Seed to IPO: How To Raise Money For Your Wellness Business in 2021

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Despite a year plunged into uncertainty by the pandemic, the wellness industry has been buoyed by year-on-year growth in investment in 2020. So what does this mean for businesses in 2021?

In 2020, venture capital deal value and fundraising both eclipsed 2019 levels, according to Pitchbook data. Crowdfunding platform Seedrs reported a 121% jump in food and beverage investment and a huge 292% surge in healthcare. 

Wellness brands have continued to scoop major investment. Gousto, Oatly, Gymshark and Zwift each earned valuations in excess of $1 billion to achieve exalted unicorn status. 

In January, Digital health startup Hims followed the lead of Beyond Meat and Peloton before it decided to go public in the US. Just last week, the owners of cult fitness studio SoulCycle hinted it would soon follow suit too. 

So how has COVID-19 shifted the landscape since we last surveyed the market 12 months ago? Which categories and companies have prospered through adversity? What are the “multi-trillion dollar macro trends” driving the sector forward and how can you tap into them? 

Here we asked the decision-makers and deal-breakers involved in recent raises – from seed to IPO – how to raise money for your wellness business in 2021. 

“Public markets have been incredible for raising capital during the pandemic”
For Nicholas Reichenbach, the founder of Toronto-based premium water company Flow, the pandemic has focused investor attention on two key trends: Environmental Social Governance (ESG) and the “Better For You” food and drink categories. 

“Consumers don’t just want good products any more. They want good products that are good for the planet,” he tells Welltodo. “The strength of this category is also driving investment. 

“It’s a very strong and growing category for large institutional funds that are being mandated to invest in environmentally and socially responsible companies. Now it’s growing to a multi-trillion dollar investment strategy led by some of the biggest funds in the world.” 

Flow is a prime example of how purpose-driven companies with wellness at their core can ride out the turbulence of COVID-19. 

https://pitchbook.com/news/reports/q4-2020-emerging-tech-research-retail-health-wellness-tech

Image: Flow

The B-Corp-certified business was in the middle of a Series D raise in April during the first wave of the pandemic. Far from derailing its round, Reichenbach believes it strengthened the brand in the eyes of its investors as e-commerce revenue grew “in direct proportion, if not higher, than any reduction” in retail sales. 

“The public markets, both in the US and Canada for the food and beverage sector, have been incredible for raising capital during the pandemic,” he explains. With investors holding their nerve, Flow was able to secure $45 million. 

Eyeing further expansion across the US, last month Flow raised a further $90 million ahead of going public on the Toronto Stock Exchange, which could set the company up for a potential US listing later this year. 

Read More: Nicholas Reichenbach, Founder of Flow On: Going Public Amid A Pandemic 

If you can thrive in a global pandemic, you can navigate any challenges ahead”
The pandemic has also created a more favourable environment for emerging companies in the wellness sector to be discovered by investors, believes Kevin Moran, Co-CEO and Co-Founder of Massachusetts-based CBD brand Beam

“Wellness has been a rising trend for years,” he tells Welltodo. “The pandemic clearly accelerated this from a trend to a ‘way of life’ for many consumers. It also accelerated the rate at which quality wellness brands have been discovered by investors.” 

He has no doubt it was a contributing factor in Beam’s Series A raise of $5 million in February. “As an emerging brand in the wellness space during COVID-19, it certainly gave us a seat at the table for more discussions with potential investors.” 

Muscle recovery company Hyperice is another wellness brand that used the spotlight of the pandemic to accelerate growth. In October the company raised $48 million in a Series A round which valued the company at $700 million. 

“We raised money to stay offensive, focusing on market share and brand awareness,” explains CEO Jim Huether. “We knew competitive companies would be more conservative during COVID-19, and this was an opportunity to extend our market leadership.” 

Huether says the Californian company also used the raise to propel its global market positioning, generate strategic alliances with influential US sports partners NFL, MLB and NBA, advance its Hypersmart software and enhance its DTC capabilities. 

Demonstrating we were a company that could adapt our business strategy during a pandemic and still have tremendous growth was a very important factor for investors,” he says. “Investors felt that if we could thrive in a global pandemic, we could navigate any challenges ahead.” 

B2B partnerships enabled startups to scale up rapidly”
Companies that were tailor-made for DTC business, such as recipe box and meal delivery services Mindful Chef and Freshly, have certainly thrived with consumers confined to their homes under lockdown. 

