Issue No. 106: The Ideas Investors Want to Back

Picking Winners

What makes a company worth backing? Depending on who you ask, the response may vary. But without fail, there will be some overlapping criteria. And that holds true in the health and fitness category.

At General Catalyst (GC), managing partner Holly Maloney uses a “management, model, market” framework to evaluate companies. Of note, this summer, Holly and GC led Tempo’s $60M Series B. She also sits on the fitness tech company’s board.

“Two of our core values at GC are audacity of ambition and diversity of thought. We very much seek out those characteristics in the management teams we back.” 

• Management. “We look for founders that have a clear vision for where they think the world is going… Are they able to see around corners?”
• Model. “We need to deeply understand the unit economics of the business model… what it takes to acquire, service, and retain customers.”
• Market. “We look for large and dynamic markets, with many waves of innovation.”

“We view the health and fitness sector as being in the early innings of what is a fundamental transformation that’s going to take many years to see through and have multiple waves of disruption over those years.”

PowerPlant Ventures managing partner Dan Gluck applies similar filters when accessing investments in the better-for-you food and beverage space. On the podcast, Dan specifically called out five key factors:

• Vision. “It starts with a strong unifying vision… What’s their North Star?”
• Culture. “There should be top-to-bottom alignment — to create a culture of passion, ownership, and what we refer to as ‘a sense of urgency.’”
• Product & brand strategy. “Does the company understand the consumer’s needs — are they tapping into emotional needs, like craving, connection, and social impact?”
• Market & model. Is the total addressable market big enough? Then, we need to make sure the company has a sales strategy that delivers real growth.
• Aligned partners. Do they have other investors, suppliers, co-packers, and manufacturers that share their vision?

“We look for founders and teams that are self-aware enough to understand that they need to work with the best people in the entire industry.”

Across a wide range of conversations, similar sentiments stood out:

Lionel Conacher, a managing partner at NEXT VENTŪRES, said: “The top four things we look at when investing in a company are people, people, people, and product.” It’s also common for the team at NEXT to say “send us the product” before getting on a call, meeting with management, or diving into the deck.

Courtside Ventures partner Deepen Parikh uses a team-business-market model, where the founding team is a top priority. “We’re investors in people… We look for deep domain expertise. If it’s not domain expertise, it’s a passion or personal experience that provides a unique view into the market.”

But Deepen goes on to share a word of caution:

“When you’re in an industry [like fitness and wellness] where there’s so much passion, a lot of times founders are building products for a problem that doesn’t necessarily exist. We challenge founders to really ask, ‘is there a problem?’ It’s important to understand what differentiates a product in a market where there’s so many potential competitors.”

Revolutionary vs. Evolutionary

Rereading the transcripts, an interesting question emerged. As founders and investors, are we iterating or innovating? In the context of identifying investment opportunities, it just might depend on the stage.

For Lisa Blau and Amanda Eilian at Able Partners, investing in founders at the earliest stages of their journey might mean backing a pre-product or pre-revenue company.

When that’s the case, Amanda is betting on a passionate founder and compelling vision:

“At the early stage, we invest in companies that are revolutionary, not evolutionary… oftentimes they’re creating an entirely new category.”

On the other hand, Jon Canarick, managing director at North Castle Partners, has a different perspective.

“For the most part, businesses evolve from existing concepts. SoulCycle certainly wasn’t the first company to take a spin class out of a gym… It’s also true on the nutrition side. Atkins and low-carb eating was new. Now, is keto completely new or is it the next version [of Atkins]?

I think more stuff is evolution rather than revolution. And predicting revolutionary concepts is really hard. So we’re focused on high-quality experiences, exceptional entrepreneurs, and great brands that have loyal, passionate followings.”

Opportunities Ahead

There’s no doubt, predicting or creating a revolutionary company can be difficult, if not impossible. But that’s what makes it so rewarding.

And, if you listened closely to previous episodes of the podcast, you may have picked up on the ideas investors are chomping at the bit to back.

Top of mind at NEXT VENTŪRES, Lionel said he’s pursuing ideas in skin sensors, glucose monitoring, hydration, and AI-based fitness and coaching apps.

