Short Case on Opioid Player Collegium is Painfully Obvious. Some politicians have expressed distrust of ESG frameworks and certain influential Wall Street types have aggressively pushed back, espousing the benefits of ESG frameworks. We believe this move was purely to amp up its appeal to ESG focused investors. With only ~940k customers, Lemonade is a beyond subscale insurer. The company is valued at $2.1 billion and has raised a cumulative $480 million all the way through its Series D round. So we are not writing this piece to take shots at ESG investing broadly. Second, if Lemonade in its capacity as effectively a broker ends up sending too many bad policies to the reinsurers, the reinsurers can just cut Lemonade off. 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. It is a plain vanilla insurance company (primarily selling renters insurance) that reinsurers all of its risk. The stock promoters of course do not want to admit this truth to investors. Lemonade is targeting a $100 million IPO according to its filings. Stop enabling egregious Wall Street scams and sell your Lemonade shares. Take a trip to Motley Fool, TikTok, YouTube, or Twitter and you will be inundated with stock promotion outfits touting Lemonade. 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. 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. Unfortunately for Lemonade, we think the ESG stock promotion will unravel and leave investors holding the bag. Lemonade, in an effort to fetch a high valuation, makes similar claims. Insurance provider and technology company Lemonade ... Strong investor demand drove shares up 139% on its first day of trading back in July 2020. It would not take much for Alllstate or any other real insurance company to adopt Lemonade marketing tactics to help win over Millennials. Every imaginable stock promotion outfit has touted Lemonade in recent weeks. Yet on the day of its IPO, Lemonade restructured its entire business and essentially shifted all of its risk to reinsurance. In the past month, the stock has nearly doubled on gaining optimism the group will also be able to expand into new markets like pet and auto insurance. In our view, if the Lemonade experiment is successful, it will cast immense doubt on the ESG investing movement and give more credibility to opponents of ESG. 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. For context, Lemonade collects about $200 a year in premium per customer. Lemonade is one of the many grand experiments in ESG – in both marketing tactics and in stock promotion tactics (the company even set itself up as a public benefit corporation, aka a hybrid for-profit / non-profit). 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. ... it priced its initial public offering at a range of $23 to $26. That, in conjunction with a much larger lockup release on 12/29 lead us to conclude that the stock will implode in short order. Lemonade on the other hand a plain vanilla insurance company with no secret sauce that lives and dies based on reinsurance contracts. 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). 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. 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. Lemonade is run by a former executive from Powermat – a wireless charging pad company. 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. FL and CA are tough writes currently for Homeowners. Get the insurance industry's trusted newsletter. 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. Its other co-founder was involved with Fiverr – a marketplace for freelance work. Plenty of companies do charity but they do not set themselves up as “public benefit corporations”. Yet for the “low low cost” of $1 per customer per year, Lemonade got itself a nice multi-billion dollar ESG premium valuation. As part of the ESG narrative, Lemonade created a 501(c)(4) entity called the Lemonade Foundation and made an initial grant of shares to that foundation. It would be one thing if Lemonade was honest about being in the business of stock price maximization – but instead the company legally structured itself as a, Lemonade already loses a staggering amount of money (the company is only 5 years old yet cumulative losses are almost $300 million)…so if the company, Lemonade publicly claims it gives “up to 40%” of vaguely described “unpaid money” to charity – the reality is that it gives a meager ~$1 per customer per year to charities (works out to about ~3% of “unpaid money”)…this is despite a) claiming to be a quasi-for profit social impact company, b) sporting a $7 billion market cap, and c) having raised hundreds of millions from VCs and the public markets that are readily available and on hand. Of that, 24% are sold short, according to financial analytics firm S3 Partners. First, it is clear that if Lemonade actually had some secret sauce proprietary technology, it would want to do better than just hold onto a small fee – it would want to hold onto economics. We see extreme levels of selling and no one with a brain would buy this stock at even half of its current valuation given how out of synch the stock has gotten from fundamentals or reason. Thank you! Jul. Thank you! Lemonade (NYSE:LMND) embodies this movement. 03, 2020 3:56 AM ET Lemonade, Inc. (LMND) By: David Jackson , SA News Editor 84 Comments 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”. 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. All of this also suggests that Lemonade’s ultimate acts of altruism and charity are likely to fall far short of their promotional hype. This impacts... My point is not that buying habits haven't or won't change, they absolutely will. For example, companies that lobby against the use of slave labor score well in many ESG rankings. 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 AI-enhanced upstart dealing in renters, homeowners, and pet health insurance made its public debut over the summer of 2020 with a … 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”. This is because we think Lemonade is blatantly abusing the ESG investing framework not because it wants to make the world a better place, but purely to enrich insiders and venture capitalists who are playing to an audience that increasingly wants to see companies behave responsibly and reflect their values. Even Trupanion, an extremely high flying pet insurer, trades at only 10x revenues despite exhibiting similar growth to Lemonade. 