Lossmaking Lemonade postpones IPO - report

Daniel Schreiber and Shai Wininger

Like other Softbank portfolio companies WeWork and Uber, Israeli insurtech startup Lemonade has high revenue, but it is still losing money.

Israeli insurtech startup Lemonade, whose largest investor is Japanese fund Softbank, was planning a Wall Street IPO in the next six months, but has now postponed it indefinitely, the "Business Insider" website reports. Lemonade told "Globes," "We do not respond to rumors."

Business Insider's report is based on interviews with many sources familiar with Lemonade. One of these sources expressed concern about the attitude towards growing technology companies in the public markets, following WeWork's unsuccessful effort at an IPO. Lemonade, Softbank, and WeWork declined an opportunity from Business Insider to respond to the report.

Lemonade is a growth company that has raised hundreds of millions of dollars, mostly from Softbank. Last April, the company raised $300 million in a round led by Softbank at a valuation of over $1 billion. Lemonade has raised $480 million since it was founded by CEO Daniel Schreiber and Shai Wininger in 2015. Following this financing round, Wininger told "Globes" that the company's growth had accelerated in 2018: "We had a $10 million turnover at the end of 2017, and a $57 million turnover at the end of 2018, so we outperformed the projections for 2018."

Lemonade's revenue is high, but like Softbank's other portfolio companies, it is still a money-losing company that raises huge sums and spends even more that it raises on its growth. According to a report by "The Insurance Insider," based on reports submitted to the US regulator, Lemonade sold $2.3 million in net premiums in 2017, while its underwriting loss grew several times over to $15.8 million.

According to Lemonade's reports over the years, as quoted in Business Insider, Lemonade lost more than 100% of its revenue each year, and sometimes even more than 200%. For example, Lemonade lost 132% of its revenue from insurance sales in the first half of 2018, according to a post on its official blog. Schreiber declared that the company was planning to reach a 75% rate, higher than the 67% insurance industry average, according to a study by Harvard Business School. Business Insider added that Lemonade's insurance unit sold polices worth over $44 million in the first quarter of 2019, while its loss rate dropped to 87%, amounting to $5.8 million.

Commenting on Lemonade's losses, Wininger told "Globes" following the company's most recent financing round, "The company could be profitable, but we don’t want it to be profitable. In order to be profitable, it would have to stop growing."

Wininger's statement is typical of the prevailing attitude in the tech sector: investment in growth at the expenses of profits. Softbank has adopted this attitude, and the road to profitability at some of the companies in which it invests is not so clear, for example WeWork and Uber. The problem is that these companies reached the public market at a time when they still needed big money in order to maintain their existence.

WeWork, for example, postponed its IPO when many investors expressed doubt about its business model and corporate governance, after the company's prospectus revealed huge losses, a questionable business model, and dubious conduct by founder and CEO Adam Neumann. Softbank injected cash into the company and took 80% of its shares at a valuation of just $8 billion, compared with the $47 billion estimate of WeWork's value before the IPO. Neumann had to resign from the company's management and give up his control of it. Following the failure of WeWork's IPO and the steep decline in its valuation, Softbank reported a $6.4 billion loss in the third quarter of 2019.

Published by Globes, Israel business news - en.globes.co.il - on November 13, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Daniel Schreiber and Shai Wininger
Daniel Schreiber and Shai Wininger
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