For Peloton's first two years in business, venture capital investors didn't get it. The company's founders struggled to convince them that blending stationary bikes and streaming live video classes would work. It had to cobble together money from a network of more than 200 angel investors to get off the ground.
But six years and a quarter of a million bikes later, the company is the toast of Silicon Valley. On Friday, Peloton announced it had raised $550 million in financing from prominent investors led by TCV, a firm known for investing in Facebook, Netflix and LinkedIn. Peloton has now raised $1 billion and is valued at $4 billion.
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The combination of hardware and software that initially turned off investors is now viewed as an advantage. After Peloton sells customers a bike for $1,995, the company charges a $39 monthly subscription for the live video classes. Jay Hoag, general partner of TCV, compared the business model to Apple's iPhone and App Store. And he said Peloton's repeat revenue from subscriptions reminded him of Netflix, where he's a board director, and of Spotify, a TCV portfolio company.
"They have a similar-sized opportunity to reshape fitness," he said.