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Peloton’s founder had a hard time raising VC—now his company is worth $4.1B

We spoke with John Foley, founder & CEO of Peloton, about early struggles to raise VC funding for the fitness company, IPO plans and more.

Peloton, the company that sells $2,000 internet-connected exercise bikes to consumers, has raised $550 million in venture capital funding at a $4.1 billion valuation, with plans to sell its bikes overseas.

The company, founded in 2012, was made famous by its at-home exercise bikes that stream subscription-based fitness content live to users. Despite the hefty price tags on its equipment, for many, investing in a stationary bike is more cost-effective and convenient than a gym membership. And with little to no competition in the space—your next best option would probably be parking a traditional exercise bike in front of your Netflix-connected TV—Peloton has cracked a big market, collecting nearly 1 million subscribers and bike owners.

Peloton founder: ‘I am going to take over the world’

Founder and CEO John Foley told PitchBook he started Peloton because he and his wife wanted a service more flexible than existing fitness options like SoulCycle, the indoor cycling class provider.

“My wife and I love fitness but like most aging couples with kids it gets harder to get to the gym,” Foley said. “As soon as we had kids our lives got busier and I said, I think I can build a technology platform that will allow you to consume these wonderful fitness classes from the convenience of your home and we could hire the best instructors and it could on your time, your schedule and overtime, at a better value.”

Foley said because of his natural confidence, maybe even arrogance, he knew from the beginning that Peloton would become the multibillion-dollar business it is today. In the fiscal year ending next February, the company is expected to bring in $700 million in revenue, a 100% YoY growth rate, per The Wall Street Journal. And Foley says he plans to take the company public next year. Venture capitalists, however, didn’t have much faith in the business in the beginning.

“In the plans that I pitched to the investors ... I said, ‘I am going to take over the world’ and for the first three years, they said, ‘Sure you are, no thanks.’ The institutional investors wouldn’t give me money,” Foley said.

In Peloton’s first three years, Foley and his team resorted to angel funding as VCs turned their backs on the business. Even today, with the company’s success, he said he was very relieved to have closed the latest round.

“It’s been hard; there are so few investors who can get their brain around how unique what we are doing is,” Foley said. “It’s been a head scratcher as to why they haven’t been rushing to put capital into the category.”

VCs have invested $555 million in fitness companies in the US so far this year, not including Peloton’s monstrous round, according to the PitchBook Platform. That’s just under last year’s total of $661 million, which included a $70 million funding for ClassPass and a $15 million round for social fitness app Strava. Peloton is the only venture-backed fitness tech company to garner a unicorn valuation to date, per PitchBook data.

Reshaping fitness

Despite challenges securing capital, the latest round brings the company’s total VC raised to just under $1 billion. TCV led the round, with participation from existing investors Tiger Global, True Ventures, Wellington Management, Fidelity, NBCUniversal, Kleiner Perkins Caufield & Byers and Balyasny, as well as new backers Felix Capital and Winslow Capital.

“Part of the appeal here is that it’s a different company,” TCV co-founder Jay Hoag told PitchBook. “The analogy that I would use is, is Apple a hardware or software company? It’s an integrated experience.”

As part of the financing, Hoag is joining Peloton’s board. Peloton is Hoag’s first investment in the fitness tech space, though Peloton is more than a fitness company; it sits at the intersection of fitness, hardware and media. That’s why, Hoag says, it’s such a worthy investment.

Many people, including its CEO, have dubbed Peloton the “Netflix of fitness.” And who better to substantiate that claim than Hoag, a longtime Netflix board member whose firm first backed the streaming giant in 1999.

“At a higher level, Netflix delivers streaming entertainment for a fixed monthly fee in the convenience of your home, and Peloton is delivering a studio quality fitness experience in the comfort of your home also for a fixed monthly fee,” Hoag said. “Point two is that they both focus on delighting their customers and that is great. There are super high levels of engagement, customer satisfaction, NPS scores, et cetera and that results in higher retention. Obviously, Netflix has been around a lot longer, but both have very large market opportunities. I’m super excited about the ability for Peloton to reshape fitness.”

Foley, for his part, says the key difference between his company and Netflix is hardware.

“The hardware makes it harder but ... even more special. We are truly the first interactive media company because you are part of the experience.”

In addition to its bikes, Peloton will begin shipping its new $4,000 internet-connected treadmill later this year. It also provides an app, which connects users to its portfolio of digital fitness classes, brick-and-mortar stores that sell branded fitness gear, and studios where subscribers can attend in-person fitness classes.

With the fresh injection of capital, Peloton will double down on those offerings, opening at least 20 new storefronts in the US, UK and Canada, as well as a 25,000 square foot “member support hub” in Plano, TX. It will also begin selling its flagship exercise bikes in the UK and Canada this fall, marking its first foray outside the US.

  • kate-clark-1.jpg
    Written by Kate Clark
    Kate Clark was a staff writer at PitchBook.

    A Seattle native, Kate attended the University of Washington where she studied journalism and international studies. She previously wrote about the Indian startup ecosystem in Bengaluru and freelanced in the Seattle area. Follow her on Twitter @KateClarkTweets.
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