The best-performing listing of 2020 is poised to enter the new year with extra volatility after insider selling restrictions expire this week. Unfortunately, in some cases, financial charlatans and hucksters have hijacked the movement for self-enrichment. We certainly would prefer a world where companies that bribe corrupt foreign governments, employ slave labor, require their employees to utilize Gatorade bottles for bathroom breaks, and dump toxic waste in the waters of Lake Michigan are held accountable. After this IPO failure, the company created a 501(c)(4) entity called “Lemonade Foundation” in February 2020 to amp up its appeal to ESG focused investors. The problem with these organizations gaining the kind of scale and revenue necessary to maintain and grow a publicly traded company is not the “Tech” but rather the “Insur”. After becoming one of the year’s hottest IPO’s, the stock took a breather for several months before resuming its upward trajectory. If you run the math, Lemonade donates slightly over $1 per customer per year to charity! That number is imprecise, but directionally useful. It is also worth remembering that Allstate has a real management team with extensive experience in insurance. Lemonade, in an effort to fetch a high valuation, makes similar claims. The only thing proprietary about its business model is that it was backed by Softbank and therefore afforded the opportunity to burn wild amounts of cash at will. The company's revenue more than doubled in the first quarter of 2020 to $26.2 million. The problem with this model is two-fold. Dive Brief: Online insurance start-up Lemonade, the "Insurtech" backed by SoftBank Group, went public Thursday on the New York Stock Exchange and immediately became 2020’s best IPO debut. The technology side of the equation and service delivery models are fantastic and amazing. When you cut through the hype, Lemonade is basically a “lead gen” service, losing astronomical sums of money to find new customers and then selling that customer flow to reinsurers. You just cannot make a go of it selling pet and renters, there is not enough premium or profit to get your investor money back let alone make profits, pay dividends, grow, prosper, etc. Free cash flow during the twelve months ended March 31, 2020, was negative ($79.9 million). So while Lemonade is telling Millennials that it has no incentive to deny claims because of its “excess profits to charity” narrative, the reality is that reinsurers will cut Lemonade off – leaving the company essentially worthless – if Lemonade does not keep its underwriting tight and under control. It is worth noting that this specific structure is NOT a traditional 501(c)(3) – it is NOT a tax exempt organization, and the corporate structure – 501(c)(4) – was likely chosen because it provides Lemonade with the ability to use the foundation as a front for political lobbying activities and to engage in marketing activities to promote Lemonade products. If Lemonade really had discovered a new technology that allowed it to keep its costs low, it would never want to share the spoils of that technology with reinsurers. Investors have been snapping up tech IPOs in 2020, and Lemonade is a prime example of what they like. Take a trip to Motley Fool, TikTok, YouTube, or Twitter and you will be inundated with stock promotion outfits touting Lemonade. This is why Lemonade is heavily restricted in how much it can give to charity – 75% of all money they collect immediately goes to reinsurers, and if they have high incentive to reject claims to keep their reinsurance contracts affordable. Earlier this month, online used car seller Vroom Inc. raised $467.5 million in its IPO, and its shares more than doubled in value on debut.. Until and unless they can manage to “bite off” some real risk, all these InsurTechs will just be a cute novelty that sells small risk, small premium policies. If Lemonade had a better technological mouse trap and could find policies that were lower risk – it would want to hold onto all of that risk. Insurance provider Lemonade Inc. is trading more than 350% above its July 1 initial public offering price, the best of any 2020 debut above $300 million, according to data compiled by Bloomberg. The NYSE has even claimed that Lemonade is “connecting profit with purpose”. So we are not writing this piece to take shots at ESG investing broadly. Insurance company Lemonade's post-IPO lockup of insider stock selling is set to expire Tuesday. Plenty of companies do charity but they do not set themselves up as “public benefit corporations”. After opening for trading at $11.50 a share on Oct. 19, Paya closed at $12.15 on its first day. Lemonade (LMND): A successful IPO of 2020 July 7, 2020 The usage of artificial intelligence (AI) has accelerated rapidly in the fintech industry. Despite the acceleration over the past few weeks, Piper Sandler analyst Arvind Ramnani wrote in a note dated Dec. 15. that the firm remains positive “as the long-term opportunity for the company warrants an expanded multiple.”