SoftBank leads $300m round in Lemonade

Daniel Schreiber and Shai Wininger  photo: Ben Kalmar

The round, one of the highest ever in Israel's tech industry, brings the total raised by online insurance company Lemonade to $480 million.

Japanese corporation SoftBank has led a further financing round in Lemonade, the artificial intelligence-based online property and casualty insurance company founded by Israeli entrepreneurs Shai Wininger and Daniel Schreiber. The $300 million round is one of the largest ever in Israel's tech industry, and brings the total amount raised by Lemonade since it was founded in 2015 to $480 million. Apart from SoftBank Group, the participants in the round are German insurance and financial services company Allianz, venture capital firms General Catalyst and Thrive Capital, Google's venture capital arm GV, and crowdfunding platform OurCrowd, all existing investors in Lemonade.

The current, D round comes less than a year after the company's previous financing round in which it raised $120 million, also led by SoftBank. The proceeds of the current round, which are subject to regulatory approval in the US, are expected to be transferred to Lemonade's account during the second quarter. They will mainly be used for expansion of the company's activity from the US to Europe. Lemonade set up an office in Amsterdam last year to coordinate its European business. The company is not at present revealing in which countries it will launch its product.

Lemonade will also use the money raised to expand its workforce. The company currently employs about 170 people, a number expected to grow into the hundreds within a year. Lemonade needs the large financing round, Wininger told "Globes", because "doing insurance is expensive, and we want to build a substantial company, a global brand, and, for the first time since insurance was invented, our intention is to build a company that its customers will love."

Wininger talks about high aspirations, but he says that Lemonade has no plans for a flotation at this stage, and is currently focused on growth, with the support of the finance raised. On reports of Lemonade's losses, and that they amounted to $15 million in 2017, Wininger says, "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.

"The financing round will be used for three things: very significant geographical expansion, and development of new products and new technologies, with the aim of creating a process that users will love. The fact that it's possible to buy insurance, submit a claim, and receive the money within seconds, and all via a telephone, is a significant experience that we have succeeded in creating," he adds.

One of the developments launched by Lemonade in the past year was a machine learning-based system used by the company to monitor and analyze signals from satellites in space. The development, called the "Watchtower Project," is designed to detect catastrophic events anywhere in the world. Lemonade analyzes data from the US National Aeronautics and Space Administration (NASA) and searches for information, such as a heat and color signature in every pixel in order to detect fires. Shortly after the system was launched, a huge fire took place in California. Lemonade spotted the fire and removed 71 families from the area.

Using developments of this type, Lemonade gathers more data than conventional insurance companies, on the basis of which it promises to be cheaper and more effective, as well as more precise in pricing policies. The company uses artificial intelligence technology (AI), including algorithms designed to examine policies and prevent fraud. This technology enables Lemonade to make payments to policyholders sooner after receiving the claim. In a large proportion of cases, it takes only a few seconds.

In addition to using an AI-based app for insurance and reducing the number of intermediaries and paperwork, Lemonade has brought the insurance industry a new pricing model: a fixed 20% commission. What is left beyond the commission, after the policy payment, goes to social organizations selected by the policyholders. The company thereby seeks to reduce cases of fraud, because every fraud takes money away from objectives that are important to the policyholder. It also seeks to eliminate the built-in conflict of interests between the policyholder and the insurer in the conventional insurance industry.

With this model, Lemonade launched its activity as an insurance company for tenants and landlords in New York in September 2016. Since then, it has been licensed to operate as an insurance company in most states in the US. Lemonade now takes pride in being rated first in the US as an insurance provider for tenants and landlords, with 250,000 policies. The company holds licenses to provide insurance covering 80% of the US population. Every state grants these licenses separately. Lemonade is now in the advanced stages of obtaining an insurance company license for the European market. "We'll soon have good news in this area," Wininger promises.

Wininger says that Lemonade's upcoming expansion follows substantial growth in its activity over the past year. "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. At the end of 2017, we finished the year with 100,000 policies, and today, we've passed the 500,000 policies mark. Our brand is being received well in the states where we had launchings," he declares.

With the preparations for entering the European markets, Lemonade is encountering growing competition. German company WeFox is also developing a technological insurance platform, and is growing rapidly in Europe. Lemonade filed suit against WeFox in June 2018 alleging that WeFox's founder and several of its employees had developed forged policies for themselves on Lemonade's insurance platform and fed these policies with false particulars, thereby conducting surveillance of Lemonade's work processes and algorithms in order to study and copy them. The lawsuit ended in a settlement after the German company changed its product, so that it did not include developments suspected of being copied from Lemonade.

Following the reports about the lawsuit, rumors circulated that SoftBank, Lemonade's leading investor, would lead an investment round of at least $100 million in WeFox. Softbank is known for investing in direct competitors and leading merger and acquisition deals between them. Last month, WeFox announced completion of a $125 million financing round. In contrast to the rumors, however, SoftBank did not participate in it. The leader in the round was Mubadala Ventures, a fund owned by the Abu Dhabi government, which is one of the most prominent investors in SoftBank Vision Fund.

In the announcement of the financing round by Lemonade, Shu Nyatta, a senior investor in the SoftBank group and a member of Lemonade's board of directors, said, "We watched Lemonade change the insurance world using big data and AI, and reach 500,000 homes in a little over two years, an amazingly fast pace. We are confident that the best is yet to come. The value that Lemonade provides, together with the values imprinted in its model, are making it one of the most intriguing, distinctive, and convincing brands."

Founders: Shai Wininger and Daniel Schreiber

Number of employees: 170: 60 in Israel and the rest in New York, Phoenix, and Amsterdam

Capital raised: $480 million

Investors: SoftBank Group, German insurance and financial services company Alliance, venture capital funds General Catalyst and Thrive Capital, Google venture capital fund GV, crowdfunding platform OurCrowd, the Aleph fund, Sound Ventures, Sequoia Capital, Tusk Ventures, and XL Innovate.

Published by Globes, Israel business news - en.globes.co.il - on April 11, 2019

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

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Daniel Schreiber and Shai Wininger  photo: Ben Kalmar
Daniel Schreiber and Shai Wininger photo: Ben Kalmar
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