TechCrunch Live speaks with Silverton Partners and The Zebra on hiring external leadership

TechCrunch Live took a virtual trip to Austin, Texas, and we had a great time even if the tacos were missing. Called TC City Spotlight: Austin, the show featured an extended lineup of guests, including the CEO of The Zebra and its early investor, Morgan Flager, Managing Partner at Silverton Partners. Together, they spoke extensively on the growth of The Zebra, why it moved to Austin, and what brought Keith Melnick, its current CEO, to lead the company.

It’s a good story that provides a unique insight into bringing on external leadership. Essentially, Melnick, an early Kayak executive, was hired by Accel to provide due diligence on a potential Series B investment. Still, then the investment firm hung its investment on Melnick taking the CEO spot. Some five years later, The Zebra is a unicorn, and Melnick is still running the company, which employs hundreds in the Austin area.

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Adam Lyons and Joshua Dziabiak started The Zebra in 2012. The company was born in Pittsburgh as part of Carnegie Mellon’s Alpha Lab accelerator program as it sought funding, the company connected with Texas investors, including Silverton Partners and Mark Cuban. The company was convinced to move its operations to Texas, where it’s a cornerstone of the startup community.

Melnick helped start Kayak and worked at the company for 13 years, ending his tenure in 2017 as the company’s president. As he tells the story, Accel recruited him to look at The Zebra’s, which was described as the Kayak for car insurance. The company was raising its Series B and Accel was debating about investing. So it only made sense to have the former president of Kayak look at the so-called Kayak for car insurance.

“Accel asked me to look at a few things for them in the past,” Melnick said during the TechCrunch Live episode. “I knew travel, and I knew search. But I didn’t know insurance, so I got educated in the market.”

He discovered the huge market (and opportunity), he said. “I estimated at the time that the distribution market for insurance was about eight to ten times the size of the opportunity we saw when we started Kayak. Like travel, there are huge amounts of consumer dissatisfaction, which I don’t think surprises anybody who’s shopped for insurance to see that highly fragmented market.”

Melnick advised Accel to invest, and they came back and asked him to be the CEO. “They made me the proverbial offer I couldn’t refuse,” he said. But Melnick didn’t only take over as the CEO; he invested his own money in The Zebra’s Series B.

I asked him and Morgan Flager what advice they have for companies looking to bring on external leadership.

Flager pointed to the founders and said it could go one of two ways. It’s either a negative thing or a learning opportunity.

“As a founder, you can view a CEO change one of two ways,” Flager said. “It can either be, you know, I’m not cutting, and I’m getting replaced, and it’s a negative thing. Or, especially if you’re a younger founder, they can say, ‘Hey, I’m going to learn from someone who built a multi-billion dollar company and learn from someone who’s built a multi-billion dollar company took it public.”

“I think what made this work well was having founders at the company who didn’t feel threatened,” Melnick said.

To both Melnick and Flager, there’s always another opportunity built on past experiences — like handing over control and taking a co-pilot role.

“You have to put your ego at the door and be willing to learn from the old man.” That’s Melnick speaking in his typical self-deprecating style.

Flager advises founders in this position to look to the future and embrace the opportunity. “The next time you [the founder] comes out with a new business, it’s better, faster, and stronger. In addition, you get the opportunity to build relationships with other managers and investors that come along with a very successful company.”

As with the case with The Zebra, Flager points out, the other side of replacing the CEO is purely economic.

“We always knew the true aspiration for [The Zebra] was a potentially public $10 billion-plus asset. And it’s also a marketplace. Sometimes with a marketplace, you have to get the marketplace built and the flywheel going before the business turns, and it’s profitable. So you need someone who can go out to a sophisticated later stage investor and raise the capital to realize the business’s full investment potential.”

To Flager, replacing the CEO is about realizing the full investment potential to the founders, too. It’s about maximizing their investment, too.

“But, again, I think you need to be in the right frame of mind to accept that.”

Watch the entire episode here, where we explore the challenges still facing the exploding startup scene in Austin, Texas.

Read more stories from Austin, Texas!


Equity Monday: Microsoft buys Nuance, Uber isn’t dead, and Austin has a new unicorn

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

This is Equity Monday, our weekly kickoff that tracks the latest private market news, talks about the coming week, digs into some recent funding rounds and mulls over a larger theme or narrative from the private markets. You can follow the show on Twitter here and myself here. It is good to be back!

There was a lot to get through, so, in order that we discussed the topics on the show, here’s our rundown:

Don’t forget that Coinbase is listing this week, yeah? Chat soon!

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 AM PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts!

