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July 2, 2020, 5:24 p.m. EDT

Lemonade IPO: 5 things to know about the online insurer

Lemonade stock price more than doubles right out of the gate

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By Wallace Witkowski, MarketWatch

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To that end, the company’s mission is to “harness technology and social impact to be the world’s most loved insurance company.”

Focusing on first-time customers with few assets

Lemonade said that 70% of its customers are under the age of 35 and that about 90% of customers were not switching from another insurer as a result of how the company pitches itself.

“We bring insurance to the mobile-first, digitally-native world,” the company said in its SEC filing. “Our playful bots make for a fun and intuitive interaction at any age, all the more so to a generation that grew up with a smartphone.”

Renters-insurance quotes take about two minutes, while homeowners-insurance quotes take about three minutes. Claims are paid out in as little as three seconds, the company claims.

”Companies built on human brokers and claims agents have many strengths, no doubt, but appealing to millennials and Gen Zers is not chief among them,” Lemonade said.

The company reported 2019 revenue of $67.3 million, up from $22.5 million in 2018, and a 2019 loss of $108.5 million, wider than the loss of $52.9 million in the previous year.

Currently, Lemonade only offers renters and homeowners insurance in the U.S., along with contents and liability insurance in Germany and the Netherlands. Lemonade’s strategy is to expand into other insurance products like auto, life and umbrella policies as its young customer base matures.

Social advocacy is built into the business model, and it’s a risk factor

With consumers exercising power through social movements like Me Too and Black Lives Matter, prompting businesses around the world to change practices and alter the optics of certain brands, Lemonade goes one further by making social advocacy a major part of its brand.

When Lemonade customers sign up, they designate a charitable cause where “we aim to donate leftover money,” or residual premiums, in an annual donation known as the “Giveback.”

In 2019, Lemonade donated $600,000 to 26 nonprofit causes, a big surge given the company has donated a total of $800,000 since it started the program in 2017. However, what is intended as an appeal to socially conscious young adults also poses risks, the company discloses.

“The novelty of our business model makes its efficacy unpredictable and susceptible to unintended consequences,” the company said.

“Our commitment to charitable giving through our Giveback program may not align our interests with those of our customers to the extent anticipated,” Lemonade said. “Moreover, our commitment to charitable giving may not resonate with our existing customers or may fail to attract new customers.”

In its filing, Lemonade said it competes with traditional insurers like Allstate Corp. /zigman2/quotes/201974803/composite ALL -0.24% , Farmers Insurance Group, Liberty Mutual Group, State Farm Insurance Cos., and Travelers Cos. /zigman2/quotes/206313935/composite TRV -1.58% .

There are, however, other app-based insurance companies offering renters insurance policies, such as Assurant Inc., which claims to donate $4 million a year to charities and relief efforts. San Francisco-based Gabi Personal Insurance Agency Inc., which has raised $39.1 million in venture capital, seeks to take a customer’s existing coverage and find better quotes from other insurers. There’s also Sure Inc., which acts as a curation platform for partnering insurance companies.

Private equity, management hold big share majorities

Once the IPO closes, SoftBank is expected to own a 21.8% stake in the company, with Sequoia Capital and Aleph LP each holding a 8.3% stake, and General Catalyst Group with a 5.9% stake. Among the company’s founders, Daniel Schreiber will hold a 28.3% stake and Shai Wininger will hold a 29% stake.

Lemonade, however, said that large stakeholders will not be able to vote with more than 9.9% of the outstanding stock in the company without first getting approval of the New York State Department of Financial Services.

“In the event that such approval does not permit the holder to vote more than 9.90%, the positive excess of voting rights shall be distributed pro rata among the stockholders not subject to this restriction,” the company said in its filing.

$ 110.16
-0.27 -0.24%
Volume: 54,153
Jan. 25, 2021 9:52a
P/E Ratio
Dividend Yield
Market Cap
$33.58 billion
Rev. per Employee
$ 143.53
-2.31 -1.58%
Volume: 72,790
Jan. 25, 2021 9:52a
P/E Ratio
Dividend Yield
Market Cap
$36.94 billion
Rev. per Employee

Wallace Witkowski is a MarketWatch news editor in San Francisco. Follow him on Twitter @wmwitkowski.

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