The Wellness Industry is Ripe for Investment

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As SoulCycle filed its IPO and Lululemon expanded into the UK and Europe, the last 12 months have seen a sharp increase in the number of high profile investments and innovative new startups raising capital in the wellness sector, flagging the emerging industry as one worth backing.

Peloton, the at-home provider of instructor-led group fitness classes, announced in December that it had secured a $75 million growth capital investment from U.S. private equity firm, Catterton, while the acquisition of health club operator LifeTime Fitness, led by affiliates of Leonard Green & Partners and TPG closed at $4 billion. And these transactions are just the beginning.

Earmarking athleisure, wearables, healthy restaurant concepts and transformational fitness brands with global appeal, venture capital, private equity firms and angel investors are all injecting cash into the $3.4 trillion mega-industry. So what makes wellness brands such an attractive proposition?

Catterton, whose portfolio is wholly U.S based, has over $5 billion of equity capital dedicated to growing middle market companies and emerging, high-growth enterprises, and is investing heavily in the wellness sector.

Inking deals with CorePower Yoga, the leading yoga studio operator; Flywheel Sports, one of the America’s fastest growing indoor cycling brands; and activewear brand Sweaty Betty, Catterton is shaping the future of the wellness industry and is investing in brands that are driven by innovation and have the potential to scale globally.

Recognising Peloton’s forward-thinking approach to fitness, Marc Magliacano, partner at Catterton, told Bloomberg: “The Peloton team are pioneering the next evolution of fitness and changing the way people consume fitness at home,” and unsurprisingly Catterton want a stake in that.

Peloton’s primary business, an at-home workout concept, is a unique placed to crossover into the mainstream – a transition that many wellness brands struggle with. With Catterton on board as a strategic partner, it will have the ammunition needed to dramatically expand its software engineering team, open more showrooms and increase brand recognition.

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I was seduced by the concept and the energy and vision of the founders and I am confident they will build it into a very successful business.”

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And as consumers continue to spend big on wellbeing activities and preventative healthcare measures, it’s not just the major players who are catching the attention of eagle-eyed investors.

Mindful Chef, a UK-based delivery service for healthy recipe boxes, secured angel investment in 2015, the same funding source who bought into leading barre method studio, Barrecore, in order to rapidly expand its operations. For investors, the inextricable link between functional food and fitness is informing strategic investment decisions in a big way.

According to Mindful Chef co-founder Giles Humphries, the new funding has allowed the brand to improve its online user experience as well as up the marketing spend across certain channels. “We are expanding our operational base and offices to cope with the demand as we scale,” Humphries said.

Mindful Chef is currently operating on a smaller-scale to some of its counterparts in the industry, but investors are eyeing up early stage wellness brands who have cultivated a strong following, particularly on social media, as they recognise the potential to scale-up.

Similarly in the U.S, Sakara Life, whose organic meal delivery program has attracted a cult-like following including celebrity fans like Gwyneth Paltrow and Lily Aldridge, recently announced nationwide expansion plans following the completion of a $4.8 million Series A funding round that included SV Angel and former Priceline CEO Jeff Boyd. The business was recognised in the 2016 Forbes 30 under 30 list.

The Wellness Industry is Ripe for Investment

Image: Sakara Life

The hip startup, with its two striking blonde co-founders on a mission to make healthy food ‘sexy’, is on track to deliver nearly 40,000 meals monthly, and predict their sales will double during 2016. With the additional capital, the design-led brand is leveraging a strong online following, including 51,000 Instagram followers, to widen its distribution across the U.S.

Like Mindful Chef, Sakara Life’s success is reflective of a growing trend among consumers to maintain mind-body health, prevent diseases, and to age well as they live longer. This is driving demand for wellness products and services, and fresh faced businesses that are catering to the needs of time-poor consumers in new and innovative ways, are a hot commodity for venture capitalists.

Elsewhere, Pembroke VCT, part of the Oakley Capital Group based in London, is focused on identifying investment opportunities which are capable of significant organic growth and capital appreciation over the next five years.

Pinpointing a group of emerging wellness brands based in the U.K, the hands on investors have backed both indoor spinning studio BOOM! Cycle, injecting £430,000 into the brand, as well as cold-pressed juice manufacturers Plenish Cleanse, which secured its first major online supermarket listing with Ocado following Pembroke’s £225,000 investment in 2014.

