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Lemonade · 8 Jun 2020

Our Lemonade Stand

Filing to go public, Lemonade’s founders tell investors that an unconflicted model and new technology will remake insurance, and that profit can wait for growth.

Author
Daniel Schreiber and Shai Wininger, Co-founders
Written
8 Jun 2020
Document
Founders’ letter in an IPO prospectus
Notes
9: 6 fact, 3 editorial
Last reviewed

Short excerpts from the founders’ letter in Lemonade’s June 2020 S-1, unchanged in the final prospectus; the full text is in the filing and on Lemonade’s investor site.

Excerpts · 9 notes
Lemonade2020
From:
Daniel & Shai
Date:
Form S-1, June 8, 2020
Subject:
Our Lemonade Stand: A letter from our co-founders

Since the dawn of time, insurance has both propelled progress and been revolutionized by it.

[ … ] Not shown: Risk pooling from early humans to probability theory.

A new revolution now threatens these hegemons.

[ … ] Not shown: The Fourth Industrial Revolution and the insurance value chain.

Which is why we founded Lemonade.

We wouldn't know how to shepherd incumbents through these momentous changes; nor do we know of a technological solution to their innovator's dilemma. Our analyses led us to conclude that a new kind of insurance company, built from scratch on an unconflicted business modelFact · 1Known at the timeThe letter does not explain the phrase; the Business section that follows it in the S-1 does. Lemonade said it would “typically retain a fixed fee, currently 25% of all premiums”, use the rest to pay claims (including reinsurance) and donate any leftover to nonprofits its customers chose, the Giveback. Reinsurance made its share of losses plus reinsurance cost “unlikely to exceed 75%”.SourceLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020 and cutting-edge technologyFact · 2With hindsightThe S-1 said the claims bot, AI Jim, handled the first notice of loss for 96% of claims as of 31 March 2020, and managed about a third of claims to resolution without human involvement. The 2025 10-K gives 96% again for first notice, and says “roughly 55% of our claims were automated” as of 31 December 2025. The two filings may not define the second figure the same way.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade, Form 10-K (investor relations copy)Form 10-K for the fiscal year ended December 31, 2025Feb 2026, will enjoy structural advantages that will manifest ever more powerfully over timeEditorial · 3With hindsightThe fixed fee was only as fixed as the reinsurance behind it. In the S-1, excess claims were “generally offloaded to reinsurers”; by the year to 30 June 2026 Lemonade’s book was about 20% reinsured, down from about 55% a year earlier. Its 10-K names the trade-off: leaving zero “wiggle room” around the fixed fee “would diminish the benefit from an improved loss ratio”. The more risk Lemonade keeps, the more its margin depends on underwriting, as an incumbent’s does.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade, Form 10-K (investor relations copy)Form 10-K for the fiscal year ended December 31, 2025Feb 2026.

[ … ] Not shown: An audacious undertaking, and the David and Goliath appeal.

But Lemonade is not everyone's cup of tea, which is why we wanted to outline our approach, in the hope that investors who share our thinking will be drawn to Lemonade, while those who do not will seek their fortunes elsewhereEditorial · 4Known at the timeThe same move as Google’s 2004 owner’s manual: tell buyers what kind of shareholder the company wants before they bid. It costs some demand at the IPO and buys tolerance later, when the company does what it said it would and losses persist..

[ … ] Not shown: Planning cycles: daily stand-ups, weekly sprints, quarterly objectives.

We are short term patient, but long term greedy. We believe opportunities such as ours are rare and fleeting. Industries like insurance are reinvented once every few centuries. Optimizing for profitability is important, but can waitFact · 5With hindsightLemonade’s net loss was $108.5 million in 2019, $122.3 million in 2020, $241.3 million in 2021, $297.8 million in 2022, $236.9 million in 2023, $202.2 million in 2024 and $165.5 million in 2025. In its Q3 2026 letter it reiterated its expectation of “positive Adjusted EBITDA for the first time in Q4 2026”, which it says it first outlined in 2022.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade investor relationsShareholder Letter Q4 2021Feb 2022Lemonade investor relationsShareholder Letter Q4 2023Feb 2024Lemonade investor relationsLMND Shareholder Letter Q4 2025Feb 2026Lemonade investor relationsLMND Shareholder Letter Q3 2026Nov 2026; we aim to first grow fast and capture as much market share, mind share, and as large a geographical footprint as possibleFact · 6With hindsightIn-force premium was $213.0 million at the end of 2020 and $1,550.8 million at 30 September 2026. Customers rose from 1,000,802 to 3,520,555 over the same period. We have not found a market-share figure in Lemonade’s own reporting.SourcesLemonade investor relationsShareholder Letter Q4 2021Feb 2022Lemonade investor relationsLMND Shareholder Letter Q3 2026Nov 2026.

