Fitness Startups, With The Help Of Investors, Go For Gains


Obsessions with fitness, combined with a need for immediacy, convenience, and flexibility, has given rise to a generation of fitness-obsessed millennials. Yes, we’ve moved on from at-home jazzercise VCRs and into a world where every third person teaches a yoga class.

So it’s no surprise that “the global fitness and health club industry generates more than 80 billion U.S. dollars in revenue per year,” according to market and consumer data analytics company, Statista. The U.S. accounted for 57.2 percent of members in health and fitness clubs in 2016, according to its data.

Follow Crunchbase News on Twitter & Facebook

And with that market potential, tech startups are looking to capitalize on our obsession with wellness.

Bring On The Fitness Tech

According to Crunchbase data, which is useful in indicating industry trends, the U.S. fitness industry has grown significantly since 2010. Known total venture deals peaked in 2014, with Seed-stage funding taking up the majority. Total funding reached a record high both in the U.S. and globally in 2017.

The significant drop in dollar volume in 2016 doesn’t necessarily indicate a loss of interest in the industry. Average dollar volume for each deal did increase compared to 2014. However, that drop is a reflection of outlying rounds in 2015 and 2017. Total funding in 2017 was bolstered significantly by a massive $325 million dollar round.

Why does all of this matter? Well, one of the biggest trends that fueled this growth was a host of startups that are trying to get people to go to the gym and stick to it.

ClassPass Gets The (VC) Gains

Over the past few years, ClassPass was one of the most-hyped solutions to gym convenience. The company, which has garnered a known total of $154 million in venture funding, refers to itself as the “most flexible fitness membership ever.” And with a $470 million post-money valuation provided by some big names in venture capital, it has certainly attempted to become just that.

READ  Uber acquires bike-share startup JUMP – TechCrunch

Founded in 2012, Classpass emerged out of the idea that boutique yoga studios or other fitness centers could potentially recruit more returning customers Further, busy, working professionals often don’t have schedules that match up with one gym’s class schedule.

After rebranding from Classivity to ClassPass, the company replaced its pay-per-class model and started offering $99 monthly subscriptions to allow individuals to attend 10 classes at any ClassPass-affiliated gym or fitness center. By 2014, it had already logged over 500,000 reservations, according to TechCrunch.

In 2015, the company acquired its top competitor, Fitmob, which had raised a known total of $14.5 million. By 2017, the company had grown to more than 35 million total reservations.

However, its massive rise was not without complications. The startup has consistently faced challenges in building a sustainable business model, particularly after it introduced a $100 unlimited membership in 2015. With low-usage users subsidizing high-usage customers, the company’s monthly gross margins decreased significantly, according to TechCrunch. In 2016, the company then hiked prices for its unlimited membership based on where users live. Later that year, it eliminated the unlimited option altogether and introduced tiered memberships. Most recently, in March, the company eliminated its tiered options and introduced credits, with certain classes and times of day affecting the cost of each class.

The results of these price changes have caused some customer unhappiness; however, the company says that past changes, while harmful in the short term, resulted in increased market potential and gross margins.

(Crunchbase News reached out to ClassPass for comment, but it did not receive a response by the time of publication.)

READ  SET Officially Launches “LiVE” Platform With Blockchain Technology To Grow Startups

With ClassPass’s struggles in mind, other competitors hope to build stronger business models that appeal to both customers and vendors.

Studio Partnerships & Corporate Wellness Programs Fuel Startups

Peerfit has eschewed targeting customers directly. Instead, it has decided to take on the fitness tech space through employers with its corporate wellness program.

The Tampa-based company has raised a known total of $14.2 million. It appeals to businesses by integrating with the benefits, insurance, and data reporting processes of employers, eliminating the need to process reimbursements.

“HR and wellness directors don’t want to be dealing with reimbursements. Peerfit’s data integration makes reporting on employee usage and engagement seamless so companies know they are spending those dollars wisely,” Ed Buckley told Crunchbase News in an email.

With its wellness program approach, Peerfit is looking to tap into the need for team development, marketing itself as a social, workplace-enhancing platform. This approach, it posits, is also beneficial for its studio partners who are looking to attract corporate wellness dollars.

Another company, Zenrez, has focused its efforts on providing studios with the potential to attract stickier customers, while attempting to offer them a fair, more autonomous, and data-driven sales product.

The company was founded in 2014 and has raised a known total of $9.9 million with lead investments by San Francisco-based Artis Ventures, according to Crunchbase. Zenrez partners with studios, offering them a sales platform that tracks and analyzes the frequency of attendance of potential long-term customers. Its system formulates personalized monthly subscription costs based on that data and potentially incentivizes long-term commitments.

With companies like Peerfit and Zenrez taking unique approaches to creating a sustainable business model for multi-gym passes, other companies have decided to change business tactics, eliminating the need to satisfy third-party vendors.

Bring The Gym To The People

It turns out that more companies are looking to bring fitness classes to wellness seekers’ homes. ClassPass caught on to this idea, launching a video-based subscription service in March. ClassPass isn’t the only fitness startup to bring accessibility to classes. Apps like Aaptiv, an audio-based fitness class startup, have also caught onto the trend.

READ  20 Killer Copywriting Tips for Startups

Perhaps the most popular and definitely the most well funded is Peloton, a startup that sells a tech-enabled spin bike. The popular company raised a $325 million Series E in May 2017, accounting for the sharp rise in dollar volume in 2017. That last round brought its valuation up to $1.25 billion and its aggregate known funds raised to $444.7 million. Its investors include Tiger Global Management, Fidelity Investments, Kleiner Perkins, Wellington Management, and True Ventures, among others.

All this funding has lead to luxury spin bikes that are equipped with flat screens which enable subscribers to access on-demand and live spin classes. While the initial opt-in is pricey ($1,995 for the bike, plus a required $39 per month subscription for 12 months), the company and investors are betting that at-home classes are the ticket to monetizing the fitness-obsessed, busy professional. According to TechCrunch, the company has also launched a commercial business, selling its bikes to fitness centers. It also hopes to offer a Peloton treadmill.

The future of fitness tech is not set in stone; still, investors are betting big on their industry hopefuls. And although ClassPass may be popular in the media, its fickle business strategy has exposed key pain points for other competitors to capitalize on. If subscribers stick to their guns and tough out those New Year resolutions, startups like Peloton and other class-streaming apps may be tapping into a long-lasting, lucrative option.





READ SOURCE

LEAVE A REPLY

Please enter your comment!
Please enter your name here