Artificial intelligence-powered insurance provider Lemonade Inc. has raised the price target for the initial public offering it’s set to hold later today, with the startup now on track to rise as much as $308 million not including underwriter over-allotments.

New York-based Lemonade is aiming to sell 11 million shares at $26 to $28 apiece. That’s compared with the previous target of $23 to $26. The underwriters backing the IPO have the option to buy up to 1.7 million more shares on top of the 11 million Lemonade will put up for grabs, which could bring the value of the listing to more than $350 million if they fully exercise their rights.

The high end of the price target would give Lemonade a market capitalization above $1.54 billion. That’s impressive for a startup whose product has been on the market for less than four years, though it’s less than the $2.1 billion private valuation Lemonade received after its most recent funding round.

Lemonade provides homeowners’ and renters’ insurance policies through an app that handles about 30% of claims instantly using AI. The service’s speed, combined with its sleek interface, has made it a hit among consumers. The startup reported more than 700,000 subscribers when it released its IPO filing early last month.

Lemonade’s earnings paint a familiar picture of a startup that is growing rapidly but has not yet turned a profit. Revenue ballooned from $22.5 million in 2018 to $67.3 million in 2019, while its annual losses rose to $108.5 million during the same period.

The startup’s aggressive spending helped sustain its momentum into early 2020. During the first quarter, Lemonade generated more revenue than in all of 2018.

Lemonade’s roadmap for sustaining its growth going forward relies on a combination of adding more subscribers and generating more income from existing ones. The startup is betting that as existing customers “progress through predictable lifecycle events, their insurance needs normally grow to encompass more and higher-value products,” it detailed in the IPO filing. “These progressions can trigger orders-of-magnitude jumps in insurance premiums.”

Lemonade disclosed that it may enter new markets, such as auto and life insurance, to address this expected future demand from customers. The startup also appears to be laying the groundwork for eventual profitability. Though losses roughly doubled in 2019, Lemonade’s ratio of expenses to revenue improved significantly, leading to a roughly 60-percentage-point improvement in its adjusted earnings margin before interest, taxes, depreciation, and amortization. 

However, the startup’s founders made it clear the main priority is currently growth. “We believe opportunities such as ours are rare and fleeting. Industries like insurance are reinvented once every few centuries,” Chief Executive Daniel Schreiber (pictured, right) and Chief Operating Officer Shai Wininger (left) wrote in a founder’s letter attached to the IPO paperwork. “Optimizing for profitability is important, but can wait; we aim to first grow fast and capture as much market share, mind share, and as large a geographical footprint as possible.”

Lemonade is set to float on the New York Stock Exchange under the ticker symbol “LMND.” 

Photo: Lemonade