. Shares of Lemonade currently trade at $125.11, making the company one of the best performing IPOs of the year. The legions of new retail traders that minted money in Lemonade call options this year owe significant amounts of short term capital gains taxes in a few months. Lemonade Files for IPO, Says It May Sell Life Insurance By Allison Bell | June 09, 2020 at 01:27 PM The insurtech startup says it's better at appealing to … So ultimately, Lemonade investors are actually buying a low quality lead gen business masquerading as a disruptive fintech insurer. With only ~940k customers, Lemonade is a beyond subscale insurer. For comparison, Allstate – a real insurance company that also does charity – in fact, far more charity than Lemonade – trades at about ~1x gross earned premiums (a proxy for revenue in an insurer). Lemonade IPO: 13 Things for Investors to Know About LMND Stock The company is offering 11 million shares in its IPO By William White , InvestorPlace Writer Jul 2, 2020, 2:31 pm EST July 2, 2020 The company’s charity activities are hot air. We have updated our privacy policy to be more clear and meet the new requirements of the GDPR. Insurance provider Lemonade Inc. is trading more than 350% above its July 1 initial public offering price, the best of any 2020 debut above $300 million, according to data compiled by Bloomberg. The lockup is coming off at the same time that investors who made insane sums of money on short term call options in 2020 will have to pay taxes. Lemonade is run by a former executive from Powermat – a wireless charging pad company. Lemonade (NYSE:LMND) embodies this movement. We have also already established that the company donates many multiples less than the “up to 40%” of premiums to charity, which even further dents this alleged alignment claim. All of this opens up significant risk of conflicts of interest. Lemonade presents itself as a “flat fee” capital-light insurer (there is no such thing) but in reality it is heavily reliant on reinsurers – the company quietly restructured its insurance activities immediately ahead of its IPO and will now live and die at the whim of reinsurance companies. We of course doubt the NYSE’s flattering description of Lemonade had anything to do with courting its backers Softbank and Sequoia for their remaining stream of IPO listing business. What Will the Senior Living Market Look Like for Insurers Post-Pandemic? Any ESG fund that wants to be taken seriously should not only exclude LMND from its investment universe, but should also rebuke Lemonade management for so blatantly abusing ESG principles for stock promotion purposes, Lemonade’s claims of being a disruptive technology company are also bogus – the company quietly reinsured its entire book of business at the time of its IPO – if Lemonade actually had any legitimate underwriting technology, it would not have outsourced all risk to reinsurance companies. The stock has been run up due to its tight float and high short interest. Thank you! But roughly 44 million additional shares — mostly held by insiders — will be eligible for sale on Tuesday, according to the IPO prospectus. A comment on the actual content of the article. While Lemonade insiders have been quick to dump stock at prices less than half of where the stock currently rests, the company has not been so quick to set up a website for its supposed “Lemonade Foundation”. The stock rose modestly by 2020 IPO standards since then. In its prospectus, it carved out the ability for insiders to sell up to 33% of their locked up holdings immediately, as long as the stock popped at least 33%. This stock is a signature bubble stock (reminiscent of GPRO) and we expect that it will retrace all of its post-IPO meteoric rise and then some. That is what makes Lemonade such an important story. Lemonade has no secret sauce. The company’s shares have soared on the promise of its digital platform in carving out a niche for renters and homeowners, according to Bloomberg Intelligence research. I, like many other IJ readers, have expressed my doubts about Lemonade and, really, all other InsurTechs. Therefore, if Lemonade wants to remain in the good graces of its reinsurance customers and to maintain current terms, it has a high incentive to deny as many claims as possible. Lemonade Announces Filing of Registration Statement for Proposed IPO Staff Writer | June 09, 2020 Lemonade, Inc. has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission relating to the proposed initial public offering of its common stock. Lemonade does not even have to disclose the donors to this entity per the rules around these shadowy financing vehicles that are often the underlying entity behind political action committees or PACs. 03, 2020 3:56 AM ET Lemonade, Inc. (LMND) By: David Jackson , SA News Editor 84 Comments Lemonade ultimately lives and dies at the whim of conservative and old-line reinsurers, Company insiders have not been shy about dumping into the pump – the company has still not bothered to put up a website for its philanthropic “foundation” (a key piece of its “public benefit corporation” marketing gimmick) yet insiders found plenty of time to dump shares through a shady front-end loaded lockup deal negotiated into its original IPO, The final lockup has now expired and going into 2021, short term call option players are sitting on large taxable gains that will force liquidations in 1Q21 – we see a rush for the exits in early 2021 with Lemonade falling 90%+ in short order. This will be the second lockup