2023-06-29 11:57:24 ET
Lemonade ( NYSE: LMND ) stock jumped as much as 7.0% in Thursday morning trading after the AI-driven insurer said it partnered with venture firm General Catalyst to create a new way to acquire new customers without depleting its cash.
While Lemonade's cost to acquire customers (CAC) are typically repaid three times over, the initial payback can take a couple of years, the company said. This ‘cash flow gap’ means that maximizing long-term profit depletes cash at the same time.
To deal with that dilemma, insurers often use independent agents to deliver CAC-free customers. However, the agents essentially "own the customer" and get a life-long commission, reducing the potential gross profit for the insurer. The General Catalyst/Lemonade ( LMND ) agreement creates so-called "Synthetic Agents" that are designed to deliver the cash flow benefits of independent agents, but without forfeiting the customer relationship, and without ceding much of the gross profit for the lifetime of the customer, the companies said.
"Thanks to Synthetic Agents, we believe we will be able to accelerate growth without drawing down our capital reserves or selling more equity," said Lemonade ( LMND ) co-CEO and co-Founder Daniel Schreiber. "That means generating a significantly larger business, sooner, with more cash in the bank, and with a materially higher return on capital."
Under the program, which starts on July 1, 2023, General Catalayst will finance up to 80% of all Lemonade's ( LMND ) CAC. In return, GC will get a synthetic "commission" of up to 16% of the stream of premiums it helped finance. Once the venture firm has recovered its investment and capped return on any one cohort, the remaining "lifetime value" of the customers from that cohort accrues to Lemonade, "entirely and forever," the company said.
While the stock initially surge, by Thursday midday, Lemonade ( LMND ) stock pared its gain to 1.0% .
More on Lemonade:
- Lemonade renews reinsurance program for coming year
- Lemonade Is Just Getting Started
- Morgan Stanley bullish on P&C insurers, but not on Lemonade
- Lemonade: Big Strides on All Fronts
- Lemonade's 50% Growth Might Not Be Enough
For further details see:
Lemonade enters 'synthetic agent' deal with General Catalyst to cut CAC