At the same time, B2B partnerships have presented a huge opportunity for consumer wellness startups to scale, according to Miri Polachek, CEO of Joy Ventures, an accelerator devoted to funding companies driving innovation across the wellness sector. 

Meditation apps Headspace (which raised $93 million in January) and Calm ($75 million in December), as well as fitness subscription platform ClassPass ($285 million in January) have all been rewarded handsomely for developing corporate wellness-focused products in 2020. 

However, new players have also prospered from employers seeking new tools to support their increasingly fragmented workforces. “This route has become increasingly popular for startups looking to reach as many consumers as possible, both during the pandemic and beyond,” she tells Welltodo. 

Polachek believes the pandemic spurred huge interest in the wellness space as human interactions became limited and traditional health and wellness outlets like gyms became less accessible. 

This shift accelerated both consumer uptake and corporate interest in wellness which, she says, has enabled companies in the industry to scale up rapidly. “Combined, these accelerated trends are driving unprecedented attention toward the wellness space from institutional investors.” 

Seed to IPO: How To Raise Money For Your Wellness Business in 2021

Image: Beam

“There will be ample opportunity for investment – and intense competition”
While the pandemic has created opportunities for some sectors, it has also presented immense logistical challenges, says Polachek, especially for wellness companies developing hardware products and those reliant on global supply chains and delivery services. 

Polachek has also seen app-based wellness companies, which enjoyed a spike in users in reaction to early lockdowns, start to struggle with user retention and face high churn rates that could scare off investors. 

Given the entire planet is battling the virus, and therefore companies around the world are trying to solve similar problems, competition has also never been more fierce. So has it become easier or harder to raise capital in 2021? 

It’s mixed, says Polachek. “Based on Q4 last year, there is every indication 2021 will be a strong year for investment in the wellness industry, which means founders will have both ample opportunity and potentially face intense competition.” 

The wellness tech industry, in particular, has never been more saturated with health tech, home workout tech, even sex tech companies jostling for market share, yet Polachek believes this sector is primed for significant growth. 

The wellness tech industry generated $7.3 billion across 446 VC deals in 2020, which is well above 2019’s total of $4.4 billion across 499 deals,” she says. “We are very excited about the expected growth in this field this upcoming year.” 

Beam’s Co-CEO is more wary, remembering the impact the outbreak of the virus had on markets barely one year ago. “The beginning of the pandemic brought on lots of uncertainty in the venture community,” says Moran. “As the US moves towards opening up fully I do think that will also bring about some uncertainty. 

“Intuition tells me it’s going to be an interesting venture environment in the short term given the more macroeconomic landscape. I don’t think it will be a more challenging short-term environment, but we’re definitely entering uncharted waters.” 

“For companies motivated by ESG, it will get easier for them to raise capital”
Whatever comes next, Flow’s Reichenbach is certain companies that can demonstrate they deliver on the two megatrends of ESG and Better For You will prosper. 

“ESG is going to become incredibly important for companies wanting to raise capital at large scale, even companies that have been around for hundreds of years,” he says. “They will have to innovate to make sure they are doing good for the planet.” 

Reichenbach expects that shift could take 20 years but, given it is being driven by consumers who won’t be deterred, he believes it is a “major megatrend” that will shape investment for years to come. 

“For companies motivated by ESG, it will get easier for them to raise capital – and it should because they’re being rewarded for being good stewards of the planet.” 

The pandemic has been the ultimate litmus test for wellness companies, says Reichenbach with cautious optimism. “If they can survive this, they will thrive for decades to come.” 

Ready to raise?
Here, our wellness experts outline the crucial first steps you should take when planning to launch a funding round. 

  • First, you need to prove you have a product-market fit that is backed by data, says Joy Ventures’ Polachek. Companies must be able to articulate and demonstrate their solution’s uniqueness and ensure that their offering addresses an unmet need better or differently than other existing solutions on the market. 
  • As a founder, I’ve learned over the years that there is no substitute for doing exactly what you said you were going to do, says Beam’s Moran. If you are hitting your model, innovating and building a raving fan culture for the brand, you will always have lots of great investor options available. 
  • Do not settle for investment partners that aren’t fully aligned with your strategy or culture, says Hyperice’s Huether. The wrong investor can be a big distraction. Conversely, a value-added investor can provide tremendous advantages. There are plenty who genuinely want to help to be part of something great. Find those ones. 

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