Austin’s newest unicorn: The Zebra raises $150M after doubling revenue in 2020

The Zebra, an Austin-based company that operates an insurance comparison site, has raised $150 million in a Series D round that propels it into unicorn territory.

Both the round size and valuation are a substantial bump from the $38.5 million Series C that Austin-based The Zebra raised in February of 2020. (The company would not disclose its valuation at that time, saying now only that its new valuation of over $1 billion is a “nice step up.”)

The Zebra also would not disclose the name of the firm that led its Series D round, but sources familiar with the deal said it was London-based Hedosophia. Existing backers Weatherford Capital and Accel also participated in the funding event.

The round size also is bigger than all of The Zebra’s prior rounds combined, bringing the company’s total raised to $261.5 million since its 2012 inception. Previous backers also include Silverton Partners, Ballast Point Ventures, Daher Capital, Floodgate Fund, The Zebra CEO Keith Melnick, KDT and others. 

According to Melnick, the round was all primary, and included no debt or secondary.

The Zebra started out as a site for people looking for auto insurance via its real-time quote comparison tool. The company partners with the top 10 auto insurance carriers in the U.S. Over time, it’s also “naturally” evolved to offer homeowners insurance with the goal of eventually branching out into renters and life insurance. It recently launched a dedicated home and auto bundled product, although much of its recent growth still revolves around its core auto offering, according to Melnick.

Like many other financial services companies, The Zebra has benefited from the big consumer shift to digital services since the beginning of the COVID-19 pandemic.

And we know this because the company is one of the few that are refreshingly open about their financials. The Zebra doubled its net revenue in 2020 to $79 million compared to $37 million in 2019, according to Melnick, who is former president of travel metasearch engine Kayak. March marked the company’s highest-performing month ever, he said, with revenue totaling $12.5 million — putting the company on track to achieve an annual run rate of $150 million this year. For some context, that’s up from $8 million in September of 2020 and $6 million in May of 2020.

Also, its revenue per applicant has grown at a clip of 100% year over year, according to Melnick. And The Zebra has increased its headcount to over 325, compared to about 200 in early 2020.

“We’ve definitely improved our relationships with carriers and seen more carrier participation as they continue to embrace our model,” Melnick said. “And we’ve leaned more into brand marketing efforts.”

The Zebra CEO Keith Melnick. Image courtesy of The Zebra

The company was even profitable for a couple of months last year, somewhat “unintentionally,” according to Melnick.

“We’re not highly unprofitable or burning through money like crazy,” he told TechCrunch. “This new raise wasn’t to fund operations. It’s more about accelerating growth and some of our product plans. We’re pulling forward things that were planned for later in time. We still had a nice chunk of money sitting on our balance sheet.”

The company also plans to use its new capital to do more hiring and focus strongly on continuing to build The Zebra’s brand, according to Melnick. Some of the things the company is planning include a national advertising campaign and adding tools and information so it can serve as an “insurance advisor,” and not just a site that refers people to carriers. It’s also planning to create more “personalized experiences and results” via machine learning.

“We are accelerating our efforts to make The Zebra a household name,” Melnick said. “And we want a deeper connection with our users.” It also aims to be there for a consumer through their lifecycle — as they move from being renters to homeowners, for example.

And while an IPO is not out of the question, he emphasizes that it’s not the company’s main objective at this time.

“I definitely try not to get locked on to a particular exit strategy. I just want to make sure we continue to build the best company we can. And then, I think the exit will make itself apparent,” Melnick said. “I’m not blind and am very aware that public market valuations are strong right now and that may be the right decision for us, but for now, that’s not the ultimate goal for me.”

To the CEO, there’s still plenty of runway.

“This is a big milestone, but I do feel like for us that this is just the beginning,” he said. “We’ve just scratched the surface of it.”

Early investor Mark Cuban believes the company is at an inflection point.

” ‘Startup’ isn’t the right word anymore,” he said in a written statement. “The Zebra is a full fledged tech company that is taking on – and solving – some of the biggest challenges in the $638B insurance industry.”

Accel Partner John Locke said the firm has tripled down on its investment in The Zebra because of its confidence in not only what the company is doing but also its potential.

“In an increasingly noisy insurance landscape that includes insurtechs and traditional carriers, giving consumers the ability to compare everything in one place is is more and more valuable,” he told TechCrunch. “I think The Zebra has really seized the mantle of becoming the go-to site for people to compare insurance and then that’s showing up in the numbers, referral traffic and fundraise interest.”

The Zebra reaches $100M run rate, turns profitable as insurtech booms

From a cluster of insurance marketplace startups raising capital earlier this year, to neoinsurance provider Lemonade going public this summer at a strong valuation, Hippo’s huge new round and Root’s impending unicorn IPO, 2020 has proven to be a busy year for startups and other growth-oriented private tech companies focused on insurance.

