Lemonade insurance start-up valued at $1.6bn ahead of IPO

The SoftBank-backed home insurance start-up Lemonade has been valued at $1.6bn ahead of its stock market debut on Thursday.

Lemonade said on Wednesday it had sold 11m shares at $29 each, exceeding the high end of its expected price range, but with a valuation below its last private financing.

The company raised the price range for the flotation this week after strong demand. Its market capitalisation still fell below the roughly $2bn valuation investors, including Japan’s SoftBank, assigned the company last year. 

Lemonade’s listing follows a number of technology IPOs that have met strong demand from public investors, such as the business database provider ZoomInfo and car sales company Vroom.

But investors have also grown wary of lossmaking consumer tech companies following a number of disappointing listings last year, kicked off by the ride-hailing company Uber, which is also backed by SoftBank.

Like other so-called insurtech companies, Lemonade is aiming to disrupt a centuries-old industry which is still dominated by a handful of traditional names and has been slow to modernise. 

“No one has really emerged at scale in this industry for a really long time — not since the 1950s,” said Hugh Tallents at consultancy cg42. 

Lemonade says that, unlike traditional insurers, it does not make more money if it turns down claims. Instead, it takes a fee on each policy sold, and reserves that are not used for claims are donated to charity.

The start-up is hoping that its strategy will resonate with younger customers who have never bought insurance before, but whose insurance needs are likely to grow through their lifetimes. Its main product at the moment is home rental insurance. 

Premiums at Lemonade, which was founded in 2015, tripled to $76m last year but the rate of customer growth is slowing and it made a net loss of $109m in 2019.

The IPO raised gross proceeds of almost $320m, which the company plans to spend on “general corporate purposes” but may also be used to fund acquisitions.

Lemonade operates across the US and has recently expanded into Germany and the Netherlands.

Unlike other insurtech companies, Lemonade is a so-called full stack insurer, meaning that it takes risk on to its own balance sheet rather than passing it all on to a more established insurer. That means it has more control over what policies it sells, but it is also a more capital-intensive business model. 

SoftBank is Lemonade’s biggest shareholder with a 27 per cent stake, although that will fall to 22 per cent after the IPO. Other backers include the venture capital groups Sequoia Capital and Aleph. 

Goldman Sachs, Morgan Stanley and Allen & Co led the offering.


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