Reinsurance, Climate + Kindergarten Ventures (with Nat Manning) 01:13:04

Hello, Acquired LP Show listeners. This episode was so fun to sit down with my, literally my kindergarten friend, Nat Manning, talk about his company, Kettle, and our friendship and his and my partnership together in Kindergarten Ventures, the fund that we run on AngelList together. So I

Great, great conversation. Nat and I were actually in person together at my house here in San Francisco. He was visiting and Ben was over Zoom. It was so fun.

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like Vanta's 7,000 customers around the globe and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. And with that, on to our conversation with Nat Manning.

Hello, Acquired LPs. Nat Manning is with us today. Hello, Nat. Thanks for having me, guys. This is my secret to success. I just have better than me better halves. Literally everything in my life. This is certainly true in your marriage. Everybody can agree on that. Everybody can agree on that.

Later in the episode, we're going to talk a lot more about our history, kindergarten ventures. I think I've said on the show, it's called Kindergarten, our fund that we do together on AngelList, Nat and me, because we went to kindergarten together. Literally. First, the actual reason you're on the show is because you are co-founder of Kettle, which we have also talked about a lot on Acquired. Yeah.

insurance, it's fintech, you know, it's climate, it's all of like the intersection of all the interesting things happening right now. So we thought now would be a great time to give listeners a primer from you. What is Kettle? Thanks for having me, guys. It's a blast to be here. So what is Kettle? Kettle is a reinsurance company that uses the most advanced technology, particularly using machine learning AI to better understand the

the risks that are being exacerbated by climate change. So for instance, one of the first things we look at is fire in California, or in time, things like hurricanes, or wind and flood, and convective storms. And all these things are being exacerbated. There's been a 3x increase in billion-dollar catastrophes in the US in the last 10 years. And reinsurance is the business of understanding that risk, underwriting it, and really, I think about it as kind of like the second parachute.

below the safety net. I mean, this is so cool. Like we spent what, like nine hours on the Berkshire episode talking about all this. Like Kettle is a reinsurance company. Nobody starts reinsurance companies. Let me ask that question first. Now, why did you start a reinsurance company instead of an insurance company? And how does that mechanically work? I would say there's two reasons why we started a

a reinsurance company. One is that the reinsurance industry, it suffers from kind of the classic innovator's dilemma kind of stuff. You know, I think there's a lot more activity and new startups and things in the insurance company, but the reinsurance company really hasn't seen an update, you know, for 50 years. And so I think there was just a large opportunity there. And it's this

Kind of wild, strange industry that's like in Bermuda and kind of Lloyd's of London and, you know, and like the Bermuda folks built a moat around their industry that's like the size of the Atlantic Ocean to keep people out. And it could use some updates. We can get into kind of why. Just as like a fun aside, Kettle is, you know, mostly a remote company, but your one office that you have...

is in Bermuda. That's true. We have an office in Bermuda. It's a half a trillion dollar a year industry in premium, in revenue. And about half of that is written out of Bermuda. And I give a lot of credit to the regulator entity there. The reason why is because they said, we're going to really understand this and we're going to do good, really clear regulatory process. It's not the sort of like, hey, tax haven kind of hiding stuff. They obviously have good tax structures, but it's that they've never had a default. Actually, when you're buying insurance...

You don't really want to buy in the States because we've had Lehman Brothers in the United States. So people buy in Bermuda because they've never had a default. And you got to make sure your reinsurance pays. That's the last resort. The only thing after that is sort of Congress printing more money. Just a refresher for people who maybe don't remember from the Berkshire series or others, reinsurance is literally the business of insuring insurers. And so...

You don't want your insurer to default. But for the system's sake, you really don't want your insurer's insurer to default. That's exactly right. And actually, to your question, the reason why we started Reinsure was, one, it felt like we had some unique knowledge and understanding about the industry. My partners come from that space, and it felt like it really needed some disruption, some help. But the second is that it's insurance for insurance companies.

which also means that it's really insurance for catastrophic level risks, right? It's you as an individual, let's just take property. You buy home insurance and you cover anything that's like under maybe five or 10 grand, right? You're like, Hey, this thing broke. I'm

you get robbed, your roof leaks, something like that, you file an insurance claim and your insurance company covers any of those things that could go wrong. And then what they're thinking about is at the portfolio level, they're set up to cover the roof leaks and the burglaries and all that kind of stuff. But when a fire wipes out $100 million worth of damage in one go, they...

file a claim. They want to cover that tail risk. Or a hurricane or like, this is why Katrina was such a problem for the industry, right? Exactly. And actually, I can get kind of into that too as a sidebar. But to finish the thought, like, the thing is, you know, as we get kind of more into my story, I have been on this kind of path of...

around trying to protect people from climate change for kind of my entire career. And I had this realization at one point that reinsurance was really the industry that was doing this in this amazing way. And so I got totally obsessed. That's because reinsurance is really the industry of understanding those catastrophic level risks that are being exacerbated by climate change, the giant fires, not just is that roof going to leak or not, but

where are these giant fires going to happen? Where is there real damage from another thing like a Katrina or a Sandy or Harvey? This is what I think is so cool about both your story and Kettle. I think, I mean, to a sort of like a quasi outsider, you know, being friends and partners with you in kindergarten, I maybe know a little more, but the reason I think maybe a lot of people haven't

in the reinsurance space is that the competitive vector forever has just been cost of capital, right? Like that's why Berkshire is such a large player. So it's like literally, are you going to go compete in cost of capital? Everybody's using the same models. Everybody knows how this industry works. But

the potential other vector of competition is if you believe the existing models aren't going to work anymore, if something has changed in the environment. And like, literally, this is like, this is the opportunity. That's exactly right. Well, teed up. So there's two things unpacked there, which is that, you know, as we dynadove into the industry, and we're trying to figure out how we can make a difference. The first is that, so

So as I mentioned, there's been a 3x increase in billion dollar catastrophe. But then also, you know, the reinsurance industry has seen about a 62% drop in return on equity over the last 10 years. And reinsurance has historically been a great asset class for uncorrelated risk in portfolios. So but it's not a good thing if you're seeing a 62% drop in return on equity. And it's directly correlated to this 3x increase in catastrophes, right? It's just correlated to the claims going out. As we looked at that, it was just like,

Oh, what does that really tell us? Well, what it tells us is that the models aren't working anymore. Because if they were, you'd see a 3x increase in disasters, but you wouldn't see a drop in return equity because you would have been predicting it. And so... Like the core competency, if I understand right, of a reinsurer is to price risk appropriately. That is 100% of the operations of a reinsurer. That's right.

That's exactly right. That's the job is really price, understand risk, you know, and then maybe secondarily, it's a little bit to transfer it, right? To, you know, very much like a venture fund having LPs, right? Like who wants that risk? But the main thing is understanding it. That's kind of the landscape that we're looking at is it's actually right there in the words, the climate changed, right? Like it's not...

