Here is a statement of fact, followed by a cliche: The health insurance industry in America isn’t very consumer-friendly, and software is eating the world. And where those two ideas meet, there is a company hoping to use software to improve how American insurance works. And it has made real progress.
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Backed by investors like Homebrew, Precursor Ventures, and Core Innovation Capital, Noyo is a technology startup building a software layer between the various parties in the world of health insurance, helping industry members pass information between each other more quickly and with fewer errors.
Founded in 2017 with offices in both San Francisco, California and Durham, North Carolina, Noyo has raised $4 million to date, including a Pre-Seed round in April 2018 and a Seed raise in November of that year.
Noyo is a wager that application program interfaces, better known as APIs, can knit together an industry famous for printed paper, faxes, and errors. Notably, Noyo, a sort of Plaid for health insurance data, is already operating commercially. Plaid, another startup, has raised more than $350 million for its API service focused on the banking industry. Similar to what Noyo wants to do, Plaid helps pass information between members of a somewhat antiquated industry.
Noyo is intriguing because if its manages to situate itself in the middle of the American health insurance market (a market worth hundreds of billions of dollars annually) it could become a hugely wealthy, if largely invisible, technology company. Or, its efforts could fizzle and the company may wind up merely another failed attempt to hack at the waste and misery of modern medical insurance.
To understand how far along Noyo is, and how it came to be we have to rewind the clock and visit a different company. Let’s talk about Zenefits back when Noyo co-founders Shannon Goggin and Dennis Lee worked for the Bay Area-based unicorn.
A Light In The Paperwork Abyss
In its heyday, Zenefits was hailed as one of the fastest-growing software startups in the world. Capital flocked to the disruptive insurance player, including a gargantuan $500 million round in 2015 led by Fidelity and TPG valuing the company at $4.5 billion.
Zenefits later nearly crumbled under the weight of its own growth, and unpalatable legal choices.
According to Goggin, Noyo’s CEO, Zenefits was “an insurance broker, as well as a benefits software platform,” making it a software company that had to work with antiquated systems.
Goggin, a product manager at the company, helped brokers and clients “shop for and explore their insurance options,” along with assisting customers secure price quotes from partnered insurance carriers, enrolling individuals, and managing those policies.
Zenefits didn’t grow quickly on accident. Instead, Goggin explained to Crunchbase News, the startup hit on something that the market really wanted. The company “grew incredibly quickly in large part because our product really struck a chord with the small businesses that we were selling into,” she said.
Its customers “had been struggling with paperwork for a long time,” according to Goggin, and with requirements to “fax something to an insurance company and not knowing where your data was, at any point.”
Because Zenefits offered a way around all that hassle, “it became very popular very, very quickly. And we grew very fast.”
While Zenefits grew like hell, making it a darling of the technology press and the venture scenes, it was itself dealing with a process that struggled to scale.
Tech Has Its Own Challenges
Zenefits is a technology company, but it couldn’t rebuild the industry it operated in from scratch. As Goggin put it during an interview, Zenefits was “able to build a lot of tooling and technology around our products,” but was “limited by the technical and process constraints of our partners.”
There wasn’t an absolute lack of connective technology for Zenefits to use, but what existed wasn’t sufficient. An information format called EDI, or electronic data interchange, helped some. Goggin describes EDIs a “precursor” to APIs, making them something between nothing and a possible solution.
EDIs didn’t fix what was most broken in the system that Zenefits operated inside of. The problems that Zenefits ran into from archaic tech, missing information, and the like could “be traced back to this sort of root cause,” according to Goggin, “which is that these [insurance-related business] systems don’t talk to each other.”
Zenefits managed to take some of the mess out of the insurance world for its customers, but it then had issues to deal with on its own side. And there wasn’t a technology layer to help all the market participants it spoke with in sync.
So Goggin and her co-founder Dennis Lee decided to build a company that could knit the insurance companies and brokers and even the new platforms together.
Frustration Breeds Innovation
Noyo was born out of Lee and Goggin’s frustrations with the technology solutions available to them at Zenefits (Lee worked on EDIs at Zenefits).
The two founded Noyo in Fall 2017, spending the first half-year of their business “going extremely deep on customer validation” according to Goggin.
They wanted to be sure that their “macro vision” of a digital infrastructure for health insurance connected by APIs was correct.
It was. The two founders showed mockups of what their product might look like to brokers and other players in their market, only to have them say, “Oh, yeah, we need this yesterday. Like, let me can I get the API keys? Can I try it out?” Goggin recounted.
The positive reaction was a push to move faster, Goggin told Crunchbase News: “We had to go back and say ‘okay, let’s go.’” She noted that the market’s reaction to their early conversations helped her and Lee know that it was time to “raise money, bring on a team and really go full force after this opportunity.”
Noyo launched its product with a few “early carrier partners” earlier this year. That means that its APIs are passing information between parties in its market and helping sign individuals up for insurance. “It’s working extremely well,” Goggin said.
There is a slow, but nearly-viral effect that the company’s launch is having on its go-to-market strategy so far. According to the company, when it links up with a new platform, it’s often asked to support new carriers. And when it adds a new carrier, that carrier will link the company to other parties it does business with, spreading Noyo’s reach, according to Goggin.
That’s a process slower than a meme going viral on TikTok, but for the insurance industry, it may qualify as wildfire-quick.
And as the startup adds new partners, it grows its revenue.
Noyo’s customers pay on a “volume basis” according to Goggin, who went on to tell Crunchbase News that her company charges “on the number of people policies that we’re managing.” So, as one partner or customer’s usage of Noyo goes up over time, the startup should see rising revenue from that account.
This matters for a key reason. We can presume that Noyo’s gross margins are pretty good; it’s a software company after all. And as the company charges based on a policy number that may grow over time on a per-customer basis, its revenue may resemble that of a traditional SaaS company. Recall that investors covet SaaS revenue, assigning it rich valuations due to its high margins and recurring nature. Noyo should be able to enjoy similar valuation metrics.
Like many companies that build APIs, linking together data from various third-parties, Noyo is bullish on what can be built on top of its budding infrastructure. Goggin told Crunchbase News that she “would like to see a lot more innovation and creative products built around the infrastructure that we’re creating.”
Noyo wants its service to become a platform upon which other companies can build, but it doesn’t want to write all the apps. It has a more pick-and-shovels approach in mind.
And that’s that. More when the company is willing to let a revenue number slip.
Illustration: Li-Anne Dias.