Auto-Insurance Disrupter Root Jumps 9{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} in Market Debut

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A broad market selloff appeared to weigh on the public markets debut of Root Insurance. Shares of the insurance technology company rose 9{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} in its first day of trading before closing flat.

Root’s stock (ticker: ROOT) opened at $26, below its $27 IPO price, and hit a high of $29.48. Shares during the afternoon fell traded below $27, before rebounding and closing at $27.

The tepid performance comes as coronavirus fears continued to weigh on stocks Wednesday. The Dow Jones Industrial Average closed 3.4{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}, while the Nasdaq Composite fell 3.7{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}.

Late Tuesday, Root raised $724.4 million after selling 26,830,845 shares at $27 each, according to a company statement. The insurtech twice increased the size of the IPO, after initially filing to sell 24,164,515 shares at $22 to $25 each on Oct. 20.

Goldman Sachs,

Morgan Stanley,

Barclays,

and

Wells Fargo

are underwriters on the deal.

With roughly 250 million class A and Class B shares outstanding, Root’s market capitalization is roughly $6.8 billion.

“I am very happy with the IPO,” said Alex Timm, Root’s co-founder and CEO, who spoke to Barron’s from the floor of the Nasdaq. “We’re certainly happy, not only with the amount of money we were able to raise, but with the high quality of the investor base we were able to secure.”

Root is the latest insurtech to go public.

Lemonade

(LMND), which provides insurance for renters and homeowners in the U.S., went public in July and saw its stock more than double.

Duck Creek Technologies

(DCT), which offers cloud software for insurers, went public in August, with shares soaring more than 45{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}.

As an insurance carrier, it’s important that Root is well-capitalized, Timm said. The company has raised $1.2 billion, which includes proceeds from the IPO and a $500 million private placement from Dragoneer Investment Group and Silver Lake. “Although today is a very exciting day, the work and opportunity is ahead of us rather than behind us,” Timm said.

Root is using a mobile app, along with telematics and data science, as it aims to disrupt the auto-insurance sector. Customers can sign up with Root via their mobile phone in as little as 47 seconds, the prospectus said. Claims can be resolved and paid within 24 hours. Root is licensed in 36 states and active in 30. It plans to be licensed in all 50 by early 2021, the filing said.

Root expects to use proceeds from the IPO to expand. “We plan to launch nationally as soon as we receive regulatory approval, which we think is imminent,” Timm said. “It takes capital to launch in new states, to support product and marketing expansion,” he said.

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Root began offering renter’s insurance last year. It is licensed in 14 states and active in eight states, the prospectus said. “Right now, we’re really focused on our core auto opportunity,” said Timm. “We think [auto is] the biggest and typically the hardest and usually the first insurance product a consumer purchases. That’s where we will be laser-focused.”

The company has raised $527.5 million in funding, according to Crunchbase, including a $350 million round in 2019 that valued Root at $3.65 billion.

Root is backed by venture-capital firms. Drive Capital will hold 27.5{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of voting power after the IPO, while Ribbit Capital will have 17.1{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} and Tiger Global will own 10.7{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}, a prospectus said. Redpoint Ventures will have 7.7{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}.

In addition to Root, another insurtech, MediaAlpha (MAX), and biotech company Biodesix (BDSX) began trading on Wednesday.

Write to Luisa Beltran at [email protected]