By Wallace Witkowski, MarketWatch
As the world is buffeted by digital and societal revolutions, Lemonade Inc. is hoping to leverage the uncertainty created by those upheavals to reshape an industry meant to provide peace of mind: insurance.
On Thursday, Lemonade’s /zigman2/quotes/219257798/composite LMND +8.30% became 2020’s best IPO debut after the mobile-based insurance startup’s stock closed up 139% to finish at $69.41 on the New York Stock Exchange, hitting an intraday high of $70.80. Late Wednesday, Lemonade priced its initial public offering at $29 a share, above the already increased IPO pricing to range of $26 to $28 a share, which topped a previous range of $23 to $26 apiece.
The New York-based company, founded in 2016, said in its filing with the Securities and Exchange Commission that it uses artificial intelligence and big-data algorithms to streamline the processes of buying insurance and filing claims, while minimizing volatility and “maximizing trust and social impact.”
The company is attempting to approach the insurance industry the way companies like CrowdStrike Holdings Inc. /zigman2/quotes/212513426/composite CRWD -1.01% and Salesforce.com Inc. /zigman2/quotes/200515854/composite CRM -1.15% approached the software industry — by reimagining a legacy business for the world that exists now.
Lemonade says it wants to be an insurance company “built from scratch on a digital substrate, a contemporary business model and no legacy.”
When Lemonade was founded back in 2016, data and analytics firm Verisk made special note about millennials and the insurance industry, noting that the generation had different expectations from companies they solicited and demanded tech-savvy solutions.
“The insurance industry may also discover that maintaining the customer loyalty of millennials is a challenge,” Verisk said. “Millennials have a perceived reputation (earned or not) that they’re not bound to traditional models of customer loyalty.”
Here are five things to know about Lemonade:
Stock debut puts Lemonade at more than double its valuation from SoftBank
The company sold 11 million shares, with up to 1.7 million available to underwriters to cover overallotments. Underwriters include Goldman Sachs, Morgan Stanley, Allen & Co., Barclays, JMP Securities, Oppenheimer & Co., William Blair and LionTree. Thursday’s stock surge values the company at as much as $3.81 billion
Before the IPO, the company had already raised $480 million through several funding rounds, according to Crunchbase, with a $300 million round in April 2019 led by SoftBank Group Corp. /zigman2/quotes/207303954/delayed JP:9984 -0.74% bestowing a “pre-money” valuation of $1.7 billion.
Founders’ letter reads like a manifesto called ‘Our Lemonade Stand’
Lemonade seeks to rewrite the rules on the insurance industry through a David versus Goliath dynamic, Chief Executive Daniel Schreiber and Chief Operating Officer Shai Wininger said in their founder’s letter, included in the filing.
Stating that the insurance industry has been swept up and altered in previous industrial revolutions, the current “fourth industrial revolution” will be no different, the founders say.
“As transformative as the prior revolutions were for insurance, there is reason to believe that today’s will be even more so,” the founders said. “No part of the value chain is immune this time: distribution models, business models, statistical tools, systems of management, cost structures, corporate structures, corporate culture, technology stacks, user experience, marketing channels, data sources, data uses, value propositions, human capital — all these and more are being upended.”