Sleep? There’s a nap for that

Forget about billion-dollar-startups. The real unicorn may be the mythical person who actually gets eight hours of sleep each night.

A poll by the National Sleep Foundation found that 43 percent of Americans ages 13 to 64 rarely or never get a good night’s sleep, and 60 percent say they have a sleep problem every night or almost every night of the week.

A hectic, always-on lifestyle is likely contributing to the problem. A Gallup study found that Americans currently average 6.8 hours of sleep at night, down more than a full hour from 1942.

Sleeplessness is also taking a toll on the economy. A Harvard Medical School study found that the average U.S. worker loses 11.3 days of productivity a year due to exhaustion, costing corporations about $63.2 billion a year.

Now, venture investors are, well, waking up to this lack-of-sleep epidemic and the opportunity it presents: They’re plowing capital into startups that are focused on helping people get a good night’s rest.

Casper disrupts market

One of the most heavily funded companies in the sleep space is Casper Sleep, which raised a $55 million Series B round in summer 2015 that was led by IVP at a reported post-money valuation of $555 million.

Backers of Casper include Correlation Ventures, Lerer Hippeau, New Enterprise Associates, Norwest Venture Partners and SV Angel, among others, according to Thomson Reuters.

“If you told me two years ago I’d invest in a sleep-and-mattress company, I never would have believed you,” says Dennis Phelps, a partner at IVP, who calls Casper one of the fastest growing online brands of all time.

“I just never thought the margins would be there to make this a compelling e-commerce experience. But Casper is really disrupting this market.”

Launched in 2014, New York-based Casper has quickly upended the $14 billion mattress market by selling its memory-foam mattresses direct to consumers via the Internet. The Casper mattresses are compressed to fit into manageable boxes for easy delivery, including bicycle delivery in New York City, with the mattresses decompressing and expanding after unpacking.

The company hit $1 million in sales its first month in business and has already passed $100 million in total sales.

“We have a strong preference to invest in clear market leaders because we think a lot of markets in consumer tech are winner take all or winner take most,” Phelps says. “Casper is a leader in the sleep space; that’s why we went after it aggressively.”

Casper is using its funding to ramp up production of mattresses, fine-tune its supply chain and expand domestically and internationally.

The company is aiming to create an all-encompassing brand within sleep, similar to what Nike did within sports. It wants to sell all things sleep-related. To that end, the company recently released a new line of sheets and pillows. Phelps says the company has a roadmap to launch other sleep products and services.

“The low-hanging fruit is obviously the mattress,” he says. “The ability to sell a memory-foam mattress for $800 to $900, instead of the traditional price of $3,000, while still capturing a significant margin is a huge accomplishment. But there are also other opportunities that incorporate wearables, material science and software.”

‘Bringing tech into your bed’

Casper’s not alone: A number of other online mattress companies are trying to capture a slice of the sleep market.

London-based Simba Sleep, for instance, recently raised funding from Spark Ventures and individuals to sell its mattresses across the United Kingdom.

Leesa, a Virginia Beach, Virginia, maker of luxury mattresses ordered online, raised $9 million last year from TitleCard Capital.

Meanwhile, Helix Sleep raised an $800,000 angel round for its custom-built mattresses shipped directly to the customer’s doorstep.

Phelps insists he isn’t worried.

“Every new entrant will have an increasingly difficult challenge, given how well-funded Casper is,” he says.

While these companies battle over the mattress, a startup called Eight (as in eight hours of sleep) is focused on the seemingly humble mattress cover. The Eight mattress cover, which costs $249 for a queen bed, is outfitted with sensors to track the quality of your sleep, including sleep phases, heart rate and breathing rate.

New York-based Eight recently raised $6 million in seed funding from Y Combinator, Yunqui Partners, Azure Capital and Comcast Ventures.

“We spend nearly a third of lives sleeping, but the majority of Americans have sleeping problems, and 30 percent have full-blown sleep disorders,” says Matteo Franceschetti, chief executive and co-founder of Eight.

“Our investors understand this is a huge market. No one has really built anything to help these people. We want to be the leading company for bringing technology into your bed.”

Eight, Hello, Rythm

Franceschetti says his company’s low-voltage mattress cover combines knowledge about your night with information about your day and uses those insights to recommend what works best for your sleep.

He says that Eight can learn a user’s regular bedtime and set the bed’s temperature to help someone fall asleep faster. And unlike with wearables, such as the Fitbit fitness trackers, or smartwatches, Eight customers don’t have to remember to wear a device every night or go through the hassle of charging it.

“Our product is really a non-wearable advanced sleep tracker that requires no action on your part to track sleep,” Franceschetti says.

Another sleep tracker is Sense made by a startup called Hello, which has raised $31.5 million. The lead investor is Temasek Holdings, an investment company owned by the government of Singapore.

The Sense device comprises a sound machine, sleep monitor and smart alarm. Ambient sounds help the user fall asleep and stay slumbering through the night.

Meanwhile, the small “Sleep Pill” sleep tracker clips to a pillow and not only tracks sleeping patterns but monitors the temperature, humidity, light, noise, and air quality in the bedroom to discover how adjustments to the environment can help the user sleep better. By monitoring sleep cycles, the Sense smart alarm identifies the best time to wake up each morning.

In addition, a Paris startup, Rythm, recently developed Dreem, a soon-to-be-released $349 headset that leverages neuroscience technology to sync with brain activity and produce sound at precise moments to enhance sleep quality.

The company, which has its U.S. location in San Francisco and recently raised $11 million in funding, says its Dreem device is an active wearable, meaning it doesn’t just monitor sleep but rather influences brain waves to help users remain in deep sleep longer. Investors in the company include the French entrepreneur Laurent Alexandre and tech billionaire Xavier Niel.

One thing’s for certain. VCs investing in the space aren’t losing any sleep.

“A company like Casper has the potential to be a large publicly traded company,” Casper investor Phelps says.

“We’re not really thinking about an acquisition because many of the incumbents in the space are old stodgy companies that couldn’t pay the kind of premium Casper deserves to even consider getting off the hypergrowth path it is on today.”

Tom Stein is a Palo Alto, California-based contributor. He can be reached at tom.stein@yahoo.com.

Action Item: Read more info about using electronics in the bedroom from the National Sleep Foundation: http://bit.ly/1NTu2yy

Downloadable Data: Select venture-backed targets in the sleep sector

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