[ … ] Not shown: Why reversing the order would risk losing the market.

We do not launch products, open territories, or sell policies we believe will be a long-term drain, rather than a long-term gain.Fact · 7With hindsightIn 2021 Lemonade signed an agreement to acquire Metromile, to “propel Lemonade Car forward”; the deal closed on 28 July 2022. Lemonade told investors it expected the acquisition “to add something like 3 to 5 percentage points to our loss ratios for the next few quarters”.SourcesLemonade investor relationsShareholder Letter Q4 2021Feb 2022Lemonade investor relationsShareholder Letter Q3 2022Nov 2022 But the key phrase is 'long term.'

[ … ] Not shown: Risk taking, transparency, and short-term share prices as noise.

We believe values add value. Lemonade is a Public Benefit CorporationFact · 8With hindsightThe S-1 said Lemonade donated over $600,000 to 26 nonprofits in its 2019 Giveback and over $800,000 since the first one in 2017. The 2025 10-K says it has donated “over $12 million” since 2017. Both documents say the Giveback is paid only if the board authorises it “in its sole discretion”.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade, Form 10-K (investor relations copy)Form 10-K for the fiscal year ended December 31, 2025Feb 2026, meaning that while we are about profit maximization over the long run, that is not all we are about.

[ … ] Not shown: Values, community and Maslow's hierarchy of needs.

The contest to be the preeminent insurance brand of the next century is just getting started, and for the first time in a long time, the title seems up for grabs.

[ … ] Not shown: A deft team, the latest tech, and the winds of change.

None of these guarantee success, of course, and our competitors are entrenched and truly formidableEditorial · 9With hindsightWhat made incumbents formidable was pricing risk, and that is where Lemonade’s record was weakest. Its gross loss ratio fell from 161% in 2017 to 79% in 2019, rose to 90% in 2021 and 2022, then fell to 64% in 2025. The app was never the hard part.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade investor relationsShareholder Letter Q4 2021Feb 2022Lemonade investor relationsShareholder Letter Q4 2023Feb 2024Lemonade investor relationsLMND Shareholder Letter Q4 2025Feb 2026. But we like our chances.