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. We should note that as short sellers we think ESG investing has a lot of merit. 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. Strong investor demand drove shares up 139% on its first day of trading back in July 2020. Boeing Seen Getting Off Easy in Fraud Settlement on 737 Max, Indianapolis Neighborhoods Scanning Visitors' License Plates, New Law Cracks Down on Shell Companies to Combat Corruption, Indonesian Divers Find Parts of Plane Wreckage in Java Sea, TikTok Video Helps Louisiana Woman With Storm Claims, A Happy Hour with Kevin: Booze... the Webinar, Commercial Property Master Class - Causes of Loss Forms, Exclusions. Traders are bracing for volatility as affiliates — including all of the company’s directors and executive officers — hold more than 38 million shares subject to the lockup. 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”. 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. Lemonade discloses a risk of insurance regulators taking issue with some of its marketing claims. But come on guys – can you not at least populate a website before you start dumping your shares? Agreed that there is profitability challenges for all Insurance Risk Bearing entities in certain locations. This is because Lemonade is one of the most obvious farces in stock market history. Lemonade claims it will donate “up to 40%” of its unclaimed premiums to charity. The company has not even set up a website for its supposed philanthropic foundation (www.lemonade.org) but insiders are already trigger happy with the sell button. But 2020 is alive with … Compare this to Lemonade which trades at 48x gross earned premiums. This condition has been more than met, and insiders have not been shy about dumping. Lemonade sold 11 million shares at $29 a piece, bringing in just over $300 million and giving new investors the $444 million difference, based on … 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. 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. Long-time insurance unicorn Lemonade has filed for its IPO. The company's revenue more than doubled in the first quarter of 2020 to $26.2 million. We agree and think this is a significant risk for the company. Lemonade has an indefensible valuation. Your email address will not be published. And as a result, Lemonade is siphoning off funding that should go to companies that actually make a positive difference in society. What Will the Senior Living Market Look Like for Insurers Post-Pandemic? These claims appear to be bogus based on Lemonade’s own actions ahead of its IPO. Companies such as Metromile have claimed that their specific telematics technology allows them to better underwrite car insurance risk. He has zero insurance experience. Please tell us what you liked about it. Essentially, the restructured business has Lemonade in almost a lead gen capacity – it finds leads, signs up an insurance policy, and then keeps a small fee for itself. 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. That is what makes Lemonade such an important story. So $1 of that premium goes to charity and they call this an ESG stock? They are just like everyone else in the P&C business, they are unable or unwilling (or both) to handle real risk. 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 … It is also worth remembering that Allstate has a real management team with extensive experience in insurance. It is customary for insiders to wait 6 months to sell shares after an IPO. Never mind that these outfits have no idea what Lemonade actually does (they actually view it as a technology company and appear to know absolutely nothing about the company’s reinsurance entanglements). 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. The difference is that those companies – at least in principle – are undertaking business operations that may theoretically improve the world. Lemonade tried to IPO in 2019 and failed. 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. 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. As of March 31, 2020, Lemonade had $274.2 million in cash and $124.3 million in total liabilities. The technology side of the equation and service delivery models are fantastic and amazing. Lemonade has no secret sauce. % of people found this article valuable. For the first quarter of 2020 revenue was $26 million and net losses stood at $37 million. Unfortunately, in some cases, financial charlatans and hucksters have hijacked the movement for self-enrichment. The company’s ESG claims are full of hot air and in our view were only designed as part of a broader stock promotion scheme. That alone is not the reason the company will implode. Lemonade Inc: Insurance company Lemonade Inc raised $319 million with an IPO that saw shares priced at $29. Presently, the foundation consists of employees that work for Lemonade the public trading vehicle. Despite the foundation being in existence for almost a whole year, Lemonade has not even bothered to provide a website for the foundation, let alone a mission statement or goals for the foundation (more on this in the next section). I, like many other IJ readers, have expressed my doubts about Lemonade and, really, all other InsurTechs. After becoming one of the year's hottest IPO… Free cash flow during the twelve months ended March 31, 2020, was negative ($79.9 million). Yet chat room message boards are filled with traders who excitedly trade in extremely short duration options on the stock. ESG and social impact investing are all the rage. In our view, Lemonade is a despicable company that is taking advantage of people’s desire to do the right thing. It is trying to present itself as a friendly insurer that will not deny claims when in reality much larger and conservative reinsurance organizations are the ones that will call the shots and can quickly destroy Lemonade’s business with the stroke of a pen. 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. 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. LMND, Late Wednesday, Lemonade priced its initial public offering at $29 a share, above the already increased IPO pricing to range of $26 to $28 … The NYSE has even claimed that Lemonade is “connecting profit with purpose”. 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