Q&A with MassMutual Ventures

Springfield, MA-based Massachusetts Mutual Life Insurance Company  is launching a venture capital firm to invest in startups that will help the company improve its life insurance, disability, annuity, long-term care, retirement plans, and investment businesses.

MassMutual Ventures LLC will receive $100 million from the company’s general account and is defining its interests broadly enough to include cybersecurity and data analytic startups, as well as companies that are more obviously categorized as FinTech.

This new fund is part of a larger trend in which financial firms are deploying a variety of models to keep up with potentially disruptive innovation. BBVA, HSBC, Santander and Sberbank have also established early-stage FinTech venture funds. Barclays is going the accelerator route. AXA, Eastern Bank, and BNP Paribas Cardif have created innovation labs.

MassMutual Ventures is managed by Doug Russell, Eric Emmons, and Mark Goodman. Doug has been MassMutual’s senior vice president of strategy and corporate development for the past five years, while Eric and Mark joined this new corporate venture effort after stints at other venture capital firms.

They graciously agreed to answer questions during a meeting at their offices in Boston’s financial district.

Q.   What is the impetus for starting MassMutual Ventures? Why now?

A.   We’ve been thinking about ways to bring more innovation into MassMutual. Our mandate is to back startups whose technologies or business models have the potential to transform MassMutual’s core business lines. Having a venture fund will allow us to understand the trends that are affecting our industry and keep abreast of rapid technological change in a new way.

Q.   Has MassMutual historically engaged in corporate venture?

A.   This is the first time. The general account has exposure to private equity, but the company has not engaged in corporate venture. We have not invested in early stage companies in this way before.

Q.   Are you taking over any existing venture investments?

A.   No. We are starting with a clean slate.

Q.   Earlier this year, MassMutual announced that it would invest $5MM over the next five years in startups already in or willing to relocate to Springfield, MA. Will you be administering the Springfield Venture Fund or is that going to remain a separate program?

A.   That is a separate but worthy initiative.

Q.   Do you have a preference as to the stage of the companies you invest in? The round you participate in? Will you be doing any seed rounds?

A.   We expect our average check will be between $2 million and $5 million, with additional capital reserved for follow-on investments. You could say that we are filling the Series A gap for FinTech and related startups. We are also willing to do seed-stage deals and, at the other end of the spectrum, provide growth equity for more established companies seeking to fuel faster growth.

Most of our deals will involve convertible preferred, but we might do a convertible note for a very early stage firm.

Q.   Do you have regional investment preferences or is your purview global?

A.   We can invest world-wide but realistically expect most of the companies we invest in will be in the U.S.

Q.   Which areas of FinTech are particularly interesting to you? Payments technology (mobile and otherwise), alternative lending, and automated wealth management have been attracting significant capital recently. Will you make Bitcoin-related investments?

A.   Our focus is broader than just Fintech. It also includes consumer internet, digital health and cybersecurity.

Within FinTech, all the areas you mention, except Bitcoin, fit our criteria. Mobile payments solutions are definitely within our wheelhouse.

We think digital health is a very attractive and very important opportunity. Whether you look at health insurance exchanges or at tools that simply help people understand and manage their health better, you are talking about new distribution channels and new ways to underwrite product.

Other areas we intend to look at include data analytics, online personalization, cloud-related technologies, and anything that can help improve the algorithms used in underwriting life insurance.

Q.   Will you invest in truly disruptive startups or are you looking for incremental improvements in your existing business lines? For example, will you invest in companies that might threaten your existing businesses or distribution channels?

A.   Keeping your head in the sand is not a good policy. We are on the lookout for disruptive ideas. Our objective is to help position MassMutual for the next 160 years. One reason we have structured our efforts as a venture pool and physically removed ourselves from the home office is so we can do exactly that.

Our higher-order purpose at MassMutual is to help people pursue the future and protect the people they love. That won’t change. How we do it definitely will.

Q.   Do you plan on being investment lead? Do you expect to take board seats?

A.   We are willing to lead, although it’s not our opinion that we have to lead. We do expect to take board seats when appropriate. We also expect we’ll often be asked to co-invest because of the expertise we – and MassMutual – bring to the table.

Q.   Since you mention it, what does MassMutual Ventures bringing to the table that other early-stage venture investors don’t offer?

A.   We bring MassMutual, which is a Fortune 100 company with a very large customer base, a significant technology budget, and unparalleled knowledge of almost all aspects of financial services.

Q.   What kind of interaction can your investees expect to have with MassMutual? Will they get preferential access to people (for advice) or data, for example? Is it possible that MassMutual will end up buying some of your portfolio companies outright?

A.   There are certainly privileges that will come with being one of our portfolio companies. We can make introduction to appropriate people inside the firm (as well as outside). We are currently looking at other ways to further leverage the resources of MassMutual for the benefit of the companies we back.

It could happen that one or more of our portfolio companies are acquired by MassMutual if that is appropriate for both parties, but it is also possible that won’t happen.

Q.   Who does your investment committee consist of?

A.   It consists of five people: Doug, the CIO of MassMutual, the head of MassMutual’s retirement business, the head of MassMutual’s insurance business, and a representative of the general account who has deep private equity experience.

Q.   How will MassMutual judge the success of this effort? Purely on financial return? On strategic benefits? A combination?

A.   We are going to be judged on IRR. Our primary mandate is to generate an attractive return for our investor. Strategic considerations are important, but secondary to that responsibility.

Q.   Will you be involved in FinTech Sandbox? Do you anticipate being involved with accelerator programs, in Boston or elsewhere?

A.   We’d like to participate in FinTech Sandbox and are talking to them now. We are open to being involved with the right accelerator programs. That is likely to happen down the road, but we don’t have anything cued up at the moment.

Q.   Should Boston have a dedicated FinTech accelerator, along the lines of the FinTech Innovation Lab?

A.   That’s an interesting question. Maybe. We might be willing to take the lead on a FinTech accelerator in Boston. It’s worth discussing.

Q.   Does MassMutual Ventures have an opinion on the use of non-competes at portfolio companies?

A.   We don’t have a position on this at the moment, since we are just getting started. We recognize it’s an important question right now to Massachusetts entrepreneurs and to the Commonwealth. It’s a non-issue for companies based in California. We promise to give the topic more thought.

Q.   What will MassMutual Ventures look like in 12 months?

A.   Right now there are the three of us, and one associate. We might add another associate down the road, but that would be it. We plan to remain a lean organization.
12 months on, we expect we will have made several deals and we hope to have made it clear that we can lead. We also hope to have begun sourcing our own transactions as opposed to relying solely on deals finding us.

Q.   How would you like entrepreneurs to contact you?

A.   We plan to be very active in FinTech circles. Entrepreneurs are going to see us at community events and we are going to be very accessible. Email is also a great way to reach out. Right now, the best address to use is ventures@massmutual.com.