to Travis at vouch.us and I'll do my best to get back to you as soon as possible. Amazing episode, Travis. Thank you for stopping by. We wish you the best of luck. Thank you so much for having me. And yeah, this is great. Thanks for doing this. Thank you so much for listening to the first 100. We hope it inspired you in your journey. If you're enjoying the podcast, please subscribe to our podcast on Apple iTunes, Stitcher, Google Play, or Spotify and share it with a friend starting their entrepreneurship journey. Leave us a five-star review. Your support will help spread our podcast to more viewers.