How CXA’s big SaaS bet paid off during Covid-19

At the beginning of this month, insurtech startup CXA Group announced that it had sold off its brokerage arm to Pacific Prime, a Hong Kong-based employee benefits broker. According to a source familiar with the company, the sale price was S$20 million (US$15 million).

The deal was part of a restructure at CXA so it could focus on its software-as-a-service (SaaS) business.

Rosaline Chow Koo, founder and CEO of CXA. Photo credit: Tech in Asia.

Nevertheless, the brokerage unit was a high-earning business that contributed 95% of CXA’s total revenue in 2019. So why did the company sell it?

From C to sale

The answer starts with CXA’s journey towards building its SaaS platform. To do that, it needed more money to develop the technology.

The insurtech firm began raising its series C round in September 2020. It was aiming to bank between US$75 million to US$100 million and expected to close the round by the end of the fourth quarter of 2020 or early Q1 2021.

Rosaline Chow Koo, CXA’s founder and CEO, denies that the company had trouble raising that round. She adds that various investors were lined up, but they had disagreed on how the funding should be spent to grow the company.

“One group of investors said, ‘We want to bet on your SaaS business.’ Another group said, ‘Why don’t we buy your brokerage business?’ And then a third group said, ‘Why don’t we just bet on your China business, since we can’t travel outside and see your other business?’ So we knew we couldn’t appease everyone,” she tells Tech in Asia.

Tech in Asia meetup with Rosaline Chow Koo, founder and CEO of CXA Group / Source: Tech in Asia

In the end, the funding that CXA was seeking through the series C round was much higher than the money it received from the sale of its brokerage arm. According to Koo, the target amount wasn’t a necessity – it was aspirational.

The company didn’t “really need that much money” because the SaaS business is “so profitable, so high margin, and doesn’t require so many people,” she says.

Covid-19 had struck in the middle of CXA’s fundraising process. But to its advantage, the company’s SaaS business began picking up, growing 218% across Singapore and overseas in markets such as China, Hong Kong, and Europe in 2020.

This was driven by strong demand from insurance companies and banks that wanted to go digital, as they couldn’t generate new business via face-to-face interactions, observes Koo.

SaaS aiding overseas growth

Profitability by 2022