Public Fitness and Private Equity
August 10, 2015
Many mornings my wife, Sara, rises early to begin her day with exercise. Her destination is often a nearby boutique fitness studio. She is attracted by the sense of community, a feeling echoed by individuals around the country. The International Health, Racquet, and Sportsclub Association reports that American health club membership exceeds 50 million users. Today, a connected culture may be changing the way people choose to exercise.
One growing fitness startup, ClassPass, allows subscribers to participate in classes at thousands of fitness boutiques across the country for a low monthly cost. This is ideal for the traveling fitness enthusiast. The appeal of a portable exercise plan is congruent with one in six Americans now moving about daily with a fitness tracker. Wearable health trackers and smartphones can log our steps and mileage. Apps like MapMyRun prompt us to share health information with our social networks just as ClassPass connects users to encourage friends to share and track progress. These technology-enabled fitness companies attract users wanting a more flexible, personalized experience.
Consumer trends toward convenient, individualized experiences extend beyond fitness. In 2000, there were 40 million people online and today there are 3 billion, according to a recent report by venture capital firm Andreessen Horowitz. Since the dot com era, e-commerce and online advertising revenues have increased by 1500%. However, e-commerce still only represents 6% of US retail revenue today. Perhaps e-commerce is not destined to send all brick and mortar retail the way of the dinosaur, but the two can complement one another. With ClassPass, fitness boutique owners are willing to team with a technology-driven partner in return for better customer acquisition. As enterprising technologists leverage society’s ever increasing connectedness, one cannot resist wondering how the consumer experience will have evolved in another 15 years.
As a firm we have dedicated much energy to understanding the opportunity for investing in innovative private companies. The arena brings added risks that dictate having a strategy to help improve the likelihood of successful investment results. Equity ownership of non-public companies can take several forms. Early stage, technology focused investing is typically considered venture capital and usually entails the greatest risk. Many of these young companies fail, some have modest success, and a handful produce exceptional returns. The growth equity stage involves more mature, revenue-generating companies that need capital to attract new customers, expand into new markets, and build their infrastructure. Conventional private equity may seek controlling ownership in established private companies with growing profits.
For investors with sufficient capital to fully diversify, these less efficient private markets have tended to offer attractive returns relative to public stock indexes over the long haul. Long timeframes are important to help smooth out the inevitable market cycles. An absence of liquidity promotes a longer term focus, encouraging real value creation rather than incentivizing leaders to boost quarterly results. Unlike the public equity realm, where investors have an abundance of data to guide their investing decisions, the entrepreneurial system that underlies private equity thrives on information advantages.
Many seasoned private equity investors insist that steady exposure over long periods is critical to help improve the chance of a desirable outcome. In an uncertain world where change is constant, discipline is as key for successful investing in private markets as it is with exercise.
Cam Simonds
