Why We Decided to Drink the Lemonade?


The first thing to remember is that Venture Capital is an aberration business. A very small number of investments return a very large amount of a fund’s returns and even the entire venture industry’s returns. Hence, a very small number of firms and companies return the vast majority of the capital in this industry, as we discussed in our “Index” post a year ago. One Facebook, Google or Twitter can be responsible for 30% of all venture capital returns in a given year!

This explains why venture capital is more art than science, as it is fraught with risk and unknowns. Therefore, for every decision, we will outline below, you can assume that we could have just as easily made an opposite decision if the conditions were slightly different.

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It is already trite to say that team is the most important item to look at in a start-up. In the case of Lemonade, it was critical. I have known Daniel Schreiber for 25 years and Shai Wininger for about a decade. Eden has been looking to do something with Shai for that time period as well. Eden and I don’t always share the same taste in founders but in this case we most certainly did. When Daniel first started talking to me about disrupting insurance with a P2P model and other innovations (it was later renamed Lemonade), I asked him who his product/technology partner would be. He was still looking. Eden and I had been talking to Shai and knew he had a keen interest both in fintech and in massively disruptable businesses. Shai is also among the absolute best product people in Israel. We also knew that like Daniel, Shai was not afraid of regulated industries. We had a feeling they would hit it off and they did. Following our introduction, we observed something remarkable, a founding team of talented individuals quickly developed mutual trust, values, aspirations and thoughtfulness about a very complex industry and about the process of building a lasting startup. Additionally, they have both studied the insurance industry very deeply and can converse with industry veterans about its nuances.

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In my last blog post, I discussed why we believe “Mission Driven Cultures Win.” Shai and Daniel both have a mission to turn insurance into a social good. They wanted people to help other people (P2P) achieve financial safety and security. We want to be part of mission driven businesses because they are important and because they attract the best talent. In a Facebook post that linked to the above blog post, Eran Shir, founder and CEO of Nexar, wrote it better than I ever could. Here is a snippet:

  1. Mission is the best recruiting hack ever. The top talent in the world choose how they spend their time based on interest and drive. That’s the only HR arena in which you can win against the likes of GOOG and FB.
  2. Having a big mission makes decision making and focus so much simpler.

At Nexar our mission is simple: rid the world of car accidents, today. We don’t know yet if we will succeed, but man, we just can’t wait to jump out of bed in the morning and give it our best.


While we can’t disclose much of what is going on at Lemonade, one thing we get excited about is a business that builds defensible long term value. These are businesses that get stronger as they get bigger and as more people join the service. Lemonade should be able to provide more social good the bigger it grows; it is built into the model.

Another critical factor to building a moat is serving what Eden calls “The Top of the Value Chain.” We want to invest in businesses that touch end-customers and provide them value directly. End customers does not necessarily mean consumers. Salesforce.com sells to enterprises but provides value to end-customers directly. Adtech does not. Lemonade does. Lemonade plans and aspires to provide value directly to end customers. Time will tell if they succeed but that direction is critical to our investment decision.


Insurance is a big market with big margins. Suffice it to say that Warren Buffett’s Berkshire Hathaway generates much of its cash flow from insurance. I admire Buffett but get excited about disrupting Berkshire Hathaway. I guess that Buffett’s margin is Lemonade’s opportunity.


This was a big first check for us. It is actually our biggest initial investment in any of our now 9 portfolio companies. In addition, those of you who know us well, have heard that we don’t, generally, invest at the seed (pre-product) stage. Remember I wrote above that some rules are broken because this is an aberration business? Well, we broke that rule for a few reasons. First, in a regulated environment such as insurance, you need a lot more capital than angels provide. Hence, we were not competing with angels in this case. Second, Shai’s and Daniel’s experience and relationships, enabled them to recruit an amazing team at warp speed and move both the product and business along faster than your average startup. It is amazing what a network, a big mission, great upfront legwork on barriers and a clear vision can do to cut time to market. So after a lot of thought, we broke one of our rules.

When we need to “break a rule” it definitely helps that you know the entrepreneurs for more than 2–3 meetings. The best way to get to know someone is not when they are pitching you on their start-up. We have found that the best way to meet founders and get comfortable with their thought-process and vision over time is through casual activities such as our Aleph-bet growth university, past work with our portfolio companies, entrepreneurship programs such as Zell and Hebrew University and joint activities promoting the local ecosystem.

We are very excited and inspired by Daniel and Shai’s mission. We were honored to be the matchmaker and humbled that they chose us to partner with them. We hope that you will follow and join this journey to help them succeed. At the very least, you now know why we, at Aleph, decided to invest and we hope that this transparency will be helpful to you as you plan your next mission-based business.



Michael A. Eisenberg: Six Kids And A Full Time Job

VC, Israel, Internet, Family, @home, @work, @israeli, @politics, and lots kids