ClassPass, the fitness startup that connects monthly subscribers with boutique studio classes, has closed its latest round of funding—a $285 million cash infusion that has secured the company a billion-dollar valuation. The investment, led by private equity firm L Catterton and growth equity fund Apax Digital, is positioned to capitalize on ClassPass’s recent expansion into 28 countries and a corporate wellness program that has drawn more than 1,000 employers, from Google and Facebook to Morgan Stanley and even Southwest Airlines.
Unicorn status comes with promise and peril for ClassPass, which was valued at $610 million after a $85 million funding round in 2018. Fitness tech has become big business in the years since cofounder and executive chairman Payal Kadakia first conceived of ClassPass. Investors are pouring money into competitors like Mirror, Whoop, and Gympass. But even cult fitness brands have struggled to impress Wall Street: Peloton, which boasts more than $994 million in funding and a $4 billion valuation, stumbled in its public debut last year due to significant losses, and in 2018, SoulCycle canceled its public offering, citing “market conditions.”
The new investment will help ClassPass double down on its presence in Europe and roll out its platform in countries across Central and South America. “It’s really amazing when you can go to another country that doesn’t speak the same language or necessarily have the same background in fitness, but then apply this model and see that the behavior is very similar to what we saw in a small town here in the U.S.,” Kadakia says. “You see someone in Singapore or in Brazil using the product in the same exact way.” ClassPass’s international growth is a perk for prospective corporate partners, too. But the key selling point, CEO Fritz Lanman says, is that ClassPass’s payment structure deviates from that of many other corporate wellness programs.
“We believe we’ve invented the world’s friendliest corporate fitness program because the incentives are actually aligned,” Lanman says. “There’s a bunch of historical corporate fitness and wellness models out there where the incentives aren’t aligned between the company providing the benefit, the employees, and the HR team who’s subsidizing the fitness plan. In our model, the HR teams of the companies only subsidize the employees who are actually using the product.” On average, employers cover about $30 a month per employee, but they are free to set their own subsidies.
Lanman argues this is a more attractive corporate wellness option for employers and employees alike. For companies, a corporate wellness offering from ClassPass is likely a better deal and an appealing alternative for millennials, especially as they account for more and more of the workforce. For ClassPass, the program—along with its global footprint, which Lanman claims has been received especially well in Europe—serves as an additional revenue stream and opportunity to build on its user base. What is less clear, however, is just how much ClassPass stands to profit from these corporate partnerships, given their opt-in structure and the company’s overall pricing model.
Since its inception in 2013, ClassPass has cycled through a number of pricing models, finally settling on a credits-based subscription that lets users pay anywhere from $19 to $199 monthly for a set number of credits that go toward classes. The new structure addressed some pain points from prior models: With dynamic pricing, exclusive studios can charge more credits for expensive classes during peak hours.
That still doesn’t tell us much about how much cash ClassPass actually pockets after paying studios. (Lanman noted that ClassPass had taken private financing in part because the company wasn’t yet ready to “share specifics on where we’re at financially.”) When ClassPass launched in New York, it lured customers with a $99 monthly subscription for unlimited fitness classes, a model the company couldn’t sustain for long; in 2016, the monthly fee jumped to $190, a price hike that reportedly cost ClassPass 10% of its users. By the end of the year, ClassPass had nixed the unlimited offering altogether.
But Lanman says that with the credits model, ClassPass has found its footing. “We make enough money off of those who are actually getting value from us,” he says. “We couldn’t really expand until we made sure that core model was working.” The company now partners with more than 30,000 boutique studios, gyms, and wellness providers, granting access to 5 million classes a month. To date, ClassPass users have booked 100 million reservations through the platform.
With its shiny new valuation, ClassPass also joins a small but growing pool of female-founded unicorns that includes Glossier and Rent the Runway. And according to Pitchbook, the funding round brings the company’s total funding to more than $580 million, a sum that puts ClassPass second only to Peloton among fitness startups. (That figure includes $30 million of debt financing last year.) The IPO market may not have the appetite for unicorns that it once did, but Lanman remains optimistic and believes a public offering isn’t out of the question for ClassPass. “The eventual goal for us is to IPO and build an enduring, generational public company,” he says.