💸 How to Raise R400m in Funding…

Hi there,

Still wanna go to Mars? Scientists have just discovered that prolonged time in Zero-G could cause ED. Suppose the jury's still out on whether NASA should issue male astronauts a few extra (blue) pills.

In this Open Letter:

• Dem Pineapples: How to raise R400m funding.

• Open-source Tesla, OpenAI’s 4th CEO & what SA’s worth.

• Building with AI: Opportunities in Africa today.

• Cool tools: A few Black Friday deals for founders.

• Where we watch: The streaming results are in.

• For your business: Share this and get free stuff.

TRENDING NOW

How You Like Dem Pineapples?

Well, we all sat up a took notice when Pineapple raised another R400m the other day. (During a general startup investment downturn, no less). But it wasn’t their first, they raised R80m in 2021. 

And it might not be their last, because they seem to be playing the “old” insurance game pretty well.

Let’s face it: Africa is underinsured. Almost 90% of Sub-Saharan African adults have no insurance – and that meant Africa sucked up over R18bn in dead losses from theft, natural disasters etc. in 2019 alone.

But we knew that. Of the 11.4 million cars on the road in SA, it is estimated that 70% are uninsured. (That’s more than 2 thirds of cars, so that’s likely the driver in front and behind you that is uninsured – eek!)

In fact, Pineapple says almost half their customers are first-time insurers – prolly ‘cos they’re appealing to a new demographic. But it does show that, even in the most established and competitive industries, there’s still lots of room for growth.

But how does the insurance business work?

Well, we’re no experts, but a dive into Outsurance’s numbers gives a glimpse into the model of one of SA’s leading short-term insurers. 

• Claims ratio: The percentage of premium that is paid out to claims. In the case of Outsurance, that is 52.8% of their R10.9 billion in net earned premiums. 

• Cost-to-income ratio: This is the expenses compared to net premiums written. In their case, this was at 26.1% or R2.84 billion.

• Operating profit: The bottom line. And Outsurance had a good year with R2.244 billion in operating profit.

It can get quite complex – you need to attract enough customers with a certain risk profile, at a premium price point that is competitive.

Now, to make the premiums more competitive than other insurers, you could either: 1) Reduce your claims (initiatives like the Outbonus could drive people to claim less), 2) Reduce your operating expenses, or 3) Lower your profit. 

And that seems to be exactly what new kids on the block like Naked and Pineapple are trying to do. Naked has also been in the news for some big rounds of funding and has been in a showdown with Pineapple for best billboards in Gauteng for some time now.

Both are using AI and tech to automate much of the business processes and sales. In fact, Naked is so bullish on how tech can help them win, instead of a variable cost-to-income ratio, they charge a fixed percentage fee, meaning that if there are fewer claims, the additional money will be paid back to policyholders – neat. 

What this means is that their profit margin can only grow if the operating costs come down. Aligning shareholders, staff and customers – a recipe for success.

It’s much the same over at Pineapple.

And how do they stack up?

Sure, R400m sounds like a big raise for an SA startup, but one of the incumbents in the sector is making 5 times that as operating profit in a year. So you almost wanna ask: is that enough? 

It all seems to come down to better tech and lower operating costs.

For example, Outsurance has 5’924 employees in South Africa and, from a quick LinkedIn search, it looks like Pineapple has only 85 (Naked sits at 106). 

But how they use their staff is absolutely fascinating…

Ho ho, no surprise the new kids are proportionally investing more in engineering and IT. But what’s interesting is the difference in sales vs operations. 

It does seem that Naked is set on using tech to scale the sales (quoting, onboarding, etc) process as well. Having more people in ops could point to the back office functions of supporting the front end, maybe?

Pineapple does seem to be able to throw a whole lot more into sales while likely using more tech on the operations side. Is R400m enough? It surely can give the tech a big boost. Time will tell.

But one thing is for sure, the future of insurance is most definitely more lean and tech-enabled. And these two startups are positioned to have a say in how it’s going to play out.

OVER TO YOU

IN SHORT

🏆 Power Brand. Still revelling in national pride from the Bokke’s Rugby World Cup victory, it would seem like it’s also good for business. South Africa’s back-to-back Rugby World Cup titles have seen its brand value increase by 44% to USD117 million (ZAR1,989 million). Now that’s lekker man.

🛠️ Weekend Plans. Got some time on your hands? If you’re a Tesla Roadster fan, Tesla just open-sourced every single part of the Tesla Roadster's design and engineering. You could build your very own Roadster in your garage – but some assembly may be required.

