Building a Fast Growth, Cutting-Edge Insurance Brokerage: Karn Saroya, CEO of Cover (Part 3)

Sramana Mitra: You got an offer to join YCombinator. What was your acqui-hire deal? Was it an earn-out deal?

Karn Saroya: We didn’t completely vest. It was okay with us largely because we had quite a bit of conviction around what we wanted to do next. The team was most comfortable building products at the pace of a startup. The beauty of running a startup is you can be extremely high-leveraged. You can make a huge impact quickly and you can scale very quickly, which is what we wanted to do.

Sramana Mitra: For Shopify, acqui-hiring you was a bad deal?

Karn Saroya: I don’t think so. While we were there, we were particularly high impact. We were able to ship products. We got to build very deep relationships with folks there that we still work with today. We’re a multi-line property insurance entity. We sell all lines of property insurance and we sell warranties.

We’ve built a Shopify app that allows us to distribute our extended warranties across all Shopify merchants. That wouldn’t happen if we didn’t understand Shopify as a business – their relationships with their merchants and the needs of their merchants. It has been very fruitful for us. We have a couple of folks from Shopify that have invested in us.

Sramana Mitra: You’re in Y Combinator with the Cover app. When you came into Y Combinator, what did you have?

Karn Saroya: We had a very simple prototype. We weren’t a licensed insurance entity. We were acting as a lead generation business. You can think of insurance as three discrete businesses. Can you acquire good risk at a reasonable cost? There’s underwriting and pricing. Then claims, servicing, and regulatory overhead, which is a function performed by carriers.

We knew that the highest leveraged part of the business is in distribution and to a lesser extent, underwriting and designing product. Holding a balance sheet of insurance risk is not a very high value proposition because it is capital-intensive. Initially, we decided to build a distribution business to prove out that we can drive tons of volume. Tons of customers were interested in finding the simplified way of buying insurance that caters to the needs of millennial who want instantaneous engagement and pricing appealing.

Sramana Mitra: Where does the domain knowledge of insurance come from on your team?

Karn Saroya: To some extent, I understood insurance from my time as a management consultant. The reality is, we took a skillset that we had, which was building and scaling products and applied it to a vertical that we weren’t necessarily 100% knowledgeable about. That was okay because none of this was rocket science.

This segment is part 3 in the series : Building a Fast Growth, Cutting-Edge Insurance Brokerage: Karn Saroya, CEO of Cover
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