That's what's happened. I feel like you've said that before. Yeah, that one's... Indeed. It's got that one in my back pocket. So we looked at that and we kind of started to unpack. You know, it's interesting. I think about, you know, your guys' stuff all the time. The other thing...

that happened. And I think one of the causes of this is that 25 years ago or so, the reinsurers started to outsource a lot of their modeling capabilities to a couple of firms. That made sense, you know, at the time, you know, okay, we, these actuaries are expensive, like, let's, let's outsource more of the work, they're technically capable, we can save some money, increase our bottom line. But as I always think about you guys saying, you know, that

outsource everything that doesn't make your beer taste better. The understanding there is like, that's the beer. That's all of the beer. Don't outsource that part. That's not the hops. That's not the malt. That's not like... That's the everything. That's the beer. Yeah. Were they thinking that their core competency was capital raising and just having a low cost of capital and that there was commodity underwriting and risk assessment that they could just have other people do? I think so. I mean, that's my read of it. I think a lot of people would argue differently. But I think what happened was sort of a

a lot of these big balance sheets sort of took themselves from being technology creators to understand the risk to being asset allocators. It was kind of like the financialization of the industry versus the technical understanding of the industry. And I think something very similar happened to kind of the US auto market, right? Kind of was like, hey, we're the classic kind of horizontalization of the industry that

Ultimately, like in the process of trying to drive prices lower and comp, you know, you end up actually losing your competitive advantage. And so what happens today is every single reinsurer uses the same model for FIRE.

Every single one. Whoa. And it was last really updated in like 2019, significantly updated. So that's not good for the industry. What kind of happens is, and I get into, but what's happened over the last four or five years in California is that

We saw a ton of losses in 2017 and 18. And when that happens, the capital leaves. They go, hey, the model's not working. I'm losing. So supply disappears. When the supply disappears, the demand's fixed. The insurers need to...

buy a certain amount of cover or they have to drop policies. And you only want to drop enough policies because that's your customers. You're not trying to drive your churn up, right? It's not going to be good headlines for State Farm or Allstate if they're like, we can't insure residential properties in California. Yeah. This is significant, I think, social importance because where does this end if you don't fix this problem? Is the reinsurers...

increase the rate. We drop more policies. People can't get home insurance. You can't get a mortgage. You see a real estate crash. That didn't work out well last time. That's such a good point. It's not even just that you can't get an insurance policy for your home. It's you can't buy a home because you can't get a mortgage because you can't get insurance. Yeah. There is the fair plan in California, which is

the government-sponsored kind of catastrophic level plan, but it's tough. I mean, it's like getting the ACA when you already have terminal disease or something. It's not a good plan.

It's not where you want to end up. And you know what? Some places, that probably is the right structure, like government-sponsored, because it's highly dangerous and it's very difficult to insure. But as they say in the industry, there's a price for everything. My partner, Andrew, has been in this industry for a long time. He likes to say, you can get insurance for TNT factories on fault lines. It just depends on how much you pay for it. Robert Leonard

Let's go back to 2019 when the model for the whole industry was updated for fire risk. What does that model look like? Because my understanding is the models you are building are quite different than the old school way of doing things. Yeah, exactly. So the way that all modeling for cat risk is done currently, and again, the incentives all make sense.

But it's done using actuarial modeling, which is the creation and the main driver of insurance modeling. Insurance is really the creator of data science. And by creating actuarial tables, it started back in the 15th century in Scotland, trying to predict the life expectancy of the clergy to give a

a payout to Scottish widows, basically, clergy widows. And that was the beginning of this process and which really created data science. And then over time, you know, it ensured trips, you know, Lloyd's of London was created to ensure expeditions out. Yeah, I was thinking like the Dutch East India Company and all that, like, yeah.

which is one of the ways actually Bermuda kind of became one of the spots of all this was because it's the spot right in between Europe and America when Europe was colonizing the Americas. And you stop and you, because Bermuda is way up north from Caribbean. Right.

what do you do? You diversify your risk. So you stop and you take your cargo and you share it amongst all the different ships so that if one of the ships goes down, your financer doesn't lose their entire take. That's why this is in Bermuda? That's one of the reasons. Yeah, there's some smart policy decisions too, but that's the lore I've heard for one of the reasons in Bermuda. That's super cool. And for West Coasters, you hear Bermuda and I think you sort of assume like Caribbean. It's like off...

the coast of South Carolina. It's ridiculously far north. That's right. Yeah. We should do like the Dutch East India Company or something. Have to. We have to. Yeah. That would be a very good one. That would be a good one. You know the carried interest thing, right, David? Yes, that it came from that, right? Yeah. If you were sort of a new venturer who would go across and discover riches in the new world that you were entitled to keep 20% of what you carried back to your financiers. Yeah.

I love that. Oh, so great. So great. Okay. So that actuarial science is highly sophisticated, but it's the legacy of that. That's right. And so what actuarial modeling is, is let's look at... It's the law of large numbers and it works really well for...

life expectancy and car crashes. And it's basically, let's look at the historical events, and those will predict future events. Like I said, it works really well for car and auto and other predictable things. But as we said earlier, the climate has changed. And so for years, that did work decently well for fire. In fact, where something has burned,

is the single best indicator for where things will burn in the future. And so the way to simplify it, although it's not that much more complicated than this, it's like, if there have been two fires in the zip code in the last 100 years, we're going to give it a one in 50 chance of burning next year. And we'll run 10,000 simulations across the state. And that's how we price.

It might be a little more complicated than that, but that's essentially the brunt of it. And the thing is, before the effects of the anthropomorphic effects and the climate change effects that have taken effect over the last 10, 15 years, that did work decently well. It was kind of an 80-20 rule, like this just does a pretty good job predicting, but that indicator...

historical fires, it's still extremely an important one, but its ability to predict future fires has eroded year over year tremendously. And so what we do is we use machine learning on all of the satellite imagery and weather data and real estate data that has been generated in the last 30 to 100 years. And we use 64 different indicators. So things like wind and

vegetation moisture index and what the house is built out all this kind of different stuff and we then run today roughly half a trillion simulations for every turn of our model wow so you actually not that it's possible to know this with an incredible amount of precision but you might know better than anyone else where there will be fires this year

Like you could use that for things other than insurance. I don't want to promise anything, but like notifying me. But yes, my entire business and livelihood is built on that assumption. You can confidently say that you have the most thought out predictions and models of where fires will be. The thing to know is it's all probability. So I don't have a God model that can say this part's going to burn. But what we do is we run our models and we rate every fire

all 12 million parcels across California. Parcel being a house. A parcel, yeah, we actually originally did it by square kilometer, but we've just launched

even more highly defined version at the parcel level. And the old school way is by zip code, right? Yeah, even more at the reinsurance level. Actually, let me get it. In the reinsurance level, they basically get rid of geography and start using dollars as a structure. And this is product design, but it's just...

It drives me crazy. This is a sidebar. But essentially, the way you write insurance is it's a geographically based risk, right? And so it makes sense. The way most reinsurance today is written, because it's kind of, I guess, the easiest way to buy it, is like, I'm going to buy an all-parallel, all-state cover. So anything that goes wrong in my portfolio...

and I'm going to start it at $100 million and we'll go to $500 million. And someone else will take $500 million to a billion. And you kind of build this tower that way. The problem with that is like,

It's a geographically based risk. And how is insurance sold? It's sold by agents. So you have some hotshot agent in Paradise, California, who there's a new development goes up and they sell 200 all-state, all-farm policies in one neighborhood, all million-dollar houses.