🤼‍♂️ Trading Blows. Investec is jumping to capitalise on EasyEquities' recent press with the release of its trading platform Clarity. And while many are comparing the two head-to-head, they’re not the same thing. EasyEquities allows users to invest directly in shares offering voting rights etc, whilst Clarity (for now) offers trading of synthetic CFD, meaning you don’t actually own shares.

🪑Musical Chairs. OpenAI is getting its 4th (we think) CEO in a week. On 17 November, Sam Altman was removed as CEO by the board, with CTO Mira Murati briefly made interim CEO. Twitch founder Emmett Shea was announced as the new interim CEO on the 19th. Then, on the 21st, Sam Altman returned to OpenAI as CEO (but not after first accepting a job at Microsoft and like 95% of OpenAI employees threatened to quit). Just make AGI the CEO already!

🤑 Crypto Fine. The world’s largest crypto exchange Binance, has had its CEO step down. Changpeng Zhao (CZ) will also admit to violating US laws as part of a $4 billion settlement after an investigation into illicit financial breaches at Binance.

JOIN US NEXT WEEK

Real AI Opportunities in Africa

We’ve all watched the global AI plays, but what can this tech unlock specifically for us here on the African continent? We’re meeting two founders leading the AI charge locally to come share where they think the big opportunities are…

Join us, along with Catherine Luckhoff from 20Fifty and Matt Quatra from Webory for The Open Conversation on Tuesday 30 November at 18:00.

MORE VALUE

A Few Lekker Black Friday Deals

Found any great deals for founders? We honestly think it’s slim pickings this year…

And maybe that’s how it’s supposed to be – Black Friday mainly for entertainment goods, considering that’s how it all started. See, in the US, you have higher incomes and economies of scale, so Black Friday was all about clearing stock from showroom floors after Thanksgiving.

Last season’s stock just took up valuable floor space for newer, more expensive models people are gonna want around Christmas, so selling a TV for $1 dollar made sense if it was holding you up from making a juicier $1’000 sale.

That said, SA dropped nearly R20 billion on Black Friday last year, with that number set to rise to R26 billion+ this year. Prolly driven mostly by retail – just watch yourself, those buggers have inflated their prices all year, so your “deal” might not be as sweet compared to the same one last year.

If anything, we’d love to see SARS get on the Black Friday bandwagon.

OK, all jokes aside, we did manage to round up software deals you might find useful…

Founder’s Deals

Project Management

Get 25% off all your favourite Notion Templates. Valid ‘til 29 Nov.

Marketing

Get 50% off social media and email tool Tailwind’s annual plan.

Automation

Get 90% off Robomotion, which lets you automate web or desktop applications that don’t have an API with cross-platform robots that work on Mac, Linux, and Windows.

Collab

Save up to 94% on Sessions, the remote collab tool that automates tasks like creating agenda drafts and transcriptions using an AI-powered copilot to manage your entire meeting lifecycle from bookings to large webinars.

AI Imagery

Get lifetime access to Supermachine for just $79 (normally $190 per year), an AI image generation tool for stock photos, art and more.

SEO

Get 30% off selected Semrush annual plans – one of the only big SEO tools that has any deals this year (SEO, content marketing, competitor research, PPC and social media marketing all in one place).

Email newsletter

Our email services provider, beehiiv is offering 20% off all annual plans! Thinking of copying us? Well go on and get your beehiiv set up.

Found any great deals? Hit reply and let us know…

THE RESULTS

We asked which channels/OTTs you watch, and now we’re seriously doubting Netflix’s reported SA penetration…

⬜️⬜️⬜️⬜️⬜️⬜️ 🏈 DStv (6%)
⬜️⬜️⬜️⬜️⬜️⬜️ 📺 SABC (0)
⬜️⬜️⬜️⬜️⬜️⬜️ 💪🏾 Showmax (4%)
🟩🟩🟩🟩🟩🟩 💻 Netflix (53%)
⬜️⬜️⬜️⬜️⬜️⬜️ 🍏 Apple TV (4%)
🟨⬜️⬜️⬜️⬜️⬜️ 🏰 Disney+ (11%)
🟨⬜️⬜️⬜️⬜️⬜️ 🦸 Prime Video (9%)
🟨⬜️⬜️⬜️⬜️⬜️ 📱 Nah, give me social media any day (13%)

Your 2 cents…

LOL, ja those of us with DStv have the same problem – where else d’you get the sport?

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