All 9 notes and their sources
  1. built from scratch on an unconflicted business modelFact · 1Known at the timeThe letter does not explain the phrase; the Business section that follows it in the S-1 does. Lemonade said it would “typically retain a fixed fee, currently 25% of all premiums”, use the rest to pay claims (including reinsurance) and donate any leftover to nonprofits its customers chose, the Giveback. Reinsurance made its share of losses plus reinsurance cost “unlikely to exceed 75%”.SourceLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Back to the passage
  2. cutting-edge technologyFact · 2With hindsightThe S-1 said the claims bot, AI Jim, handled the first notice of loss for 96% of claims as of 31 March 2020, and managed about a third of claims to resolution without human involvement. The 2025 10-K gives 96% again for first notice, and says “roughly 55% of our claims were automated” as of 31 December 2025. The two filings may not define the second figure the same way.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade, Form 10-K (investor relations copy)Form 10-K for the fiscal year ended December 31, 2025Feb 2026Back to the passage
  3. will enjoy structural advantages that will manifest ever more powerfully over timeEditorial · 3With hindsightThe fixed fee was only as fixed as the reinsurance behind it. In the S-1, excess claims were “generally offloaded to reinsurers”; by the year to 30 June 2026 Lemonade’s book was about 20% reinsured, down from about 55% a year earlier. Its 10-K names the trade-off: leaving zero “wiggle room” around the fixed fee “would diminish the benefit from an improved loss ratio”. The more risk Lemonade keeps, the more its margin depends on underwriting, as an incumbent’s does.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade, Form 10-K (investor relations copy)Form 10-K for the fiscal year ended December 31, 2025Feb 2026Back to the passage
  4. which is why we wanted to outline our approach, in the hope that investors who share our thinking will be drawn to Lemonade, while those who do not will seek their fortunes elsewhereEditorial · 4Known at the timeThe same move as Google’s 2004 owner’s manual: tell buyers what kind of shareholder the company wants before they bid. It costs some demand at the IPO and buys tolerance later, when the company does what it said it would and losses persist.Back to the passage
  5. Optimizing for profitability is important, but can waitFact · 5With hindsightLemonade’s net loss was $108.5 million in 2019, $122.3 million in 2020, $241.3 million in 2021, $297.8 million in 2022, $236.9 million in 2023, $202.2 million in 2024 and $165.5 million in 2025. In its Q3 2026 letter it reiterated its expectation of “positive Adjusted EBITDA for the first time in Q4 2026”, which it says it first outlined in 2022.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade investor relationsShareholder Letter Q4 2021Feb 2022Lemonade investor relationsShareholder Letter Q4 2023Feb 2024Lemonade investor relationsLMND Shareholder Letter Q4 2025Feb 2026Lemonade investor relationsLMND Shareholder Letter Q3 2026Nov 2026Back to the passage
  6. we aim to first grow fast and capture as much market share, mind share, and as large a geographical footprint as possibleFact · 6With hindsightIn-force premium was $213.0 million at the end of 2020 and $1,550.8 million at 30 September 2026. Customers rose from 1,000,802 to 3,520,555 over the same period. We have not found a market-share figure in Lemonade’s own reporting.SourcesLemonade investor relationsShareholder Letter Q4 2021Feb 2022Lemonade investor relationsLMND Shareholder Letter Q3 2026Nov 2026Back to the passage
  7. We do not launch products, open territories, or sell policies we believe will be a long-term drain, rather than a long-term gain.Fact · 7With hindsightIn 2021 Lemonade signed an agreement to acquire Metromile, to “propel Lemonade Car forward”; the deal closed on 28 July 2022. Lemonade told investors it expected the acquisition “to add something like 3 to 5 percentage points to our loss ratios for the next few quarters”.SourcesLemonade investor relationsShareholder Letter Q4 2021Feb 2022Lemonade investor relationsShareholder Letter Q3 2022Nov 2022Back to the passage
  8. Lemonade is a Public Benefit CorporationFact · 8With hindsightThe S-1 said Lemonade donated over $600,000 to 26 nonprofits in its 2019 Giveback and over $800,000 since the first one in 2017. The 2025 10-K says it has donated “over $12 million” since 2017. Both documents say the Giveback is paid only if the board authorises it “in its sole discretion”.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade, Form 10-K (investor relations copy)Form 10-K for the fiscal year ended December 31, 2025Feb 2026Back to the passage
  9. our competitors are entrenched and truly formidableEditorial · 9With hindsightWhat made incumbents formidable was pricing risk, and that is where Lemonade’s record was weakest. Its gross loss ratio fell from 161% in 2017 to 79% in 2019, rose to 90% in 2021 and 2022, then fell to 64% in 2025. The app was never the hard part.SourcesLemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Form S-18 Jun 2020Lemonade investor relationsShareholder Letter Q4 2021Feb 2022Lemonade investor relationsShareholder Letter Q4 2023Feb 2024Lemonade investor relationsLMND Shareholder Letter Q4 2025Feb 2026Back to the passage

What happened next

Dated events, each with its source. They are what followed the memo, not proof that it caused them.

  1. 1 mo later

    Lemonade files its final prospectus for 11,000,000 shares at an initial public offering price of $29.00; its shares start trading on the New York Stock Exchange as LMND.

    Lemonade, Inc., final prospectus (Form 424B4) filed with the SEC (Internet Archive copy)Lemonade, Form 10-K (investor relations copy)

  2. 2 yrs 1 mo later

    Lemonade completes its acquisition of Metromile, which it expects to add 3 to 5 percentage points to its loss ratios for a few quarters.