Aarti Kapoor, an investment banker at Goldman Sachs, looks for megatrends when evaluating potential deals. More specifically, she pointed to mental wellness, physical recovery, and the sleep economy as key trends to follow. The destigmatization and democratization of therapy, as well as women’s health and fertility, also represent untapped potential.

Similarly, Lisa and Amanda at Able Partners are looking for startups that address mental health and women’s health. For them, it’s a matter of backing founders aiming to break apart stigmas. A few additional examples include sexual wellness, elder care, and psychedelics for therapeutic use.

Beyond plant-based foods, Dan Gluck and PowerPlant are tracking a few key trends: fresh and convenient foods, functional foods, personalization (especially among vitamins and supplements), and transparency of ingredients.

At Boulder Food Group, managing partner Dayton Miller looks for food and beverage brands that check four boxes: taste, better for you, convenience, and value. Going a step further, Dayton said he’s excited about the potential for blood panels and continuous glucose monitoring to unlock personalized nutrition.

This sentiment was echoed by GC’s Holly Maloney, who’s hoping to back a personalized nutrition platform capable of making recommendations for how to fuel optimal physical and mental performance. Another idea on Holly’s radar: training, education, and certification for the health and wellness-focused workforce.

And at Courtside, Deepen and team have developed a thesis around opportunities in the fitness space, looking for companies targeting the reinvented gym, human performance, community engagement, and personalized data.

Looking ahead: Across the fitness and wellness industry, tech-enabled, consumer-centric products and services promise to democratize access to a healthier lifestyle. With segments of the trillion-dollar wellness category and equally-as-lucrative healthcare market up for grabs, investors are ready and willing to back innovative companies in this space. Hopefully, some of the podcast interviews can bring the emerging opportunities to light.

Get in touch: If you’re a founder working on a health and fitness startup, or if you’re an investor in the space, who wants to connect, email us: insider@fitt.co

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🎙 On the Podcast

This week, on the Fitt Insider podcast, we’re joined by Nate Raabe, managing partner at Rx3 Growth Partners.

At Rx3, Nate joins forces with Byron Roth of ROTH Capital Partners and Super Bowl Champion quarterback Aaron Rodgers in raising $50M to invest in consumer brands.

In this episode, you’ll learn about the firm’s approach to partnering with influencer investors — including Rodgers, former Heisman Trophy winner Desmond Howard, racecar driver Danica Patrick, skateboarder Ryan Sheckler, and New York Jets quarterback Sam Darnold.

And we discuss Rx3’s investments in hims, Hydrow, Super Coffee, CorePower Yoga, and more.

Listen to the full episode here.

🗣 “Alexa, let’s work out.”

Amazon’s Echo Buds, the company’s wireless headphones, can now track workouts.

Equipped with a built-in accelerometer, the Echo Buds can track walks, runs, and other workouts, all initiated with Alexa voice commands.

Once enabled, users can ask Alexa to start, pause, or end a workout. And, because they’re tracking calories, distance, pace, and duration of a run, you can also ask things like, “what’s my pace?” or “how far have I run?”

Amazon Health: Workout tracking headphones are the latest in a growing list of health-focused initiatives from Amazon.

• Amazon Pharmacy, a prescription medicine delivery service.
• Amazon Halo, a wrist-worn health tracking device.
• Amazon Care, a healthcare program for employees.
• Haven, a healthcare-focused joint venture with Berkshire Hathaway and JPMorgan Chase.

Looking closer: Through its venture capital arm, the Alexa Fund, Amazon is backing health and fitness-focused startups, including: Aaptiv, Zwift, Tonal, and Endel.

👂 Rumor Mill

In recent days, there has been speculation that Peloton secretly acquired IP, technology, and employees from digital health company Peerfit.

Here’s what we know:

• Peerfit CEO Ed Buckley confirmed the deal to the Tampa Bay Business Journal but did not disclose a buyer.
• The St. Pete Catalyst reported “an eight-figure transaction and that the buyer was Peloton.”
• Two SEC filings say Peloton purchased technology, intellectual property, and related assets for ~$74M in October.
• A quick LinkedIn search reveals a number of former Peerfit employees now work for Peloton.