Pembroke make clear that they are focused on talented and motivated businesses that exude passion, investing in companies with a strong consumer focus and significant brand potential. Witnessing the success of Soul Cycle in the U.S., the British adaptation, BOOM! Cycle, founded by american born Hilary Gilbert after she discovered a love for indoor cycling in New York,  showed strong potential in the boutique fitness sector.

“I was seduced by the concept and the energy and vision of the founders and I am confident they will build it into a very successful business,” explained Pierre Andurand, founder and managing partner of hedge fund Andurand Capital and lead investor on the fundraising round.

New approaches to fitness are of particular interest in the UK, where global lifestyle company Bodyism has built its brand on passion and expertise. Led by Australian fitness trainer James Duigan, Bodyism established a relationship with Doğuş Group, an investment holdings company, when it launched its first European ‘Clean & Lean’ residency at D-Hotel Marisin in Turkey. Duigan, who has trained celebrities and supermodels such as Elle Macpherson and Rosie Huntington-Whiteley, as well as creating the globally acclaimed Clean & Lean Diet, is regarded as one of the stalwarts of the fitness industry.

In 2015, the partnership, which led to a multi-million pound investment from Doğuş, helped fund the opening of a new flagship Bodyism studio and cafe in London’s affluent South West in January, cementing the brand as one of the strongest influences on the new-age wellness lifestyle.  

The move is representative of a growing niche in the fitness sector, where demand for high-end fitness facilities that offer consumers a 360 wellness experience has never been stronger. And these kind of facilities require significant capital to secure prime real estate.

Whilst the U.K. market is playing catch up, in the U.S., private equity firm, North Castle Partners, which specialises in consumer businesses dedicated to healthy living and wellness, has already facilitated a series of investments that are being used to propel high-end fitness studios and health club operators to the forefront of the global marketplace.

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You need to have a world-class senior team, a strong product vision and evidence of successful execution or market traction.”

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Having previously developed Equinox nationally in the U.S by successfully opening 20 clubs in four new markets and doubling its member base to 91,000, in 2014 North Castle also announced its acquisition of World Health Club, one of Canada’s leading fitness clubs, and the third investment to be made in the fitness and recreation sector in less than 12 months.

“At the foundation of the North Castle approach is to partner with exceptional management teams and industry professionals to unlock the full potential performance of companies in the Healthy, Active and Sustainable Living sector,” said Chip Baird, North Castle’s Managing Partner.

With investors now tuned in to the opportunities; having an expert co-founder who previously started Jawbone, helped British startup, Chiaro, garner the respect and confidence of its investors. With its first product, Elvie, a sleek, bluetooth enabled device for strengthening the female pelvic floor muscles, Chiaro secured over $2 million. Founder, Tania Boler, says that startups need to have a clear business strategy and a strong management team in order to attract investment.

“You need to have a world-class senior team, a strong product vision and evidence of successful execution or market traction,” she says.

But facilitating investment through VCs or angel investment aren’t the only options, as a growing number of wellness brands turn to crowdfunding platforms to drum up extra funds. And with enormous success.

1 Rebel raise 3 million on CrowdCube

Image: 1Rebel

London-based “King of Gyms” 1Rebel has raised over £3 million across two successful crowdfunding pitches on CrowdCube, while a host of wearable tech brands including Misfit have launched successful campaigns on funding platforms like Indiegogo, gaining additional brand exposure in the process.

Explaining 1Rebel’s decision to start a crowdfunding campaign, co-founder James Balfour admitted that as a young team with very little cash to throw at the business, he and business partner Giles Dean did not want to lose control of the brand.

“We wanted our customers to be our investors and our investors to be our customers, so using CrowdCube made sense. This way we know our investors are just as passionate about the brand,” said Balfour.

As the wellness industry continues to evolve, specialist investment funds will emerge and the amount of capital available to the sector will increase, as investors search for the next big brand with the potential to create significant returns.

Buying into the people and passion behind the brands as much as the products, for savvy investors the wellness industry is ripe for picking… and that’s unlikely to change as a growing number of health-conscious and innovative entrepreneurs enter the playing field.

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