    Lemonade investor relations

  3. 3 yrs 8 mos later

    Lemonade tells shareholders it is on track to turn cash flow positive during 2025 and Adjusted EBITDA positive during 2026.

    Lemonade investor relationsLemonade investor relations

  4. 5 yrs 1 mo later

    Lemonade’s proportional reinsurance renews at about 20% of its book, down from about 55% the year before.

    Lemonade, Form 10-K (investor relations copy)

  5. 5 yrs 6 mos later

    Lemonade ends 2025 with $1,236.5 million in-force premium, 2,984,513 customers, a 64% gross loss ratio and a $165.5 million net loss.

    Lemonade investor relations

  6. 6 yrs 3 mos later

    In-force premium reaches $1,550.8 million; Lemonade reports a $43.7 million quarterly net loss and still expects positive Adjusted EBITDA in Q4 2026.

    Lemonade investor relations

The calls, against the record

Each claim in the memo’s own words, the evidence, and our reading of it. Verdicts are editorial.

  1. Mixed

    “will enjoy structural advantages that will manifest ever more powerfully over time”

    Evidence

    The gross loss ratio was 79% in 2019, 90% in 2021 and 2022 and 64% in 2025, while the share of claims handled without people went from about a third (March 2020) to roughly 55% automated (December 2025), though the filings may define these differently.

    Lemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Lemonade investor relationsLemonade investor relationsLemonade investor relationsLemonade, Form 10-K (investor relations copy)

    Our reading Editorial

    The technology advanced as promised, and underwriting improved after worsening in 2021 and 2022. Lemonade had still not reported a profitable year by Q3 2026, so the advantage has yet to show on the bottom line.

  2. Mixed

    “built from scratch on an unconflicted business model”

    Evidence

    The Giveback continues, with over $12 million donated since 2017, but Lemonade’s book was about 20% reinsured for the year to June 2026, down from about 55%, and its 10-K says a zero-“wiggle room” fixed fee would forgo the benefit of better loss ratios.

    Lemonade, Form 10-K (investor relations copy)

    Our reading Editorial

    The Giveback survived and the 10-K still calls the model “unconflicted”. But as Lemonade retains more risk, its margin rises and falls with claims, which is the conflict the fixed fee was meant to remove. How large the donations are relative to premiums we have not checked.

  3. Held up

    “we aim to first grow fast and capture as much market share, mind share, and as large a geographical footprint as possible”

    Evidence

    In-force premium grew from $213.0 million at the end of 2020 to $1,550.8 million at 30 September 2026, and customers from 1,000,802 to 3,520,555.

    Lemonade investor relationsLemonade investor relations

    Our reading Editorial

    Lemonade grew in every year we checked. Whether that amounts to market share in a US market of incumbents is not shown in its own reporting, and the growth was bought with a net loss every year.

  4. Open

    “Optimizing for profitability is important, but can wait”

    Evidence

    Lemonade reported net losses every year from 2019 to 2025 and, in November 2026, still expected its first positive Adjusted EBITDA in Q4 2026.

    Lemonade, Inc., Form S-1 filed with the SEC (Internet Archive copy)Lemonade investor relationsLemonade investor relationsLemonade investor relationsLemonade investor relations

    Our reading Editorial

    The wait has lasted more than six years since the IPO. The Q4 2026 result will show whether the target Lemonade set out in February 2024 is met; even then, Adjusted EBITDA is not net income.

Takeaways Editorial

  1. Say who your investors should be

    A founders’ letter that tells some investors to look elsewhere sets the terms for later patience. It only works if the company then behaves as it said it would.

  2. An incentive design needs a balance sheet

    Lemonade’s fixed fee was designed to remove the insurer’s stake in denying claims, and it held only while reinsurers carried the excess. A promise about incentives is as durable as the financing that holds it in place.

  3. The interface is not the moat

    Faster sign-up and automated claims were real, yet Lemonade’s gross loss ratio still went from 79% in 2019 to 90% in 2021 and 2022 before falling to 64% in 2025; in our judgment pricing risk, the incumbents’ core skill, remained the harder problem. Redesigning the front end of an old industry still leaves its hardest problem in place.

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