One fire knocking down two streets could wipe out your entire first $200 million part of that tower, and you're paying out. And that's...

foolish. Like it's, here's the wild thing to know. It seemed, it has gotten worse. It is tough, but there are 14 million structures in California. The worst year in history in 2017, about 20,000 burned down. The next year was 18. 2020 was the third worst year in history, 11,000. And then everything after that was under five. That's less than 0.1% at

every year, right? Like, it's just where's the concentration of the risk? What's the actual dollar damage? And if you understand where those, the highly likelihood of where those are going to be, the vast majority of homes don't burn down. To paraphrase and put it very simply, your...

risk of losing the principal is highly geographically correlated. 100%. Yeah. And so what we do is I was going to get back, we broke everything down in parcels, we evaluate that risk, and I can get into how the models work. And then we basically line them up

from lowest risk parcel to highest risk parcel. And then our underwriting guidelines are we just try our best to not write the 25% riskiest areas according to our model. Over the last few years, about 95% of every parcel that has burned has been in the top 25% riskiest parts according to our model. So we're only really getting exposed to about like 5% of every burned parcel across the state.

And for any of us who, you know, I was going to say California, but really in the whole West Coast of the United States have lived through this in the past several years.

Yeah, this is just obvious, right? Like take Sonoma, right? Like Sonoma County, huge fire risk, like so much destruction over the past few years. But like if we were to go buy a vacation house in Sonoma, we would totally go buy it on the Russian River because like you're fine on the Russian River, you know? Like that's not going to burn. You get to Guerneville and farther west and like you're good. Yeah, go to Jenner. Like, yeah. So like you guys can be like, great, we'll insure those houses. Whereas other people might be like,

I'm not insuring anything in Sonoma. That's right. And that's what we've seen. Folks are getting dropped all over the state. And what's happened is there's been this 5x increase in the price of reinsurance in California across the board. And just saying, hey, we're not going to write anywhere that's not downtown San Francisco and LA. And the reality is, it is definitely more dangerous than it used to be. But

It's not that much more. And actually, interestingly, in reinsurance, this is what happens in any market, really. You mean it's definitely more dangerous to live somewhere in California, but it's not in aggregate 5x? In every single spot. That's right. Yeah. Right. Right. Yeah, exactly. And you can see that. Like you said, you live here, right? There are bigger fires. There is scary stuff. There's more damage. But it doesn't mean that...

should get dropped and everyone should have their rates, you know, five to 10x. You know, some people should and some people live in really dangerous spots and that's tough and hopefully government can support them in that. And some folks, it actually is, you know, like, hey, this is... And you can see this in a lot of businesses. In reinsurance...

It's called the class of. So interestingly, like a bunch of, I think it was Andrew hit in 92, 93. Hurricane Andrew. Hurricane Andrew hit Florida. Really huge damage. And a bunch of reinsurers were created on the back of that. Because what happens is you have a hardened market. You see a bunch of people leave. The supply disappears. And then there's an opportunity for someone to come and say, I think I have a better idea and way to do this. Post Katrina, post 9-11. These were when the largest...

new reinsurers were created in the last 20 years. When we decide to work on FHIR, one of the things we look at is first, if you think of a classic McKinsey 2x2 or an XY axis, on the X, on the far right is the

Whether or not machine learning or technology will make a significant difference or not, let's graph that. So on the far right, fires actually, there are 10,000 fires a year in California, and usually about 10 of them cause 99.8% of the damage. It's actually a really good data set to work off of.

right? Versus earthquake, which is more stochastic, a little harder to predict and measure, right? And so that might be further on the other side. And then on the Y-axis is price dislocation. I think I could make a better flood model than anybody else out there right now that our team could. But because of the National Flood Insurance Program,

we might say, "Hey, you're dramatically undercharging for this. You're charging $5 for $100 a cover. You should be charging $7." And guess what? No one's going to buy from us. Because there's a government backstop. Exactly. Well, and it's not even the government backstop. It's just like that's the market price at the moment. And it's insurance. You buy the cheapest one, all things held equally. It is a commodity in that structure.

Oh, interesting. So you only are incentivized to go after opportunities where it's mispriced in one direction, but not the other. Exactly. And especially in reinsurance, this is not a consumer product. Kettle's brand matters for recruiting and fundraising. Totally.

whether consumers know... Kettle is maybe insuring your house in California. You have no idea. Yeah. I mean, fire coverage and reinsurance in California is maybe... It's hard to measure exactly because I said a lot of this is kind of... Most insurance is bought as an all-parallel, all aggregated together. But maybe... But it's all being driven by fire right now, like that, particularly in California. But it may be a $15-20 billion a year business. And it's like...

There's probably 100 chief risk officers that make all those decisions. It is a very enterprise business, right? Because how many primary insurers really are there? And then there's a handful of others and you can get into casualty and things like this. But we'll get into the whole backstory, I think, when we talk about our history. Sure. Kettle launched in 2020. That's right. Yeah. That's when you raised your seed round. Yeah. We technically... I worked on a whole bunch of different ideas and played around forever. And eventually, you know...

my better half, to say, stop talking to me about insurance all the time and quit your job and go start a company already. I met my co-founders in 2019. We really jammed and we did kind of the classic thing. We applied to YC, had a good idea, did all sorts of fun stuff. I didn't know you applied to YC. We got into interviews and then didn't get it. It was not for this idea. It was actually for...

an evacuation insurance product. It was, uh, if you are in a mandatory evacuation zone, you, we will put 3000 bucks in your wallet in under an hour for 20 bucks an hour. Problem is, is distribution. So like the only people that buy it are people who get evacuated all the time. So you have to, you have to figure out a way to distribute it evenly across a population in that

You know, that's tough. You can't do like a direct-to-consumer product. And at any point, we also kind of came back from that. So we got the no. Oh, man, but we really loved working together. This was so good. And I sat back and thought, what are we going to do? And like, you know, we really have this... We're not marketing people like founders. Like that's not our expertise. We should not try to go head-to-head with Geico's and Lemonade's. Like they're better at that than us. Man, we were talking about this last night. Yeah.

Geico, like you can't compete with Geico. Like they have the lowest cost of capital in the entire world. Yeah. Like you just can't compete. Yeah. And they have a great, you know, brand for what they do. Everyone recognizes it. And, you know, like the usually insurance AdWords are some of the most expensive there is.

And so ultimately, it was like, okay, but what do we really, we're really good technologists. And we understand this reinsurance world much better than anyone. Most people don't even know what reinsurance is and all the weird words that we use in this industry. So let's dive into that and not work on, you know, the kind of sexy consumer product. And I'm very happy we did that.

but we did incorporate the company on February 28th, 2020, roughly three days before the Sequoia letter went out in two weeks before lockdowns. So, um, that was a good story. The Sequoia memo goes out. I have a complete panic. I call up Andrew. I'm like, we're never going to raise money. Um,

And we're going to have to keep self-financing for another year. And I'm running out of cash. And Andrew's like, man, you have no idea. This is the best thing that could ever happen. Reinsurers thrive in down markets. This is the moment. And the down market didn't actually happen to you then? Not in this industry. But it did in some ways in that, again, actually pandemic cost reinsurers a

a ton of money, right? Which then causes them to be even more gun-shy, pull back supply, and which is why we've seen a 5x rate increase in reinsurance in California. And again, it's that it is more dangerous than it used to be, but it's not 5x more dangerous, right? SoFi, right, got created because...

you know, after 2008, everyone's like, I don't want to give loans. And so if I was like, actually giving loans, student loans to Harvard and MIT grads is like a really good business. And Stanford. And I can do that, right? It's a cherry picking business. You guys are all mispricing the risk of loaning to GSB grads. Exactly. And so it is that.

