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Peloton, the Fitness Company that ‘Sells Happiness,’ Reveals IPO Filing: Term Sheet

Who says money can’t buy happiness? John Foley, the CEO of home exercise equipment maker Peloton, writes in its newly-released IPO prospectus, “On the most basic level, Peloton sells happiness. But of course, we do so much more.”

In its S-1, Peloton describes itself as “a technology company, a media company, an interactive software company, a product design company, a social connection company, a DTC retail company, an apparel company, and a logistics company.” Come on. As people on Twitter pointed out, the only missing descriptor is “blockchain company.” (I was really bored yesterday & had nothing better to do, so you can see my Twitter thread breakdown of the S-1 here.)

In reality, Peloton sells exercise bikes and treadmills that have television screens connected to the internet for showing its own workout programs. Its basic “connected fitness” subscription costs $39 a month and the bikes start at $2,000. 

Similar to its peers who recently made their public debuts, Peloton is unprofitable. The company lost $196 million on sales of $915 million during the 12 months ending on June 30, according to its filing. That compared with a loss of $48 million on $435 million in sales during the same time period a year earlier. 

Peloton was most recently valued at $4.15 billion. In total, Peloton has raised approximately $994 million in venture capital funding since it was founded in 2012. Its largest shareholders include Tiger Global (which owns 20%), True Ventures (12%), Fidelity (7%), TCV (7%), and CEO John Foley (6%).

Like WeWork, Peloton lists an economic downturn as one of its risk factors. “An economic downturn or economic uncertainty may adversely affect consumer discretionary spending and demand for our products and services,” it says. Another one has to do with lawsuits: "We have been, and in the future may be, sued by third parties for alleged infringement of their proprietary rights." This is a nod to when Peloton was sued for failing to obtain a sync license to use some labels’ musical work in their exercise videos. And of course, a third risk factor is its unprofitability and that “it may not achieve or maintain profitability in the future.”

But with more than 1.4 million members, Peloton boasts a cult-like base of customers. The words “loyal” or “loyalty” are mentioned 17 times in its prospectus. The company claims its service is sticky and that 92% of its connected fitness products it has sold still had an active subscription as of June 30. That’s pretty crazy. 

I asked my colleague Daniel Bentley, who is the proud owner of a Peloton, whether he believes the company sells him happiness. He said, “Yep. It’s extremely engaging and fun.” So there you go. Let’s see if the cult-like loyalty of its members can get Peloton on the treadmill of profitability.

THE GREAT CO-WORKING CONSOLIDATION: WeWork will acquire Spacious, a smaller rival that converts restaurants into co-working spaces during the day. Financial terms weren't disclosed, but Spacious has raised a little more than $9 million in funding from investors including Lerer Hippeau, Redpoint, Baseline Ventures, August Capital, and BoxGroup. Spacious was last valued at $29 million, according to Pitchbook. 

Over the years, WeWork has gobbled up a number of complementary startups including Managed by Q, an on-demand office services company, Conductor, a content marketing site, and Meetup, an online social networking platform. 

But Spacious’ business is directly competitive. Founded in 2016 by Preston Pesek, Spacious offers customers access to co-working spaces from $20 per day for a day pass all the way up to a $129 per month for an annual membership.

Like I said last week, Spacious — along with Convene, Knotel, Industrious, The Yard, The Wing, and Alley — are WeWork-adjacent. So what do you do if you’re a WeWork-adjacent business? You raise big money or you get bought. 

The real estate behemoth is also an investor in smaller rival The Wing, a women-only club and co-working space. When WeWork swooped in to lead The Wing’s $32 million Series B funding round in 2017, I asked if the startup could be an acquisition target. WeWork's then-COO Jen Berrent said, “We’re not doing this lightly. We are doing this to produce a long-term footprint, but at the same time, we’re not saying this has to end in an acquisition in order for it to be successful.” The Wing went on to raise an additional $75 million in funding in December. 

Who knows what WeWork’s acquisition strategy entails, but one thing’s for sure: The co-working market is real crowded, and I expect it to tighten significantly. With both WeWork and Airbnb on acquisition sprees ahead of their anticipated IPOs, I’m curious to see which startups will come along for the ride.

Read more at Fortune.

PETER THIEL SAYS ✌️TO  FACEBOOK: Peter Thiel’s Founder’s Fund, one of Facebook’s earliest backers, has sold off its remaining shares in the social network. This leaves the PayPal founder with just 63,550 independently held shares of Class A Facebook stock. That’s just 0.1% of the 44.7 million shares he held in the company when it went public in 2012. 

The most recent sale, which occurred last week, brought in $4 million. Thiel certainly made quite a profit from its initial investment in Facebook, though. He sold 16.8 million shares when Facebook went public in 2012, pocketing roughly $640 million. Later that year, he sold another 20 million shares for $400 million. Read more.

🎉TERM SHEET ANNIVERSARY: 🎉Today marks two years since Lucinda and I nervously pressed the “send” button on our first edition of Term Sheet. (Here’s what the Term Sheet initiation ritual entails.)