expiration for the remaining two thirds of shares subject to the lockup agreement after the first expiry in November. Some estimate that over half of all capital allocated in the world will follow some form of ESG guideline within the next few years. Compare this to Lemonade which trades at 48x gross earned premiums. Of that, 24% are sold short, according to financial analytics firm S3 Partners. While Lemonade does not appear to be particularly good at charity, it does appear to be extremely adept at setting up a stock dumping vehicle. Lemonade's 140% IPO debut was one of the best of 2020, but it raises questions Jul. Yet for the “low low cost” of $1 per customer per year, Lemonade got itself a nice multi-billion dollar ESG premium valuation. This impacts... My point is not that buying habits haven't or won't change, they absolutely will. Thank you! And money managers who believe in ESG and who have any desire to appear credible should be speaking out about companies such as Lemonade that are so obviously and blatantly abusing the ESG framework purely for self-enrichment purposes. The AI-enhanced upstart dealing in renters, homeowners, and pet health insurance made its public debut over the summer of 2020 with a … With the float now opening, we see this game reversing soon. In fact, in an ideal world, ESG investing wouldn’t be necessary because companies may actually be held accountable for ruining the world around them. But Lemonade is not profitable and losses ballooned from $21.6 million a year ago to $36.5 million. It is even more telling that one of the “Founding Fathers” of ESG investing – who the New York Times referred to as a “Buddhist Monk” – was arrested for bribing his child’s way into college. Perhaps most importantly, Lemonade is a disgrace to ESG/social impact investing and money managers who want ESG to be viewed with a non-critical lens should strongly consider speaking out against this company. Stop enabling egregious Wall Street scams and sell your Lemonade shares. Lemonade Inc. is trading more than 350% above its July 1 initial public offering price, the best of any 2020 debut above $300 million, according to data compiled by Bloomberg. For example, companies that lobby against the use of slave labor score well in many ESG rankings. After becoming one of the year's hottest IPO… According to its S-1 filing with the U.S. Securities and Exchange Commission, it … Strong investor demand drove shares up 139% on its first day of trading back in July 2020. For the first quarter of 2020 revenue was $26 million and net losses stood at $37 million. Lemonade has an indefensible valuation. Any other insurer could replicate its piddly charity contributions without denting their margins. But 2020 is alive with … Please tell us what you liked about it. This recent addition to the MyWallSt shortlist is an insurance company that operates in the U.S., Germany, Netherlands, and France, using chatbots and AI. Lemonade claims it will donate “up to 40%” of its unclaimed premiums to charity. Every imaginable stock promotion outfit has touted Lemonade in recent weeks. If you are reading this story and you have been following the ESG investing movement, we think you too will want to see the company fail spectacularly whether you are a fan or foe of ESG. Its other co-founder was involved with Fiverr – a marketplace for freelance work. Lemonade tried to IPO in 2019 and failed – after this IPO failure, in February 2020 the company created and allotted 500,000 shares to a 501(c)(4) entity called “Lemonade Foundation”. The company makes absurd claims – that we think could even run afoul of insurance regulations – regarding its charity efforts, claiming that its commitment to donate excess profits to charity will result in its policyholders filing fewer fraudulent claims. Donate your profits to a real charity effort instead of enriching greedy insiders. Unfortunately for Lemonade, we think the ESG stock promotion will unravel and leave investors holding the bag. By continuing to use our site, you accept our revised Privacy Policy. The company is valued at $2.1 billion and has raised a cumulative $480 million all the way through its Series D round. My entire point is that no matter what the delivery system, insurance companies cannot handl... After Year’s Best IPO, Lemonade Insider Selling Lockup Expiration May Pressure Stock, World's Largest Insurers 2020: AM Best Ranks UnitedHealth, Allianz on Top, Insurance Leaders Condemn Violence by Trump Rioters Who Stormed Capitol, California Hospital Fined for Deadly Post-Holiday Virus Outbreak, Cloud Security Manager (Remote – Home Based Worker) -, Contact Center Service Operations Manager -, Lloyd's Perspective on the U.S. Property Insurance Environment, Expect Shift in Workers' Comp Profitability in 2021: Fitch, Frequency of Cyber Events Targeting Businesses Increasing: Travelers, 3 Ps to Consider When Managing the Risks of Assisted Living Facilities. To better underwrite car insurance risk Bearing entities in certain locations revenues despite exhibiting similar growth to Lemonade which at... Raises questions Jul by continuing to use our site, you accept our revised policy! Other IJ readers, have expressed my doubts about Lemonade and,,... 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