For us, as we get into it, we always have this conversation. In many ways, we operate like a quant hedge fund. We look at rent tech and say, this is how we work. I don't think Kettle has to be bigger than maybe a couple hundred really brilliant people. But at the same time, we also sell a product. So it's not like you can just click numbers in a blank. You have to build a product and you have to sell it to a customer. So it's a little nuanced there, but that product is a quantitative understanding of risk.

You're like, okay, great. We've got this idea. We've got this thesis. Now's the right time. We've got the why now. We've got the market opportunity, blah, blah, blah. How do you build a reinsurance company? And what are the steps that you guys have... Your journey over the past couple of years is crazy. Okay. So first...

we had to build a model that we thought would do a better job than the existing model. And that was under the first thesis of just like, I think machine learning is at a point where it can do a better job than actuarial modeling. So let's spend

We spent six months building ETL pipelines to ingest all the satellite imagery and weather data and clean it up and put it into the process in formats we want. And then we started training our models on it. And we started comparing that to the norms. And then we're like, okay, I think we have something here. I think we can do a better job and write better price. And so that was kind of a first step.

But then the thing that's interesting, right? You know, from a fundraising perspective is like models, they don't translate well into slides. So we had to then hire some, some of our first, our first like great engineers

engineers and front engineers who made some beautiful looking maps that was just like, here's how to understand quickly what we're seeing as a risk, which looks like a map of the state and red and green, all that kind of good stuff. And that's also just really helpful for just pitching and sales. So we have that product in-house. And then the next question is,

regulatory. We got set up in Bermuda. We went through the sandbox program there, which is like a kind of like a startup program that the government runs for new insurance ideas and companies and attract talent. We went through the regulatory process. I got good at writing documents. I think one of my superpowers, and we didn't talk about my background, but I did spend a bit of time in government. And I always feel like

just the ability to keep banging my head against big bureaucratic walls is like what it's like my competitive advantage really until it's done yeah you're actually like amazingly well suited to doing what you're doing yeah we didn't talk about it but like at one point I I'm actually not I would never be anywhere without the brilliance of our CTO San and and in all the the

the understanding the market and brilliance that Andrew, my other co-founder's brain. But like I did at one point spend most of my career working on two things. One was I ran an open source software company that made tools for crisis response and first responders called Ushahidi. And

Who was really interested in that data that was being collected in these after massive crisis was, you know, insurance companies. And then the second was I worked in the White House in 2012, 2013. And then I was the chief data officer of USAID for about a year, which was a...

a nice title for the reality of what I did, which was run around the government giving presentations about how terrible PDFs are and why you should open source and put your all your data into machine readable formats and put it on this thing, data.gov that we just set up. So that was what I did. But again, who was really interested in that data? We were trying to make stories like, oh, let's

GPS, weather data. We would go around and say, look at the amazing stuff that weather.com has created and precision crop farming. And we have Google Maps now because the US government put satellites up into the air and put weather stations everywhere and made these into machine readable APIs. Let's do it for what's coming out of humanitarian crisis and things like that. And who was interested in that? We're insurance companies and reinsurance companies. And I was just like, this is so interesting. And I

I got just completely obsessed. And then I also was like, this is a beautiful, elegant thing where we all sort of pool our money together and take care of each other when something really bad happens. And I think that's kind of beautiful. And what an opportunity. This is an industry that literally you ask most people and they go, I freaking hate insurance. They're the worst. And yet it's this wonderful thing that we're all doing, taking care of each other. Can I push on something real quick? I think there's this interesting ideological philosophical point here.

And theoretically, isn't it more a we all band together thing if the underwriting is kind of a brute force blunt instrument versus being incredibly finely tuned to every participant in the system? You could sort of view it more as a social safety net if...

everybody is paying into this fire insurance thing whether or not my property is the most prone to burn down. I understand where you're going, but I also think that's equivalent to like...

a flat income tax versus a progressive income tax, right? Like actually the most fair is like the people in the most risk should pay more than the people with the least risk. Yeah, right. Well, you also kind of want some market incentives, you know, not to like build property in paradise.

That's the other thing I love about insurance is it's all incentives. Like over time, if we're earning enough money, we can be like, you know, you harden your home, we'll give you a 10% off on your premium, right? You can have these all the incentive structures like to incentivize good behavior. Again, I don't think I'm representing that view, but I think that's this interesting sort of thing where the finer grain, the underwriting, of course, the more expensive it is for people with higher risk situations.

So there's, it's a little bit of a tension and you just decide where on the spectrum you want to sit of like, hey, there's no insurance at all. And therefore everybody gets kind of self-insures or we go all the way and we have, you know, the equivalent of what you mentioned as a flat income tax, which also doesn't seem like the right solution. And so yours is sort of about getting a higher resolution picture of a place in the middle that you're picking. That's exactly right. Yeah. And that is why there's this kind of trusted relationship

hopefully trusted third party to be the underwriter and decision maker around the pricing of that risk. And that is the role of insurance to do that and then and hold a bit of that and of that risk and organize it correctly. You know, the other thing, though, is everyone self-insures. It's really this is the other kind of

wonderful thing about insurance. With everyone else, self-insurers, it's really bad for the economy because what happens is, you know, in theory, a rational actor... Locks up a lot of capital. ...would keep the entire value of their home in cash in a bank account in case it burns down, which means that a lot of money then sits and doesn't move around the economy, right? And doesn't get spent. And so you free up... Doesn't get invested. Doesn't get invested. And

And so insurance actually creates this great liquidity into the market. Okay. So speaking of keeping money aside to cover losses, the core competence, operating competency of a reinsurer, as we've been talking about, is your models. Right.

But the other actual side of the equation is capital. That's exactly right. Yeah, I was coming to that. So how do you start a reinsurance company when you're talking about insuring hundreds of millions, billions of dollars of assets? Yeah, exactly right. So yeah, we said, build the model, get the regulatory structure. And then the next thing is like, okay, great. We raised...

you know, 30 million or so from a C to an A in a hot market. Now I can insure four houses in California. Maybe. Maybe. How does that work? And so what you need to do is our role is really as this transfer of risk factor

to capital. Actually, I'll take this out of... It's partly out of your playbook. It's partly out of my partner Andrew's. But we often talk to the team about it being like standard oil. We need to be the refiner of risk in the middle to the end user who wants the risk. And then from the crude oil, that is kind of the original. And what do we mean by that? And if you do that, then you really create a true value. So we're kind of this marketplace in the middle of

where our main function at this moment without our own giant balance sheet is to understand and transfer risk

to capital. What does that look like? So there's two places where capital comes from to write reinsurance. So if you write reinsurance, what you're saying is, hey, you pay me $10 million. And if these things happen, I will pay you out $100 million. The regulators go, you can't do that unless you have $100 million in the bank or have a rated balance sheet in your Berkshire Hathaway and we'll let you have a certain amount. You have to

keep a certain amount of it in the bank, and then we'll trust you for the rest. So it comes from two places. One is reinsurers, who are essentially big balance sheets, who are usually just valued on a very small multiple to the amount of capital they have sitting in the bank. So these are other reinsurers? Other reinsurers. That have come to you and realized like, shoot, actually, we're not doing this right now.

