Lemonade taps early investor for innovative customer growth financing

AI-powered homeowners and auto insurtech  Lemonade has crafted a new method of financing growth, bringing in one of its early private equity investors to fund its client acquisition costs in a virtual or synthetic agent format.

Lemonade early investor General Catalyst will finance up to 80% of Lemonade’s client acquisition costs, and in return will receive a synthetic commission on the ensuing premiums at 16%. Unlike standard agency deals, however, General Catalyst will relinquish the commission flow after hitting a specified investment return, putting the lifetime value of the client solely in Lemonade’s hands.

Lemonade claims a strong return on client acquisition costs, but notes that the return period can span several years, blocking cash flows and limiting the pace of growth.

“We think the Synthetic Agents programme is something of a game changer for Lemonade,” Lemonade CEO and co-founder Daniel Schreiber (pictured) said. “We believe we will be able to accelerate growth without drawing down our capital reserves or selling more equity.”

General Catalyst calls it a win-win for itself and its investment darling. “We’re big fans of Lemonade,” General Catalyst managing director Pranav Singhvi said. “As one of Lemonade’s early backers, being able to help directly support their next stage of growth is exactly what we built our Customer Value strategy for.”

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