Home » Sydney start-up Honey Insurance lands blockbuster $108m US investment

Sydney start-up Honey Insurance lands blockbuster $108m US investment

It also runs its own AI software over satellite imagery of houses, to assess hazard risks and offer better prices to residents with new or better maintained roofs.

“Honey is sensitive to the affordability of home insurance in Australia, and as a result, is doing numerous things to try and work with customers to reduce risk and claims,” Mr Joffe said.

The lion’s share of its fresh funding comes from Connecticut-based specialist financial services investment firm Gallatin Point Capital, which has never previously invested in Australia.

After a $140 million round in neobank Judo in 2018 and $120 million in Canberra space technology specialist Skykraft last year, Honey’s is the largest Series A round in Australian tech.

Its place on that list depends on your definition of an Australian tech start-up raise. Cut Through Venture lists Wollongong-founded buy now, pay later firm Scalapay’s $210 million round in 2021 as higher, but the company had already relocated to Italy by then. Sydney-based medical device company Saluda Medical also raised more in a $150 million round last year.

The closure of such a large round bucks a sluggish local investment market, where large cheques and generous valuations have remained scarce, since interest rate rises cooled venture capitalists’ enthusiasm in early 2022.

Parliamentary review

Honey is operating in a closely watched field. A parliamentary economics committee is examining the growing unaffordability of home insurance, amid industry-wide losses of $650 million on home insurance policies over the past four years.

Premiums in Australia have risen more than 50 per cent since 2020, in part due to increased natural disaster claims, but Mr Joffe said structural national changes to help lessen the impact of extreme weather were on a “30-year horizon”.

He said his company was succeeding by reducing premiums and payouts in the avoidable 50 per cent of claims.

“In addition to the technology, we have no loyalty tax, so pricing is always consistent and fair,” he said.

“Insurance today is priced in a very 1.0 way when 2.0 allows us to use technology to ensure that somebody who doesn’t take care of their house isn’t being subsidised by someone who has done the right thing.”

Growth numbers

While many in the local start-up scene have been trimming back on employee expenses to appease investor anxiety about spending, Honey has increased from 30 to 110 staff in the past year.

Mr Joffe said its revenue has tripled, and that it had recorded annual recurring revenue (a metric start-ups use to extrapolate monthly revenue over 12 months) of $40 million.

Meanwhile, he said it had a net promoter score (a widely used customer satisfaction metric) of 92, which it claimed as the highest in the country.

He said he forecast revenue to triple again over the next 18 months, expected staff numbers to increase past 200, and anticipated hitting the “unicorn” billion-dollar valuation within three years.

“We have really won by digitising the customer experience. We’ve cut the time to buy home insurance from 20 minutes to three, we’ve cut the time to make a claim dramatically, and how we price is just much more fair and transparent,” Mr Joffe said.

“The result now is that one in 100 Australians are using Honey, which is pretty incredible, and we expect to be closer to 10 per cent of the market over the next four years. Which as you can imagine, would make this a multi-billion dollar business.”

Funding challenges

As well as specialist investment firms, Honey has previously raised capital from partner and customer organisations such as insurance companies RACQ, AGL and building companies Metricon and Mirvac.

Mr Joffe said the capital raising process had turned into a bit of a marathon, with Gallatin buying in at a good – but undisclosed – valuation, after Australian investors had been too reticent to invest at competitive valuations.

“It took me 10 months full time to meet with 305 investors across probably a dozen countries, including almost everyone in Australia. So I’m going to be very happy never to do that again,” he said.

“We had amazing economics, and a very seasoned team, and if we wanted to raise a round of $10 or $15 million, we could have done that in Australia, but higher than that, I could not find a single investor in Australia who would do it.”

Mr Joffe said the funding round would give it more than double the amount of cash in the bank it needed to reach profitability in the next 18 months, and a good portion of the money would be invested in technology research and development.

Conservative local VC firms

While he wouldn’t disclose company’s valuation, he said international investors were now being much more generous than local VC funds, which were trying to recover from over-valued investments circa-2021.

Investors spoken to by The Australian Financial Review said most local VC firms were looking to write cheques on less than 5x ARR multiples, whereas international investors could be double that for a company showing Honey’s revenue growth. They estimated Honey would be valued around $300 million in the latest round.

Lance Toler, managing director at Gallatin Point Capital, said there was a high bar for the firm to enter a new market like Australia, but it had been won over by the quality of the founding team, impressive growth, and innovative customer solutions.

“We came to the conclusion that a genuine challenger like Honey Insurance is well overdue in the Australian homeowners’ insurance industry, and we are excited to be supporting their journey,” Mr Toler said.