We can work with you. And how about you manage this portion of the rest for us? That's exactly right. Yeah. And so... What are you like a re-reinsurer then? That's called a retrocessional, but that's not what we are yet. So in this case, what we are is technically is a reinsurance MGA. An MGA stands for Managing General Agent. And it's essentially a broker with underwriting authority. And so what a reinsurer is in this case is really an LP. Right.

It's kind of like being a fund that decides to put into a smaller fund like kindergarten, right? And for whatever reason. And what they're doing is they're saying, hey, yeah, we could go write this. But all we have access to is that model, right? That we know doesn't work anymore. I'm looking at the rates and the rates have 5x in the last five years.

But I can't go to my risk board and say, hey, we want to get back into California risk. And we're going to use that same model that lost us $50 billion in 2017 and 18 because...

And by the way, those are SaaS businesses. So you lose $50 billion and then the modeling company goes, cool, here's my bill for licenses. Here's my charge for this year. I just lost you all this money. And so I think the incentives were really wrong by outsourcing this modeling capability. And so what we do is operate much more like a hedge fund structure in this case.

the reinsurers are the LPs and they're saying, hey, I want to get back into the industry or back into the market. I need a new view of risk and I'm going to do it with Kettle. And not only are they just going to charge me a flat fee, they're going to basically say, hey, our license SaaS fee, we basically say, we're going to take a percent of the return. And so if we don't give you a return, we don't really get paid. And if we do well, we're going to get a lot of carry. That's how it works.

Ooh, okay. So Nat, I've known you've been up to this for a while, but I haven't really understood it. So in some ways, this is good for listeners because I'm getting to hear it fresh and I'm sort of a proxy for the questions people might have. So you said two interesting things there. One is that

reinsurance companies are valued basically as the cash on their balance sheet. So that means that people are giving basically no value to the ongoing operations of the business of doing that underwriting and selling the reinsurance to the insurance companies. And so then the question becomes, if I could be an LP in this pool of capital that you're sort of creating, or I could

be a good old venture capitalist and invest in the operating company of Kettle. How is it that Kettle is going to accrue enterprise value when typically reinsurers are basically just valued as the cash on hand? Well, Ben, you've gotten right to the heart of the theory. And I mean, we're trying to walk a clear line and be a, you know, one of the first clear technology driven reinsurers. So we're going to get really into it. So

MGA's, all the kind of insure techs and folks that you've heard of in the space, a lot of them are structured as MGA's, usually not as a reinsurance MGA, but as a primary. And the reason why the markets like that is it is a kind of a market transaction-based business. You're not holding most of the risk. A lot of the insure techs in space, they build the

the customer base and this and then they transfer the risk on to reinsurers who pay out a lot of the claims and they get a larger valuation multiple because of that. Generally, people don't like

Risk is not valued well in the markets, right? I mean, look at Berkshire, right, as a classic example. The better underwriting you've done over time as a reinsurer, the higher the multiple is on your balance sheet. So there are some that are at 6x and higher, but they've built really excellent...

underwriting businesses. To the extent folks are familiar with InsurTech, you know, as the InsurTech corner of the fintech world, which has been very active in aggregate over the last decade. Yeah. You know,

the Lemonades, the Hippos, the Metro Miles, most of those are MGAs, this model that we're talking about. A lot of them, yeah. Or they structure as carriers and have as well, but still transfer most of the risk off to the reinsurers. Okay. So what's the thesis with Kettle then? So I'm going to tie in two things actually here. One was David asking, where does the capital come from? And then Ben, your question. So we're taking this approach that's

that also I've seen as someone who invests a lot in insure tech that I think a lot of everyone's moving towards, which is this sort of hybrid model where you own a little bit of the risk, not a lot, but some to show alignment of interest. And then you also have the MGA structure. And the reason... So what does this look like? So we set up Kettle Re, which is a

a reinsurance balance sheet for actually writing risk. And we then go raise capital from, this is the second place that capital comes from for reinsurance. The first is traditional reinsurers. The second is through something called insurance-linked securities, which is essentially the securitization of insurance premium. And the typical investors in that are pension plans, sovereigns,

endowments, large family offices, asset managers. And the reason why they like it is it is a completely uncorrelated asset from the traditional market that can... Back in the day, it was doing 10%, 11% solid returns. Now, as I said, there's been a 62% drop in that. But

But that ILS market actually only really started in 2005 or 2006. It is now about $100 billion a year. So this has been the past six months of your life, right? You have set this up now for...

and raised like a significant chunk of money from people who, well, I'll let you tell it, but I'm like, oh yeah, you know, gosh, as the market changes, I really might like a sort of 10 to 20% annual return completely uncorrelated with Jerome Powell asset here. Exactly. So we, I kicked off the plan,

And this is actually responding to the market needs. So why we do this originally, you know, if we did it fully and just set up our own full balance sheet, then yeah, we would probably start getting valued at just the value of the balance sheet, right? It's not as attractive as the advantage of the technology that we have. But what was interesting from the MGA process is where we're working with reinsurers. The analogy I've often used in this case is it's kind of like

as an MGA and reinsurance MGA, you're kind of like someone running a fund that just uses SPVs. You don't have dedicated capital. You have a great cadre of folks who really believe in you. But they're like, I want to look at everything deal by deal. I'm not just going to let you call capital. And there's a ton and you bring them a deal and then they decide. But the thing with that is it's slower. It takes more time. And also when you're pitching the deal, right? Like the...

You're like, I could lead you around as long as I can get the capital together. And the founder in that case is like, well, I'd rather just take the term sheet from the people that can guarantee that the money's there. And probably from the investor too. I mean, I'm thinking like one of the reasons we have a fund, we do SPVs too. We love it. But if we just did SPVs, a lot of people would say like,

"Okay, cool. I'm glad you showed me this. I'm willing to give you something for you showing me this." But like, "I'm putting the money in. Why am I going to give you $220?" Yeah, totally. And then the other thing about reinsurance is... The reinsurance, it's so much like the venture industry. It's the term of like, "We're all frenemies." Bermuda is basically like old school Silicon Valley, like Sand Hill Road. And the reason why is when you do a deal, there's usually a lot of different folks in the deal. You could do $100 million of risk and

One reinsurer does 50 and somebody else does 20 and somebody else does 30, right? And you're kind of competing for it, but you also all aggregate to share the risk across. And so what the thought is here is if we have our own, by setting up our own balance sheet, setting up Kettle Re, our intention is that we then can actually lead our own deals.

and it lets us move that much faster. And the reinsurers were sort of said that. They're like, hey, if you just could just... Instead of bringing us this deal and asking us, do you want to lead this and put in... If you let it and said, hey, we've already written this. We're doing it. We're going to keep 20% of it. We're bringing in the other 80, syndicating out the other 80%. They're like, it's so much easier for us to just say yes to that than you bringing us something from Sharks. So it was all about trying to actually...