That news cycle continues today, with The Zebra announcing that it has reached a roughly $100 million run rate, and, perhaps even more notably, that it has turned profitable.

TechCrunch most recently covered the car and home insurance marketplace startup in February, when it raised the first $38.5 million in a Series C eventually worth $43.5 million that Accel led. As we noted at the time, the startup joined “Insurify ($23 million), Gabi ($27 million) and Policygenius ($100 million) in raising new capital this year.”

The Zebra released a number of financial performance metrics as part of its Series C cycle, including that it recorded revenues of $37 million in 2019, and that it had reached a $60 million annual run rate around the time of its Series C. The Zebra also said that it could double in size this year, putting it above a $100 million run rate by the end of 2020.

With that history in hand, let’s talk about the company’s more recent performance.

A changing market

According to the company, The Zebra recorded net revenue of $6 million in May, 2020. That number grew to around $8 million in September. For those of you able to multiply, $8 million times 12 is $96 million, or a hair under $100 million. According to a call with the The Zebra’s CEO Keith Melnick, the company’s September was very close to $8.3 million, a figure that would put it on a $100 million run rate.

Given that our $100 million ARR club has a history of granting startups a little wiggle room when it comes to their size, it seems perfectly fine to say that The Zebra has reached revenue scale of $100 million; at its current rate of growth, even if its final September revenue tally is a hair light. the company should reach a nine-figure topline pace in October.

According to Melnick, while the bulk of The Zebra’s revenue isn’t recurring, a growing portion of it is. Per the CEO, around 2-5% of The Zebra’s revenue was recurring last year, a figure that he said is up to around 10% today. (If The Zebra binds an insurance policy itself, and that policy is renewed, its commissions can recur.)

What drove the company’s quick 2020 growth? In part, the insurance market changed, with insurance networks that depended on in-person sales seeing their ability to drive business slow thanks to COVID-19. Insurance marketplaces like The Zebra stepped in to assist, helping move some offline demand online. Melnick detailed that dynamic to TechCrunch, adding that when certain advertising channels saw demand fall, his company was able to leverage inexpensive inventory.

A number of factors appear to have added to The Zebra’s rapid growth thus far in 2020. Our next question is whether other, related players in the insurtech startup space have seen similar acceleration. More on that in a few days.

Finally, regarding The Zebra, the company said that it is now profitable. Of course, profit is a squishy word in 2020, so we wanted to know precisely what the company meant by the statement. Per the company’s CEO, it is generating positive net income, the gold-standard for profitability as the metric is inclusive of all costs, including the non-cash expenses that startups tend to strip out of their numbers to make the results look better than they really are.

If other players in the insurtech space are surfing similar trajectories, all that capital that went into the sector around the start of the year is going to appear prescient.

Extra Crunch Live: Join Mark Cuban for our live chat today at 11 am ET/8 am PT

In just a few hours, the TechCrunch crew is chatting with investor and entrepreneur Mark Cuban. Kicking off at 8 am PT, 11 am ET and 3 PM GMT, Jordan Crook and Alex Wilhelm will talk startups and the economy with Cuban as part of TechCrunch’s new Extra Crunch Live series (you can join here).

In the past few weeks, the first episodes in the series with Cowboy Venture’s Aileen Lee and Ted Wang, Precursor Ventures’ Charles Hudson, and Kapor Capital’s Freada Kapor Klein and Mitch Kapor have been a hit, so we’re excited to keep going.

Cuban’s up next. You can hit up the Zoom info below to join the call directly (and ask your own questions) or simply sit back and watch the live streaming version on YouTube. All details are after the jump.

Cuban rose to prominence in the business world in the 90s, selling MicroSolutions, a software reseller and system integrator, for $6 million in the first year of the decade. By the end of ’90s, he’d added a few zeroes to his deals, selling to Yahoo for billions in 1999. Since then he’s become well known for his majority ownership in the Dallas Mavericks (a basketball franchise) and participation in Shark Tank, a television program.

Critical to the TechCrunch audience, Cuban is an active investor in startups. Picking one investment that TechCrunch has covered recently. For example, he’s invested in The Zebra, a company Cuban got involved in after the founder cold-emailed him about the insurance industry. TechCrunch covered the company’s $38.5 million Series B this February.

Startups and investing will be the key topics of our discussion. But we’ll also ask about the domestic and global economies, and Alex wants to know Cuban’s take on the rising split between the health of the American consumer and the strength of the major equities indices.

Details for Extra Crunch members are next. You can sign up here for a trial on the cheap. Let’s go!


Here’s the information you’ll need:

  • April 30 @ 11am ET/8am PT