In our latest Spotlight interview, we spoke with Insurami CEO and CO-Founder, Majed Chaaraoui. Insurami is commercial real estate’s Deposit Guarantee platform. Insurami’s vision is to transform real estate leasing, by combining live tenant financial data analysis with deposit replacement solutions, created and ready to use within seconds. Their Deposit Guarantee platform was developed to improve onboarding and risk management for landlords and tenants.
Majed explains the story of Insurami, his experience of leasing post-Covid, his advice to other PropTechs wishing to raise debt funding, and how he envisages the future of commercial leasing.
Q:Insurami was founded in 2018 with the aim to transform real estate leasing. How did you get started?
A: From working with multiple start-ups in my previous role at Blenheim Chalcot, I witnessed first hand the (sometimes eye-watering) amounts that growing start-ups would have to pay in cash deposits.
Businesses that had revenue >£10M or had raised seven or eight figure rounds were still required to pay up to 6 months’ cash deposit to secure their leases, this was always an issue at board meetings.
Digging deeper into the CRE sector, it became clear that the overwhelming majority of companies leasing a commercial space have to pay a significant deposit, based on landlords’ archaic way of assessing tenant covenants, which requires high net profits over each of the last 3 years.
There are billions of pounds of tenant capital locked up in cash deposits across the UK, yet there are generally low level of defaults and deposit utilisation. We wanted to design an alternative solution that enables landlords to get the same level of cover that they’re used to, while allowing tenants to massively reduce their upfront costs of leasing.
Q:What problem is Insurami’s solution solving for both tenants and landlords?
A: Insurami allows companies to replace their upfront cash deposit with a small monthly fee, allowing them to save up to 98% of their upfront deposit costs. In our two minute application process, tenants are able to apply for a Deposit Guarantee and confirm if they’re eligible for up to £300,000 of cover and get a quote within 24 hours.
We’ve built a proprietary risk model that allows us to instantly check the credit risk of prospective clients in minutes. This allows us to offer flexible pricing based on a company’s financial health, with tenants paying as low as 0.7% a month of the deposit requirement.
Landlords that use Insurami are able to offer a deposit-free option to their tenants, without compromising on the level of protection against tenant default. Lease negotiations are often slowed down by deposit discussions, especially as low move-in costs are becoming a higher priority than ever coming out of COVID. Deposit Guarantees accelerate leasing negotiations by providing a win-win solution for both parties.
Q:What has been your experience as leasing has restarted post-Covid?
A: The end of work-from-home has seen leasing continue to pick up, as more companies finalise what “back to the office” looks like and commit to commercial space of some kind.
Post-Covid, some tenants have shown they are happy to delay decision making on their premises, until they are sure they have the right terms. Other tenants are keen to move as fast as possible and expect conventional real estate to provide the same ease of transaction as the flex office sector.
This all translates into higher demand for Deposit Guarantees , as companies want to reduce their upfront costs as much as possible and minimise the cash flow impact of commercial leasing.
Q:In 2021, you raised £42m comprising debt alongside existing equity investment to expand your Deposit Guarantee products. Could you explain the process of raising such a significant sum of money and any advice you could give to other PropTechs looking to take a similar route?
A: Patience! It’s never easy to raise a round, and each business/vertical is very unique. When running a process it’s always important to note down your most important requirements and shortlist partners on that basis.
Due diligence for raising debt is always a lot more detailed than equity investment, so it’s important to make sure that everything your debt provider will require is immediately available to ensure as smooth a process as possible.
No matter what date you expect a deal to close, always allow a (healthy) buffer!
It’s worth considering how a debt raise will impact on your team’s resourcing. For small teams, a debt raise can take up a lot of bandwidth, so always make sure the person leading the debt raise isn’t also the lead for other critical business initiatives. Closing a debt raise shouldn’t be underestimated and requires a lot of focus and energy to close!
Q:How do you see deposits in commercial leasing changing in the future?
A: There’s been a lot of discussion about the future of offices. While no one has all the answers, we’re currently seeing landlords take on more financial risk at the start of the lease by taking on the cost of fit out, as well as offering other lease incentives.
This means that protection for landlords against tenant default is more important than ever – meaning they are less willing than ever to reduce deposit requirements.
As landlords become less keen to lower their deposit requirements (and tenants are more keen on saving cash!), we expect demand for Deposit Guarantees to continue to increase, from small flex leases that require a 1 month deposit to multi-year leases that require 6 or sometimes up to 12 months deposit.
Landlords are also increasingly open to more sophisticated ways of managing tenant risk than holding large amounts of cash for the duration of the lease and are looking to alternative solutions like Deposit Guarantees to make their space as attractive as possible to tenants while not compromising on risk.
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