Increased velocity is the reason to raise this fund, the structure, ILS structure. And so, yes, we have gotten some commitment for that this year, which we're super excited about and gives us the ability to do that for this fire season. And the hope is to really increase that value.

tremendously. Our partners took a bet on us. We got about $50 million committed. It's early days. We're a couple-year-old company. Again, that's a lot of money to put behind someone's models in the early days. We had a few things written last year, but it was pretty small. So now we really get to test it.

for real this year. And then what's been fun is, you know, I pitched a ton of folks and I think kind of, yeah, you started raising the road show January. Yeah. And in January, different environment. Exactly. In January, it was like, this is really interesting. This is cool. You know, it's early, but you know, let's put my money in tech and there's zero interest rates. And like, I mean, I just doubled my money this past year. Exactly. And, you know, and the amount of folks who've kind of called back in the last, last couple months and said, Hey,

Hey, remember when you were telling me about that mid-teen return uncorrelated asset? Can we get back on the phone? How's that working? And so we're reengaging a bunch of them looking at the 2023 year. The other thing about reinsurance that's very different than being in a hedge fund kind of approach is like, yeah, you can buy and sell every day. Insurance is sold on a structure, right?

right? And so most of it is sold on a calendar year on 1-1. And you line up capital and do that. And then there's another big... 1-1 being January 1st. January 1st. Yeah, yeah. And then usually, basically, at the beginning of each quarter, there's another big sale. So you work on these quarter-long sales processes, which is just an interesting function. We're thrilled. It's exciting. I think what's really interesting about that too is...

right now is being in an industry that actually is truly kind of counter cyclical to the equity market. And can we have a really attractive product for investors in this moment? All right. So I got to ask, what's hard? What sucks about this business? What are your smartest skeptics sort of think about

For the smartest person that you pitch where you're like, damn, that pitch didn't go well and they had a lot of good points. What are some of those good points that you're constantly like fighting against? Good question. Because so far it's just sounded like all rainbows and sunshine. Good question. The hardest thing about this industry is that you can't do reinsurance at a small level. Like it is really hard to pilot. Like why see you go get five customers? Like you can't like...

You're like, there are five customers total. Yeah. The smallest deal that we talk about is like 10%.

$10 million on risk. That's the starting point. You have to get enough confidence and build enough to convince someone to put $10 million worth of risk down with you as a starting point. Nat and I joke about that. I'm sure you say this to other people, other your friends too, but you're like, I'm doing some real entrepreneuring right now. Yeah, that's right. That's exactly right. It is. And that's hard as a startup, right? And I get that.

The capital allocators are like, hey, you don't have a lot of years of proof here. And at the same time, everything sounds good and it sounds smart, but that's the magic. Actually, I'll give a shout out to our friends at Vouch. Sam has been a really wonderful co-founder and CEO of Vouch.

really wonderful mentor and helpful to me and to Kettle. I remember him telling me once, getting an insure tech or I think any kind of startup off the ground, it's like this crazy stretch. You're kind of like doing a split, trying to pull one side in and the other side. And you're trying to convince them that you just got to somehow pull it all together and make it happen.

That's the hardcore entrepreneuring. Just get the belief there. Once you have that, you can really start to scale. I mean, the other cool thing about reinsurance, I think it's very easy to scale quickly without having to buy a bunch of ads or things like that. If it's working, you kind of just add some zeros to everything. And the best questions that I'm always like, ooh, good thought here, are actually usually, it's pretty nuanced, but they're around...

what's called reinsurance product design, which gets really nuanced. And it's something we had to learn. It was like one of the things we actually learned. So the first product we put out was this thing we called a cat slice. It was what we kind of talked about like, oh, you can... You send us your book. We'll evaluate it. We'll look for the mispriced risk. We'll put those into their own little pool. And we'll ensure that. And that will allow you to then...

slice out those fire risks out of your portfolio and have them covered. And we thought that was brilliant. And we're like, okay, that's gonna be great. I was gonna love that, right? Like I got these like risky things that people think are risky off my books and somebody else is covering it. You know, the nuance there is it's that we're the ones going in and picking it and slicing it and the buyer doesn't love that idea as much, right? They're like, I want to be the ones to pick what I want to cover. And

And so we, you know. I want to give you a portfolio and you price it. Exactly. And so what we do now, we still use this great model that we wrote called our dynamic pricing model that, again, was actually taken from the hedge fund world or built by our team from the hedge fund world.

And it's used pricing then to incentivize it. So we look at each of the grids, let's say in Sonoma, and the customer says, I want to buy to cover this grid. It's actually the products called grid rated industry loss or grill. And it's a parametric type product at the reinsurance level. Parametric means that if this grid burns,

usually about square kilometer level, we pay out an agreed upon amount versus having to deal with the time of claims and specifics and rolling up. And we have kind of an agreed upon structure and amount there. And then the way it works is we say, okay, you pick this grid, we're going to charge, you know, I'm just picking these numbers, but 10 out of 100.

And if you pick the grid next to it, that second grid alone might be 10 out of 100. But if you pick both, that second one's going to be 15. And if you pick a third one next to it, that also might only have a 1 in 10 chance. But if you pick all three, that one's going to be 25, right? Because we're trying to...

show that like by if you're going to try to just cover the entire county it's probably going to be a fire somewhere you know we need to cover that and pay for it accordingly so it creates this way to disincentivize the geographical clumping of risk where one fire could cause tons of loss as we talked about earlier yeah the whole thing is kind of getting live price through our api through that and the point of that though to your question the difficult part is kind of like

the questions we were getting around that original product or that really drive into, hey, the other stuff about how just the industry is typically buying at a state, all peril, all state level, which is really convenient as a buyer, but

And what's happened is it's gone 5x, so it's become painful, right? And now we're at a point where we're like, hey, we can save you money. It's going to cost you more. It's going to cost more time. You're going to have to buy from multiple people. It's going to be a little bit more work. But if you do it, you should save a bunch of money. And it's kind of just convincing the buyer more and more that you should do that. You should save yourself money. The prices are painful now. This is a way to do it. That's at the consumer level pitch, but it's also communicating why...

The consumer wants to buy our product to the investor as well. That's at the insurance, primary insurance level. That's right. Yeah, yeah. That's the pitch to Allstate, to State Farm. That's correct. Yeah. Yeah, but also convincing the investors how that works when they're really nuanced and understand. I mean, then the other thing is honestly explaining machine learning to folks is always a...

is always a challenge. And to really get them to the point where like, I really believe this and I like it. Because it's by its very nature, a little bit of a black box, right? And that gets scary for folks. Nat, you sort of casually mentioned earlier, you do a lot of investing in InsurTech and you see this model that you're pursuing as the future. You're seeing lots of companies go this way. The investing you mean is the investing that we do at Kindergarten. That's right. That is why you're my partner in Kindergarten because...

Man, you see all of these awesome, super early stage InsurTechs doing super innovative stuff. You're right in the middle of all of it. Maybe let's talk about kindergarten a little bit. It's also such a cool acquired story. I don't think we've discussed that at all on...

the show. I mean, at one point we did like a how a startup studio works to dive into PSL, but I've never like turned the tables and been like, so what are you doing at kindergarten? So let me play interviewer here. All right. Let's instead of going all the way back to kindergarten, we'll get there. But let's start with like, when did you two decide to partner and how did you decide to

do investing the way you're doing investing? Well, I think we got to start with how we reconnect because we went to kindergarten together, but then there's like a 25-year gap. Exactly. Exactly. Yeah. This makes it sound like you're like these incredible old friends who have been friends since... We are. You did go to kindergarten together, but...