In the last year, we’ve profiled more than 50 dealmakers; written at length about WeWork, Juul, and Slack; made bad puns about VCs having a “hot deal summer;” revealed the secrets of the VC who’s seen it all before; delved into what led to the Kleiner Perkins split; published an excellent guest column by Jack Ciesielski; and compiled your thoughts on whether investors are willing to overlook profitability

Thank you for reading, and most importantly, thank you for sticking around after the Giant Term Sheet Font Debacle of 2019. It was difficult for all of us. I’ve enjoyed getting to know many of you who read this beast of a newsletter every day. Cheers to many more.

VENTURE DEALS

ThoughtSpot, a Palo Alto, Calif.-based business intelligence startup that offers data analytics searches, raised $248 million in Series E funding at a valuation of $1.95 billion. Lightspeed Ventures led the round, and was joined by investors including Silver Lake Waterman, Sapphire Ventures and Geodesic Capital.

Fair, a Santa Monica, Calif.-based vehicle subscription app, raised $100 million in debt and equity from Ally Financial.

Groups360, a Nashville ,Tenn.-based online marketplace for meetings, raised $50 million in funding. Investors include Accor, Hilton, IHG and Marriott International.

Kin Insurance, a Chicago-based insurance startup, raised $47 million in funding. Investors include Avanta, HSCM Bermuda and UChicago Startup Investment Program.

EBR Systems, a Sunnyvale, Calif.-based developer of a wireless cardiac pacing system for heart failure, raised $30 million in funding. Brandon Capital Partners and M.H. Carnegie & Co. led the round.

Platform9, a Sunnyvale, Calif.-based provider of SaaS-managed hybrid cloud, raised $25 million in Series D funding. NGP Capital led the round.

Chargebee, a Walnut, Calif.-based subscription management platform, raised $14 million in Series D funding. Steadview Capital led the round. 

Bond Financial Technologies Inc, a San Francisco-based developer of a financial technology platform, raised $10 million in seed funding. Canaan led the round, and was joined by investors including Coatue.

Tesorio, a Burlingame, Calif.-based provider of an AI-driven cash flow performance platform for finance departments at companies of all sizes, raised $10 million in Series A funding. Madrona Venture Group led the round, and was joined by investors including First Round and Floodgate.

Orbion Space Technology, an Allouez, Mich.-based developer of small-sat propulsion systems, raised $9.2 million in Series A funding. Material Impact led the round, and was joined by investors including Invest Michigan, Invest Detroit, Wakestream Ventures, Ann Arbor SPARK, and Boomerang Catapult.

Advanced Farm Technologies, a Davis, Calif.-based developer of robotic farming equipment, raised $7.5 million in Series A funding. Yamaha Motor Ventures & Laboratory Silicon Valley led the round, and was joined by investors including Kubota Corporation, Catapult Ventures and Impact Venture Capital.

CodeCombat, a San Francisco-based provider of coding process learning services, raised $6 million in Series A funding. Hone Capital led the round, and was joined by investors including Andreessen Horowitz, Extol Capital, and OceanOne Capital.

SmartWitness, a Schaumberg, Ill.-based video telematics solutions provider, raised $4 million in funding from First Analysis.

AgroSpheres, a Charlottesville, Va.-based agricultural technology company, raised $4 million in Series A funding. Ospraie Ag Science led the round, and was joined by investors including Cavallo Ventures.

PRIVATE EQUITY DEALS

Valicor Environmental Services, which is backed by Pritzker Private Capital, acquired Action Environmental, a Fort Wayne, Indiana-based operator of a wastewater treatment facility. Financial terms weren’t disclosed. 

Shermco Industries Inc, which is backed by Gryphon Investors, acquired Electrical Manufacturing and Distributors Inc, a Wichita Falls, Texas-based provider of process controls services. Financial terms weren’t disclosed. 

Protos Security, which is backed by Southfield Capital, acquired Security Resources, a managed security services and direct guard solutions provider. Financial terms weren’t disclosed. 

OTHER DEALS

BP PLC will sell all of its Alaska assets, including its share of the giant Prudhoe Bay oil field and its interests in the Trans-Alaska Pipeline System, to Hilcorp Energy Co. for $5.6 billion, according to The Wall Street Journal. Read more.

IPOs

TeamViewer GmbH, a technology company, is weighing an IPO in Frankfurt, Bloomberg reports citing sources. Permira, which backs the firm, is expected to offer shares in the listing that could value the firm at about $4.4 billion. Read more.

EXITS

Transom Bravo Holdings (“Bravo Sports”), a portfolio company of Transom Capital Group, acquired Dwindle Distribution, an El Segundo, Calif.-based skateboard company, from Globe International.

Altas Partners agreed to acquire DuBois Chemicals, Inc, a Sharonville, Ohio-based specialty chemical supplier, from The Jordan Company, L.P. Financial terms weren’t disclosed. 

FIRMS + FUNDS

Lee Equity Partners, a New York-based private equity and venture capital firm, raised more than $655 million for its third fund, according to an SEC filing. Financial terms weren’t disclosed. 

Cotton Creek Capital, an Austin, Texas-based private equity and venture capital firm, raised $215 million for its third fund.

Varsity Healthcare Partners, a Los Angeles, Calif.-based private equity firm, raised $417 million for its third fund.

CrowdStrike Inc and Accel have launched Falcon Fund, a $20 million early-stage investment fund. The fund will focus on making seed and Series A investments in startups that are building applications on the CrowdStrike Falcon platform.

PEOPLE

Baris Aksoy joined AV8 Ventures as a general partner.