What it means: If true, the acquisition would signal Peloton’s interest in bulking up corporate wellness and insurance partnerships where riders are given a discount or reimbursement toward the cost of Peloton equipment or subscription. Stay tuned.

💔 End of an Era

Since 2005, San Francisco CrossFit has been a staple of the Bay Area’s fitness community. But 2020 proved too much to handle. The gym recently hosted its final workout and will close its doors for good.

Tough times: As we’ve noted on many occasions, the fitness industry has been hard hit by the pandemic. By some estimates, 25% of gyms could close by year’s end. And billions of dollars in lost revenue may never be recouped. But San Francisco CrossFit is a unique case.

Before CrossFit was a household name, Kelly and Juliet Starrett opened one of the first few dozen CrossFit gyms in the world. In the time since, Kelly has become something of an icon in CrossFit circles and beyond, expounding mobility and physical therapy advice for YouTube followers and pro athletes alike.

The notoriety helped bolster San Francisco CrossFit, which counted more than 300 members. But since March, membership was down 70%, the gym was losing money, and the uncertainty around returning to full capacity forced the Starretts to shut down.

Zooming out: Unfortunately, this is the scenario playing out in countless gyms and studios — one that’s likely to worsen as another round of lockdown measures go into place.

📰 News & Notes

• What’s Walmart working on here?
• A beginner’s guide to longevity research.
• Peloton: “Who needs bike lanes, anyway?”
• Wearable device sales are up 30% this year.
• FORME Life, a connected fitness upstart, opens 11 retail showrooms
• The pitch deck that landed Levels $12M [Reread: our deep dive into Levels]

💰 Money Moves

• Global meal kit company HelloFresh acquired health-focused competitor Factor75 for $277M.
• LA Fitness, a 700-unit gym chain, applied for a $300M emergency loan from the US government’s Main Street Lending Program.
  More from Fitt Insider: On the Other Side
• Berlin-based ATAI Life Sciences, a startup advancing psychedelic drug treatments for mental health disorders, raised $125M in a Series C round led by Thiel Capital.
  More from Fitt Insider: Psychedelic Wellness
• HVMN, a ketogenic snack brand, landed $5.5M in new funding.
• Sports hydration company Cure Hydration secured $2.6M in seed funding led by Lerer Hippeau, with participation from Andy Roddick and Thrive Market’s Nick Green, among others.
• Paceline, a digital fitness platform incentivizing physical activity with financial rewards, raised $5M in a seed round co-led by Montage Ventures and Propel Venture Partners.
  More from Fitt Insider: The Metaverse of Fitness
• Spa and salon booking app Boulevard secured $27M in Series B funding co-led by Toba Capital and Index Ventures.
• Mars, the global candy conglomerate, acquired granola bar maker KIND for an estimated $5B.
• Mental health startup Headway, developers of a platform connecting patients to licensed therapists, closed a $32M Series B led by Thrive Capital, GV, and Accel.
  More from Fitt Insider: Confronting the Growing Mental Health Crisis
• Spring Health, a digital concierge for mental health services, raised $76M in a Series B round led by Tiger Global.
• Digital therapy platform Talkspace acquired relationship counseling app Lasting and is exploring a potential sale valued at nearly $1B.
• Joon Care, a teletherapy app for teens and young adults, secured $3.5M in a funding round led by Route 66 Ventures.
• Veterinary startup Bond Vet closed $17M in a Series A round to scale its tech-enabled clinics.
• A-Frame, creator of hand soap Keeper and other personal care products, added $2M in a funding round led by Initialized Capital.
• Tech investor Astanor Ventures launched a $325M Global Impact Fund with plans to make investments into European and North American food and agricultural tech companies.
• DTC underwear and sleepwear brand MeUndies received a $40M strategic investment from growth equity firm Provenance.
• Feast & Fettle, a chef-driven meal delivery company serving New England, closed $1.2M in seed funding.
• Toronto-based Mother Raw, makers of plant-based condiments and dressings, landed $6.1M in a Series A round led by Forage Capital Partners.