And not just like when we like spent a lot of like our parents have been friends this whole time. Yeah, that's right. Like we spent a lot of time together. That's right. I mean, we do have to start at the beginning. David, I went to kindergarten together, but then David went to a different school, but was like also very close. I mean, we live like 10 minutes from each other, you know, and then our parents were friends. And so we'd still hang out and stuff as kids when, you know, your parents are setting up play dates and things like that. But then as we got older, we went to different schools and, you know, we'd like actually played each other in sports. We'd see each other here or there and things like that. But like,

We had different social circles once you're in kind of middle and high school and things like that. Right. And it's so funny having kids now. Like, I totally understand our own journey much better. I'm like, yeah, I totally get what happened here. Exactly. Exactly. Famously, David and I have memories of paying a lot of Atari together, which maybe dates us.

And then the story actually brings both of you in. I was building Kettle, the earlier thinking about even building Kettle and starting to work on it. And as one does in the startup world, I did live in the Bay and live in the startup world for 10 years. And now it's like, I'm going to go do... Now it's my time. I'm going to go. I'm going to start my thing. I'm ready for it. Here are the reasons. And that's how we started getting Kettle together.

And I started listening to Acquired. There was a point where I was listening to it and I go, David Rosenthal, David Rosenthal. And I'm remembering my mom being like, you know, David works in tech too, not in venture. And I'm like...

Mom, I have my own parents. I don't need... Of course, my parents are saying the same thing. Yeah, I was like, that's awkward. I haven't seen him for 20 years. I'm not going to just drop him a line. Like, I don't, you know, he's up in Seattle anyway. But I listen to Acquired and David Duran, though, they go in and Google, it's audio. So I was like, is that... And I look at him like, that is, that's David 20 years older. Yeah.

And so I got onto your Slack, signed up for an LP show and messaged and messaged David. Yeah, you sent me a DM. Seshed David and was like, hey, man, I love the show. This is awesome. Oh, that's amazing. And we went for a hike in the East Bay. And I was like, you seen it, no smooth. I just happened to be thinking about starting a company. What do you think of this? That probably was, like I was saying earlier, I started it in Feb...

right before lockdowns. It was probably like three months before then. Like it was right before kind of lockdowns. And David, you angel invested before kindergarten existed, right? Like you angel invested in Kettle. I mean, this was fortuitous. This was my period as an actual angel investor. We talk about being an angel investor now. I mean, I

I think myself as an unprofessional venture capitalist now, but that's not a good acquired intro. Maybe I should use that on the acquired intro. I'm David Rosenthal. I'm an unprofessional venture capitalist. Maybe non-professional. Yeah, maybe non-professional. I like it. Post-professional. There we go. Post-professional. Yeah, this was during my post-professional venture phase when we were starting to scale up acquired and I was angel investing. I was like,

this is pretty interesting. You hadn't actually like, despite being in tech, you hadn't built this kind of company, raised the kind of money from the kind of firms you were talking about. No, no, I hadn't. It was so fun to reconnect. And I was just like, I think I can help you navigate this. And Nat, who have you raised from? We didn't talk about this, but like,

dollar amount, firms? What's the stage of the company right now? Actually, so let me finish this part and I'll answer that as part of it. So we got ready over that spring to raise. And in part of that, I was like, Hey, David, you said you wanted an angel investor. Great. I was like, would you also be willing to...

you know do some dry runs with us like let us pitch you in with your venture hat on and tear us apart and he got a nice smile and we did the pitch and uh it's like great right and then and then he ripped me apart it was so i felt so bad especially like i knew you at this point andrew your co-founder i was like oh man you know like i think of myself as pretty nice and like i love you guys it was so like the pitch was terrible nice david just like suddenly it was like

Oh, I see this. Just let me take it. And I remember Andrew afterwards was like, that was so surprising. And it's helpful. It is value creative, but you're like, whoa, this is a very different David. Exactly. I think most listeners don't know this about me, but yeah. When I deem that it will be helpful...

I'm capable of switching to just being completely brutal. A mutual friend described David in the venture world as an evil genius. I'll just leave it at that. So we actually did that with you. And I'll recommend any kind of founders out there, highly recommend doing this. We did this with David twice. We did it with two other entrepreneurs and friends and another...

who had a very focused fund. So I obviously weren't going to be in this. And so, which was great because I'd be like, great, just now let's go through it. And we did a bunch of reps and got much better and then went out to pitch. And our seed round was in the summer of 2020. And it went insane. How many term sheets did you have? We had 15 written term sheets.

What? Even back then, you know, most firms... That is the actual most I've ever heard. It was nuts. Yeah, most firms aren't going to actually write a term sheet if they know that there's that level of competition. They're just going to be like, all right, you know. But like, you got actually 15 term sheets. I went and counted. I think it was... It was, yeah, 12 or 15 actual written term sheets. Another, like...

that basically were like exactly what you just said. Like, I'm not going to bother. Come back if this falls through or whatever. Yeah. Like, okay, you've gotten 15. Like, we're out. You know, this isn't going to fly. It was nuts. And David was also one of the best advisors through this process where I was like, I really like these guys, but they won't increase their amount. And David just being like, tell them to increase their amount and just don't say anything else and they will.

Just be quiet and it will work out. Sorry, investors. You're getting the full backstory here. That was great. We're all friends. This is why I love being a non-professional VC. The other wild thing was we ended up raising... It's like the Don Valentine thing. One of the famous Don Valentine tactics was always he would just... Approaching a conversation that he knew would be sort of difficult and he knew he would have to sort of get someone to do something they didn't want to do. But he also knew that maybe they were thinking they would have to do it. He would just sit down and go...

so yes and just stay quiet awkwardly for a long time that that was that's pretty word for word what david would would advise us and i'd be like oh i don't know and it's gonna back out and it's like that it's gonna be okay the other funny part about us we ended up raising at an at an 18 million valuation which like at the time was bonkers and now i look back and was like what um

We raised 4.5-ish. So we did raise a larger than a normal amount, but it ended up working really great because one, again, David getting a lot of credit here was thinking about the structure. And so again, kind of talking to any founders out there, we thought really closely and we ended up bringing in

two amazing seed kind of focused funds and then two more A kind of focused funds, smaller amounts, and managed to squeeze them all in. They were, so True led the seed, Homebrew, Accru, and Anthemis were all kind of took

part. Anthemist is a fund that's very focused on insure tech and fintech and really knows the space really well. So that was great. Crew, we had a great... Just really got along really well with and I knew Lauren there for many years. And so there's a good trust. And then... We should have Lauren on the LP show. Yeah, she's great. She's great. And then another shout out... She gave her side to the story. Yeah, exactly. Two other shout outs. So we ended up going with True to lead. And you guys have gotten to know True a bit. I mean, I really think they are just the best...

seed investors out there they're in my mind i mean you know he's sort of biased but like just pure play seed like they've been doing it the longest like they're they love kind of crazy stuff exempted of course yeah non-pacific northwest yeah bay area pure seed like they're they're fantastic they haven't they've been doing a lot longer than we have oh my gosh yeah they've been doing it for like seed focused for like 20 plus years yeah yeah

