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In the world of VC-backed startups, 2018 was a record-breaking year. All told, the venture industry deployed $130.9B in US-based startups, surpassing the dot-com-era high set in 2000. This news becomes increasingly relevant to readers of Fitt Insider when we drill down on transactions taking place across digital health and fitness.  

In line with the venture industry as a whole, 2018 saw digital health investments surge to new heights. According to StartUp Health, global digital health funding totaled $14.6B, with approximately $8.6B (up 21%) going to US companies. Worth defining, the term ‘digital health’ applies broadly to a range of companies—from fitness to electronic medical records to genomics—taking aim at the $3.5T US healthcare industry.

Distilling these deals down further, we see that the largest and fastest-growing segments include patient empowerment ($3.3B raised) and mental health ($602M raised). Given the sad state of our healthcare system and potential for cost- and life-saving innovation, the most surprising nugget of all is that Peloton’s massive $550M Series F was the largest digital health deal of 2018. The at-home bike and treadmill maker also topped all investments into fitness startups.

 
Speaking of fitness, the 10 most-funded US-based fitness startups have raised some $1.6B amongst themselves. Overall, funding to fitness-focused startups experienced significant growth between 2013 and 2017, with CB Insights noting 696 deals and $2.4B in equity funding flowing into the space. When all the data is compiled, 2018 will have proven to be a banner year on the account of Peloton ($550M), Zwift ($120M), ClassPass ($85M), Mirror ($38M), WHOOP ($25M), and Aaptiv ($22M) alone. 

With capital flowing like crazy, it may seem as though digital health is, well... healthy. But all is not well. Onlookers are beginning to voice criticism over the fact that, despite billions in funding, Americans aren’t getting any healthier. Worse, we’re fatter than ever and dying younger. It’s a buzzkill, we know. But facts are facts, and in this case, they’re a stark reminder that we’ve yet to crack the code for things like behavior change, noncompliance, and adherence. 

As Rock Health points out, as markets soften and capital becomes hard to come by, digital health companies will have to prove that they can deliver on their fundamentals. At which point, you can expect the conversation to shift from “show me the money” to “show us the results”. 

Headlines & Happenings 
Profits > Promises 
As long as we’re talking about concerns with the ROI of venture investments, it’s important to note that this sentiment is not isolated to the digital health space. On the heels of Walker & Company’s underwhelming exit to P&G, reality is setting in across the DTC space. According to CB Insights, $3B in venture funding has flowed to DTC brands since 2012, with more than $1B coming in 2018 alone. Not too long ago, VCs vying for a Dollar Shave Club-like outcome backed entrepreneurs with little more than a pitch deck and a dream. Now, the purse strings are tightening and profitability (or at least a path to the promised land) is becoming central to the vetting process.

While investors aren’t expected to bail on DTC brands altogether, the number of monster funding rounds is likely to shrink. As JB Osborne, co-founder of the agency Red Antler told Digiday, “Unless you’re a serial founder, you’re having a much harder time raising money.” Osborne went on to say, “you have to have the right team, the right priorities and a plan for viable growth in place.” In the end, Osborne concluded, “It’s a good thing — it feels more like reality.”

ICYMI
Closing out the conversation on VC for this week (well, besides the investment news in Money Moves), the internet has been abuzz with hot takes stemming from an article on venture capital in the NYT. If you follow VC Twitter, the conversation was unavoidable. But if you missed it, here’s the punchline: raising venture capital isn’t for everyone. And, as Founder Collective points out, it may even be dangerous. More importantly, it isn’t the only path to or a prerequisite for success. Rather than sharing an unsolicited opinion, we’ll simply file the article under “a worthy read” for entrepreneurs (and investors) evaluating their options.

Backpedal 
Back in Issue No. 9, one of our headlines, No Fly Zone, hit on the turmoil confronting Flywheel Sports. That entry prompted some sidebar conversations with subscribers, so I posted a blurb about Flywheel on LinkedIn. I’m including it here for two reasons: 1.) the discussion that developed in the comments—including insights from former Flywheel employees and folks who currently work in the boutique cycling space—is worth a read. And 2.) it’s starting to look like Flywheel’s woes could be indicative of another cycling shoe yet to drop. 

As Vox points out, the battle shaping up among indoor cycling studios, from locally owned to franchised to high-end, is being magnified by at-home options like the Peloton of “X” and on-demand workouts. While high-end options like SoulCycle and Flywheel raised the bar on studio cycling, they also backed themselves into a corner — they’re largely relegated to the coasts and intentionally geared toward an elite crowd. Meanwhile, CycleBar has taken a decidedly different approach, expanding to 200 locations by targeting untapped and overlooked markets from Fresno, CA to Fargo, ND to Providence, RI.

While some are inclined to call it a bubble, the current state of indoor cycling seems closer to recalibration as brands are forced to figure out how to engage current riders, reach new ones, and provide more value in order to differentiate themselves in an increasingly crowded cycling (and fitness) landscape.