Why insurtech Alan’s crazy valuation is not crazy
Insurtech startups have been among the hardest hit during the funding downturn over the past two years. So I understand the surprise when French unicorn Alan recently announced that it had raised a $193m late-stage funding round at a $4.5bn valuation — a nice leap from the €2.7bn valuation of its last round in 2022.
Pitchbook noted that this was by far the largest Insurtech investment of 2024 — and one of the 10 largest ever in Europe. Pitchbook’s chart makes clear how much pain this sector is feeling:
In other words, Alan’s round accounts for almost 1 out of every 4 euros invested in Insurtech this year.
Historic investors including Index Ventures, the Ontario Teachers’ Pension Plan, Temasek, Coatue Management and Lakestar participated in the round. But it was led by Belgium financial services leader Belfius. Earlier this year, Alan’s founders had publicly said they didn’t need further funding, but the offer from Belfius was compelling because it goes beyond cash: the bank will help Alan offer its services to existing banking customers, something that will help further accelerate Alan’s growth in one of its most important markets.
Still, it’s reasonable to ask: Amid the broader Insurtech carnage, why do these investors have so much faith in Alan?
Our firm, D’Ornano + Co, helped gain comfort on the valuation on the deal using the Advanced Growth Intelligence (“AGI”) methodology that we developed specifically to analyze the intrinsic value and resilience of Disruptive Technology companies. While we can’t disclose the proprietary information we used for that analysis, I want to share some thoughts about the deal as founders and investors continue to struggle with the question of valuation.
Beyond providing a granular analysis of the business model, AGI illuminates which metrics matter most. Going into this deal, we began with a focus on ARR, which has long been the default metric of SaaS success. But we quickly realized that this was not the right metric to measure Alan’s underlying durability.
Why? Because Alan is now competing directly against large, incumbent insurance providers. So, we needed to identify the right metrics that measured Alan’s durability compared to these companies. Using that framework, our analysis revealed to important factors:
· The company has exceptional growth. And growth remains at the core of Disruptive Technology companies’ valuations provided that it is durable, i.e. that the economic engine will not overheat.
· Alan has the potential to turn a profit in the short term, both at the customer unit level and on the broader income statement — with GenAI playing a critical role here.
Those aspects drove the remarkable valuation — and makes it far less shocking than it seems at first glance.
Let’s dig into both to better understand Alan’s momentum.
Quality of Growth
Alan has amazing traction from a growth perspective thanks to its ability to attract new customers at a high rate while also enhancing contracts they have already signed with existing customers.
The company continues to expand its insured base significantly, particularly in the large enterprise and public sectors while also expanding in new territories.
Alan’s public financial filings for 2023 revealed that the company had expanded its insured base significantly, particularly in the large enterprise and public sectors, adding over 94,000 new members in France in 2023. Alan’s entry into new markets, like Spain and Belgium, also contributed to its growth, with a 69% increase in Belgium and 120% in Spain.
Its product innovation, such as integrating health services with its insurance offerings (e.g., mental health and optical services), and its focus on large corporations contributed to its sustained growth. That much of this growth is recurring revenue is just gravy on top.
So, Quality of Growth is high, and the partnership with Belfius should help move those metrics in the right direction as Alan expands in Belgium.
Quality of Margins: How GenAI shifts operating margins
This second AGI pillar is a central piece of the valuation puzzle.
For 2023, Alan reported a net loss of €58 million. Executives said they planned to focus on profitability this year. Gross margins are razor-thin in the traditional insurance sector, and this issue has sunk so many Insurtech companies.
Like other traditional insurance rivals, Alan is investing heavily in customer acquisition, product development, and technology, which all put pressure on margins. The company had already seen some improvement last year in its insurance margins, indicating better control of claims and costs. The company was using strategic pricing adjustments and cost optimization.
But perhaps unlike other competitors, Alan has a unique ability to go further by leveraging GenAI across its operations to drive improvements in G&A, R&D, and S&M.
Alan has integrated AI across multiple aspects of its business. AI-driven automation, especially in analyzing medical claims and managing fraud, has been pivotal in reducing costs and improving operational efficiency. Alan reported a 28% reduction in the per-member administrative cost in 2023. The AI-powered fraud detection system helped reduce fraud-related losses, and the company’s focus on automating customer service through AI chatbots further improved efficiency.
Going forward, Alan’s collaboration with Mistral.AI underscores its ambition to harness advanced AI models for strategic advantage. This heavy investment in AI is expected to continue driving operational efficiency and enhance scalability as the company expands its market reach.
As GenAI drives gross margin improvements, Alan has solidified its unit economics and put it on a path to profitability — a major advantage over other insurance incumbents.
Gravy On Top
The two other pillars of AGI are Quality of Revenue and Balance Sheet Strength. While these aren’t as critical to an analysis of Alan’s valuation, Quality of Revenue is still worth noting briefly.
Alan offers complementary services like Alan Mind for mental health, Alan Clear for optical services, and Alan Santé au Travail, creating additional revenue streams. These services highlight the company’s effort to diversify and strengthen the quality of its revenue base by offering integrated health services
But Alan’s revenue quality is largely driven by its growth in health insurance subscriptions. According to its financial reports for 2023, Alan grew its insured portfolio by over 30%, reaching 496,000 members, with the majority (95%) being collective contracts. This growth was achieved through strong acquisitions in the corporate segment, as well as expansion into Belgium and Spain. A significant part of the revenue is recurring due to the subscription-based health insurance model. So yes, “ARR” is strong — but in the case of Alan, it’s gravy on top of an already resilient business model.
The Next Chapter
These dynamics made it possible for Alan to stand out from the crowd and for investors to be confident that the company has created a resilient business model that will fuel durable growth. Even if large growth rounds are harder to secure, this is the kind of performance that proves investors will respond to the right metrics.
But as any founder will tell you, an investment round is not an end unto itself. It’s just the next step to get to the next part of the journey.
In this analysis, AGI also helped validate right levers to push and pull to maintain the right unit economics as it scales. Alan leadership and its investors can use this as they executive the company’s growth playbook.
Overall, the AGI framework confirmed that the company has built a durable business model and a sustainable strategy for growth. Investors are more demanding than ever when it comes to late-stage funding. Alan’s performance allowed it to clear that high bar.