There's such a great crew of other founders and they love kind of the crazy weird stuff. You know, Adam there was, you know, we pitched and talked to him and then we did a second pitch like a week later. He'd asked like what were kind of, you know, what are some books about reinsurance and things? And three days later when we did the kind of the next conversation, he'd read all books and had just like, we were like, man, you know, and one of the things we realized we were like, we want to go with the folks who just like are kind of crazy and obsessive and

obsessed uh with with the with this thing and then the last was um was home by the way tree ventures is an investor in psl in the studio itself right that's right i forgot about that that's great i mean like we're connected all over the place obviously the kevin rose episode where we had him on and talked nfts and everything but like a huge thumbs up to everything you were saying about a like ridiculously earnest ethos and that's their public posture and that is exactly how they are

for real too for 100% we were just talking about a kettle issue before this and like there was a situation where true could have like been very antagonistic and like they were just so like supportive of like it genuinely is like it's so rare like most species are not that way they yeah anyway

And then our last partner here was the homebrew team and Satya there, who I think have just a really great understanding of the fintech space and the insurtech space and really had a product background. I mean, Satya had run product at Twitter before and did a bunch of Google. And so we wanted that sort of background as well. So bring that crew together. And then we hit a

bunch of milestones really fast in kind of six to nine months. And in the beginning of 2021, our existing investors decided to preempt our A and came in and gave us a preemptive term sheet. And we negotiated and it ended up being really great terms. We ended up raising about 25 million in our A at the beginning of 21. And we loved this crew behind us. So a crew ended up leading that. And then we also brought in some other awesome investors, lower carbon capital in the climate space. And

Valor, who are really smart folks. And are now our largest LPs in kindergarten. True story. Yeah. Valor folks are so great. Yeah, they're really great. And DCVC, who had kind of the data focus. So the three of them came in as well. Okay, so things are going well over in Kettle Land. David, you're an angel investor at this point in...

And so you and Nat are getting to know each other through that a little bit. How does the idea come up of like, hey, we should start a fund together? It was Nat's idea. Yeah. So one other part was that the first two...

checks in the kettle prior to raising that round were from two... Well, it was three. I mean, David as well, I guess. But the other two, I had a safe opened up and there were two friends who were our entrepreneurs who now actually kindergarten has invested in both. I'll name check them. Ryan Delco, who started Primer, Roger Chen, who started Cosign. They had done countless...

pitches with me over bad ideas. Ryan and I rented out a breather one night and just whiteboarded for hours about how to make a

crypto insurance company back in 2017. So we had them put in and they both had, they were kind of entrepreneurs with two small funds, right? And I, you know, same exact structure. And I went and asked, I was like, Hey guys, how much work is it? And what's it like? And they're like, it's all add value. I get to just meet all these underwater, wonderful entrepreneurs all the time. It's great. You talk to them anyway.

And I'd love to angel invest in all of them, but I don't have enough capital, right? So this gives me the chance to do that and be supportive and build the net. And I went and asked David his thought on this as well. I was like, I'm kind of thinking about doing this. I think I could raise a little bit of capital. I actually know some reinsurance execs who are often like, Matt, if you see a great deal over in Silicon Valley land, let me know. And I was playing this sort of bridge, but I wasn't sure. I was a guy, I've got to be really focused on Kettle. And David was like,

You know, I've been thinking about the same thing. Wouldn't it be a lot more fun to do it together? I was like, absolutely. So everything's better. If you have someone you trust and you can work together on something instead of being a solo, it's just so much more fun. And there's a built in gut check. Exactly. Exactly. Well, and the other big thing, we've talked about this on Acquired a lot, but I was hearing from people I knew who were doing similar stuff like this.

you know your friends who put into kettle and you know who now we're invested in we were coming to realize and then when we talked to a bunch of them when we were thinking about this angel list just makes this possible so easy it's it's not only about getting the capital from lps to do this it's just like i was even finding as a personal angel investor just the infrastructure like even though it's all my own money and like i'm like fine i'm not going to do legal diligence or anything but like it's just a it's hard you know when you're also trying to build something else and

AngelList made it... We realized we could do this and have AngelList do literally all the infrastructure, all the time-consuming stuff. What makes your beer taste better in investing is finding, getting access to deals, getting allocation, and being able to help those entrepreneurs. We felt like we could... We love doing that. I've been running funds like... Oh my gosh, the amount of infrastructure. You know, Ben, running your own fund. It's just... It's a lot. It's a lot.

And, and so, and it wasn't even economic to have a, you know, our first fund was 2.8 million. Our second fund now is 12 million plus. Even at that level, like it wouldn't be economic to start a fund. No. But Angel has just made it possible. Like, it's just like, oh, I'm so grateful. It was. Exactly. It just seemed like it,

It made a lot of sense and it was stuff that we were doing anyway. I always, you know, an entrepreneur wants to talk about how do we do that with Kettle. I'm always like, yeah, of course, let's get on the phone. Now I get to go, great, let's get on the phone and I like your pitch. Could we put in a little? Right? And that's great. And then the cool thing too, I mean, A,

The real reason we do this together has been exactly what you said. Like, everything's more fun with a partner. Yeah, exactly. Especially a good friend. Less than 12, right? Yeah, right. Exactly. From the playbook. But... Wow, dude. You know the numbers. We're good friends. The... You know, the other thing, too, is like, we're just... Like, I feel like we have such good synergy on our deal flow. Like, the deals that you do, I would never see or know how to evaluate, you know? And then, you know, I...

I don't know that I would say the same. You would probably see the deals that, you know, like I do with kindergarten. But, you know, we get access. I wouldn't get access. We're required to all sorts of great stuff. Oh, I think it's totally fair. I mean, look, you can give Nat all the praise in the world and he deserves it for being able to evaluate ideas similarly to your ability. But like your funnel, David, is insane.

insane. That's insane. Well, I literally get amazing founders who DM me in Slack and say, we went to kindergarten together. Can we reconnect and talk about this and get 15 term sheets? So, you know...

The quarter million top of funnel is an interesting thing. I'm sure it's a gift and a curse. Like the number of emails that... Yeah. David's being really nice, but I feel like the lucky one here, I gotta say. I feel you, Rachel. For sure. All right. I'm gonna have to cut you guys off because this is getting too lovey-dovey. David and Nat, thank you both for sharing a bit of the journey there. I'm sure we'll revisit more kindergarten stuff along the way. And Nat just...

huge thank you for sharing what sounds like only the beginning of the Kettle journey and giving us all a little bit of a primer on, I don't think we've ever said the word reinsurance on the show before. I appreciate that. I can geek out on this stuff all day long. So thanks for the good questions. Perfect. Well, if anyone wants to get in touch because they want to work with Kettle or at Kettle or invest in Kettle or anything like that,

follow you on Twitter, send you an email. What's the best thing to do? Yeah. If you want to check out Kettle, our website is our, O-U-R, kettle.com. And you can find me on Twitter at Nat P. Manning. And you can also shoot me an email at nat at our kettle.com. Awesome. Thanks so much, Nat. Thanks. And listeners, we'll see you next time.