Peppercorn AI EIS

Now overfunding due to investor demand: £2.7m raised, capacity extended to £3.25m. Final close Wednesday 27 March (5pm, cleared funds). 

Insurance conversational AI technology developed by industry veterans which can cut costs, improve risk selection and customer satisfaction – tested with 28,000 motor insurance policies sold already

Until the 1990s, car insurance was mostly arranged over the phone, through heavily scripted conversations with call centre staff. The internet has changed this: around two thirds of motor insurance (by premium) is now bought online. 

However, despite sales moving online, insurance providers still heavily rely on large call centres to deal with high volumes of calls relating to queries, changes to policies and claims. Current digital solutions make finding answers or changing policy details difficult and inconvenient, so customers can be stuck in call centre queues, adding significantly to an insurer’s operating costs.

Indeed, car insurance companies tend to lose money per policy premium: on average, for every £100 they receive in premiums, they make a £7 loss, including claims and operating costs. 

These costs are regularly passed on to consumers – motor insurance prices increased by 58% last year, contributing to low customer loyalty and satisfaction.

In 2020, insurance industry veteran Nigel Lombard and his team of insurance and tech specialists set up Peppercorn AI Holdings (‘Peppercorn AI’ or ‘the Company’) to transform this. 

They have developed Pipr, a conversational AI specialist insurance platform, which uses AI to gain greater efficiencies, more accurate underwriting, reduced fraud, fairer pricing and better customer experience.

More sophisticated than a chatbot, conversational AI uses data, machine learning and natural language processing to provide personalised digital conversations as if interacting with a human.

Pipr integrates into an insurer’s policy administration system and automates transactional, administrative and claim-handling tasks, as well as being able to better detect possible fraud, improve risk profiling and provide more personalised policy information.

To prove that Pipr works, in 2023 the team launched Peppercorn Insurance, a direct-to-consumer insurance brand (a subsidiary of Peppercorn AI). In 12 months, 28,000 motor policies and £18 million in premiums were sold through Pipr, achieving a customer review score of 4.9/5, 17% lower costs and 17.4% lower loss ratio than industry averages.

Peppercorn Insurance generated £2.4 million revenues in 2023 and, with the first renewals expected this year, along with new sales, it is forecast to break even within 12 months – not guaranteed. Meanwhile, Pipr is proven and has launched B2B ahead of plan – the Company has a current pipeline of Tier 1 and 2 insurers worth around £60 million in potential revenues. 

To support the B2B launch and conversion of the pipeline, Peppercorn AI is seeking to raise up to £2.5 million under EIS. £900k has already been raised by existing investors EHE Capital and private investors. This round is under an Advanced Subscription Agreement (ASA) and shares will convert at a 20% discount to the current £10 million valuation before the end of the current tax year. 

Wealth Club has an exclusive allocation of £500k and a fund, as well as other high net worth investors from the insurance, finance and AI sectors are expected to invest the rest. This offer is expected to fill quickly – there will not be a second close at this price, as the ASA will expire before 5 April 2024.

Predicated on a successful fundraise, management forecast annual recurring revenue (ARR) of over £4 million in the next 12 months, growing to over £60 million in the next 5 years – not guaranteed. 

The target return in year 5 is 11x (IRR 64%) after performance fees but before EIS tax relief. Investing at this early stage means rewards could be significant, but so are the risks. The minimum investment is £24,151 and you can apply online.

The deal at a glance

Company by numbers

• In 12 months, sold 28,000 policies, £18 million of premiums – generating £2.4 million of revenue 
  
• Reviews.io rating is 4.9/5, versus industry standard of 1.8/5
• Combined 250 years’ management team's experience in the insurance industry 
• Expense ratio is 15%, versus the industry average of 32%
• £60 million pipeline (under NDA so names cannot be disclosed however consisting of tier 1 and tier 2 insurance companies)

Risks – important

This is a single private company offer with no diversification. It involves investing in an early-stage, loss-making business, which is by nature high risk and prone to failure. There is a risk that the capital raised may not be sufficient to achieve the Company’s objectives. You could lose all the amount you invest.

Like all investments available through Wealth Club, it is only for experienced investors happy to make their own investment decisions without advice.

There is no ready market for unlisted EIS shares: they are illiquid and hard to sell and value. There will need to be an exit for you to receive a realised return on your investment.

Exits are likely to take considerably longer than the three-year minimum EIS holding period; equally, an exit within three years could impact tax relief. The value of tax benefits depends on circumstances and tax rules can change. 

Before you invest, please carefully read the Information Memorandum, which contains further details on the considerable risks – alongside the Wealth Club Risks and Commitments.

Fees and structure

Investors will pay no direct initial or ongoing charges to invest. Fundraising costs are being met by the Company. Wealth Club will be entitled to a performance fee on exit predicated on returns hurdle being met. 

This investment is an Advanced Subscription Agreement (ASA) that will convert to EIS-qualifying shares before 5 April 2024.

Wealth Club investors will invest using a nominee structure. This service is provided by Wealth Club’s subsidiary companies Wealth Club Asset Management Limited (authorised and regulated by the FCA) and Wealth Club Nominees Limited. Wealth Club Nominees Ltd will be completing the share subscription documentation on investors’ behalf.

Please refer to the Schedule of Charges for more details on charges (may vary for different rounds and offers). 

All the services Wealth Club and, where applicable, its subsidiaries provide are governed by the Terms and Conditions of the Wealth Club Services.

Our view

The team at Peppercorn AI is comprised of industry veterans, bringing their combined experience to solve an industry-specific problem. Their proposition has the potential to provide transformative change to an insurer’s cost base and user experience. The Company believes its proposition is also scalable at low cost – not guaranteed.

Slower adoption of the proposition could result in slower growth than management has forecast, but given the size of the market and problem to insurers, the business could still grow substantially – not guaranteed.

We consider this to be a compelling, albeit high-risk, EIS investment opportunity – although as always you should form your own view.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.