Greg Gretsch was a weekend warrior long before he became a venture capitalist. He ran marathons, completed Ironman races and was a champion Category 3 bike racer. Four years ago, Gretsch, a father of four, accomplished a lifelong goal: he ran a 40-mile race for his 40th birthday.
But when Gretsch, managing director of Sigma Partners, joined the firm in 2000, a colleague quietly pulled him aside and gave him a piece of advice.
“Never fund one of your hobbies,” the partner warned. “If you ever have the urge to invest in a sailing company, just buy the sailboat. It’ll be a lot cheaper for everyone.”
Gretsch heeded that wisdom for more than 10 years. Then he discovered an online fitness company called Strava. The company, started by the founders of Kana Communications, was intended to be a lifestyle business catering to the hardcore cycling community, of which Gretsch himself was a member. But after a year of using Strava—a GPS-enabled application that lets riders record their rides, track their performance, compete with friends and find new routes and climbs—Gretsch had an epiphany.
“I realized that Strava had the potential to become the social network for athletes, just like Facebook is the network for friends and LinkedIn is the network for professionals,” he says. “We would never have invested if this were just a niche tool for high-end cyclists. Strava is basically a gym membership for all those people who do their workouts outside.”
And the opportunity is huge. If Strava was solely targeting active cyclists, it could maybe hope to get 100,000 subscribers. But throw in runners, hikers, swimmers and more, and that number suddenly grows to tens of millions, Gretsch says. In fact, Strava recently raised $3.5 million from Sigma to expand the application to runners and other fitness buffs, not just cyclists.
Strava is part of a wave of venture-backed fitness and personal health companies that’s gaining momentum. Recently funded startups include:
• Fitbit, makes a wearable device that tracks a user’s daily activity and movements. The company raised $8 million in a second round of funding from True Ventures and the Foundry Group.
• Endomondo, provides an application that turns fitness into a game by giving users the chance to compete with friends and earn points for their fitness achievements. The company raised $800,000 in seed financing.
• FitnessKeeper, develops a mobile fitness application that raised $1.1 million from O’Reilly AlphaTech Ventures.
• MapMyFITNESS, makes online and mobile fitness tracking applications that raised $5 million in first-round funding from Austin Ventures.
This will be a huge area over the next five years. It will be the next big buzzword category, like cloud computing is today.”
Bryce RobertsManaging DirectorOReilly AlphaTech Ventures
“Maybe RunKeeper is just a stupid iPhone app, or maybe it’s the start of a massive trend,” Roberts says. “Maybe the whole notion of quantifiable self—with tracking, measuring, and optimizing personal data—is wonky stuff that never hits the mainstream. Or maybe it’s something that ends up changing our lives for the better and having a huge impact on society. That’s a bet worth taking.”
Applications and devices like RunKeeper, Strava, Fitbit and Basis all have an ambitious goal: to aggregate the world’s health information, helping consumers make sense of their data and make positive changes in their daily life.
“People need a good reason to start collecting their health data, and running is a pretty good reason,” Roberts says. “Suddenly, RunKeeper is not just a ten-buck iPhone app, but a backend system loaded with valuable health data.”
Chang agrees wholeheartedly with this vision.
“The way the medical system is set up today, it’s all about keeping data siloed,” he says. “The next revolution happens when you can free that data and make it consumer-led. The real change comes when there are commercially available lightweight tools that let consumers track and measure their data on a long-term basis. That’s how we fix our broken health care system–by getting more people thinking about health and not just health care.”
The challenge for investors is picking the right application or device that will allow consumers to do just that. VCs such as Gretsch do not believe there will be dozens of online fitness networks co-existing in harmony. In the end, he believes there will be one and only one.
“If this market develops like other social networks, it will be winner take all,” he says. “The losers don’t get bought, they just go away.”
One recent flameout that went away is Expresso Fitness, a maker of internet-connected exercise equipment. The company’s stationary bikes featured interactive screens with virtual worlds that allowed users to compete with other people online and track their progress.
It’s not just startups that are fighting to be the Facebook of fitness. Large companies, such as Nike, Garmin, Microsoft and Google, are also active in this space. However, there are rumors that Google is now de-emphasizing its Google Health portal, perhaps concluding the opportunity is not as robust as it once thought.
Still, VCs are starting to believe that their fitness investments will turn out to be some of the healthiest in their portfolios.
Taking One’s Health and Hobby SeriouslyBryce Roberts felt like crap. He was 35 years old and 50 pounds overweight, a victim of a demanding VC career and being a dad to five young kids. There was no room on his calendar for exercise and eating right.
This is the only fitness deal I’ve ever done, and frankly my love of fitness has probably kept me from seeing the true opportunity and doing more.”
Greg GretschManaging DirectorSigma Partners
Still, he was determined to get back on track. One day, he spontaneously picked up an old pair of running shoes and hit the pavement. Soon he was running regularly.
But Roberts, a managing director at O’Reilly AlphaTech Ventures, wanted a way to track his daily mileage and monitor the progress he was making. So he downloaded the RunKeeper app to measure his times and distances. He soon discovered a host of other cool features, such as the ability to find new routes and compete with other runners.
When it came time for the startup RunKeeper to raise capital, Roberts was the first in line.
“I was a user for two years before I ever invested,” says Roberts, who credits the app with helping him get fit and trim.
A cardinal rule of the VC game is to never invest in your hobby.
“A lot of us have gotten into trouble when we have fallen in love with an idea based on a personal passion,” says Jon Callaghan, a partner at True Ventures, who founded a mountain biking business earlier in his career. But the fact of the matter is that VCs who make fitness investments do take their health very seriously.
For instance, not only does Tim Chang run two miles every day and go to the gym three times a week, he’s also obsessive about what he eats.
“There are basically just 10 things I eat, like broccoli, spinach, blueberries, fish and turkey,” says Chang, a partner at Norwest Venture Partners. “I turn it into a game, like how can I maximize lean protein and minimize carbs. I even try to guesstimate the calorie intake for everything I eat.”
Game mechanics is a big reason why Chang invested in Basis, which makes a wristwatch-like device that continuously measures heart rate and other vital signs directly from the skin. The device is also Internet-connected, allowing users to play games and get social with their health data. Chang believes such “gamification” is the key to any long-term fitness or diet routine, because that’s what keeps it interesting and motivates people to stick with it.
“Games are a good way to turn these food and fitness challenges into entertainment,” Chang says. “Systems like Basis are figuring out fun ways to give you a virtual pat on the back for not eating that cupcake.”
Greg Gretsch of Sigma Partners agrees games are good, but it’s the social element that most interests him. The 44-year-old is an avid bike rider who at one point cycled as many as 250 miles per week. But that’s not the reason he invested in Strava, which operates a website that strives to become the go-to social network for weekend warriors and amateur athletes.
Gretsch says that he invested because he has a network of cycling buddies who would love to know how fast he climbed Old La Honda, a big hill in the upscale Silicon Valley town of Portola Valley. By contrast, his social connections on Facebook and LinkedIn could care less about his cycling times.
But is he crazy to invest in his hobby?
“This is the only fitness deal I’ve ever done, and frankly my love of fitness has probably kept me from seeing the true opportunity and doing more,” he says. “There are 250 million people worldwide who are passionate about their favorite sports. That’s a really big market.” —Tom Stein