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Insurtech Lemonade looks for sugar in IPO markets. Its biggest expense? Marketing

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“Harness technology and social impact to be the world’s most loved insurance company,” Insurtech Lemonade’s Monday filing for an initial public offering reads.

But for a company aiming to disrupt the sleepy insurance industry with machine learning, marketing and sales remains the real bread and butter.

Lemonade, which sells renters’ and homeowners’ insurance, more than doubled its sales and marketing expenses in 2019 to $89.1 million. Its technology development spend, despite also nearly doubling, stood at a mere fraction of that: $9.8 million. 

As a direct-to-consumer brand, Lemonade spent heavily on marketing in a bid to spread its brand’s name, promoting largely through the internet as it sought to compete against incumbents. 

In the filing, the five-year-old startup paints its marketing spend as a metric that has improved over time, adding that its subscription-based model means its marketing spend could have a longer tail. Each dollar spent on marketing translates to $2 of in-force premium.

“Given our subscription-based model, we believe that the lifetime value of our customers is significantly higher than our cost of acquiring them, and our ability to acquire them earlier, at a stage that incumbents struggle to, should pay dividends for decades to come,” the prospectus reads.

We’ll see if investors bite in this environment where they seem hungry for IPOs. The growth numbers are certainly attractive: The company’s revenue grew by nearly threefold to $67.3 million, outpacing the growth of its losses: over double in 2019, to $108.6 million.

But will they bite at a desired valuation? Last valued at $2 billion, Lemonade is backed by SoftBank, Sequoia Capital, Aleph, and General Catalyst. It filed raise $100 million, though the figure is likely a placeholder.

The mega pharma deal that may never be: Over the weekend, Bloomberg reported that British drug giant AstraZeneca had approached California-based Gilead in a deal that would have created the “biggest health care deal on record.” 

As exciting as it all sounds, it seems like a pretty questionable tie up? For starters, the cross-border element of their union harkens back to the scuttled $160 billion deal between Pfizer and Allergan in 2016. Moreover, Gilead investors are pretty pleased with the healthcare company—and don’t need a dramatic strategic shift in the form of M&A to reinvigorate their interest. Even if the duo never progress to marriage though, do expect more tie-ups in healthcare. Read more.

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