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Young Indian-American entrepreneur Payal Kadakia and her fitness startup ClassPass have been making headlines again after closing a brand new $85mn Series D financing round in July, led by private equity firm Temasek. This newest round, with founder and chairman Kadakia still at the helm, now brings the six-year-old Techstars alumn’s total funding to date up to $225mn.
Payal Kadakia was already making waves in 2017, when we interviewed the petite 34-year-old fitness tycoon for our debut issue of Thinkruptor Magazine. She had just flown in from New York to London, showing no visible signs of the journey, despite professing to be suffering from jetlag. Although her action-packed schedule allowed just two days in the city, she was keen to find a fitness class to help get her body clock back on track.
It was this hunt that sparked the founding of her fitness platform, ClassPass, in 2013, a business now valued at over $470m. For a monthly fee, ClassPass lets customers book group fitness classes from studios in 39 cities around the world, rather than tying them to one location like a traditional gym membership. With classes ranging from the traditional such as step and boxing to trendy new workouts such as burlesque boot camp, underwater spinning and parkour, it encourages flexibility and experimentation.
But ClassPass began life as a very different beast: a simple data search engine that collated content about available classes. It wasn’t until the team bundled and sold the free trial classes that most studios offer new visitors that the winning formula was found. “People loved it, they were telling us how much they liked the variety,” says Kadakia. “So we launched a subscription-based product. That’s when I knew we had something magical.”
Before ClassPass, the big chain gyms dominated the fitness industry and could charge sky-high prices for out-of-date classes and equipment. ClassPass has shaken things up, funnelling new users to the independent studios and giving them a much-needed shot in the arm.
But the road has not always been smooth. Two iterations of the product failed before Kadakia and her team hit upon ClassPass. In June 2017, despite the company demonstrating that it had doubled its customer base since the previous year, a further $70m investment was raised in a down round in 2015. The downscaled valuation was the result of a change to the membership pricing, which saw the wildly successful ‘unlimited classes’ model abandoned as it wasn’t financially sustainable.
Kadakia says that without the in-depth market research her team has used to tailor their product, ClassPass wouldn’t exist. “One of the mistakes we made with Classivity [the first product] is that we didn’t do enough research.”
“There were so many things we didn’t know in the early days,” she says. “So we had to test it out on real people, do our market research and see what people were getting excited about. And if we hadn’t listened to that feedback then it wouldn’t have worked.” Kadakia says she was lucky to surround herself with people capable of weathering the friction caused by two huge product pivots. “My main priority, at the beginning, was that everyone was passionate about what we were building,” says Kadakia.
“I had to make sure they were happy with working in a startup, as well as having the right skills. Working in a startup is completely different to working for a bigger company – we like to make decisions fast. Luckily I had a team that would rally.” The company now employs more than 200 across offices in San Francisco, New York, London and Sydney.
When it was time to scale, Kadakia leveraged connections forged at Techstars, the three-month incubator program that she and her co-founder Sanjij Sanghavi attended. “When we got to the 1,000-member mark we wanted to make sure it could work in multiple cities,” she says. “We did some research to make sure it wasn’t just a New York phenomenon – then once we proved that, we went to investors to help us with the growth.”
“It was while I was at Techstars that David Tisch, the MD of the programme, connected me to Fritz Lanman. When I was initially trying to raise some capital, David advised me to go to angels and not VCs – and Lanman was one of these angels.” By following Tisch’s advice, ClassPass raised $2 million in investment in 2014.
But Kadakia received more than funding from Lanman. He became her mentor, and in 2017 stepped into the role of CEO as ClassPass to allow Kadakia to focus on expanding the company’s offering. She credits his advice and guidance as essential to her success. “He’s been a good partner and a dear friend of mine for these past three years through this entire journey,” she says. “It’s important to find people who have been through it already so when you hit those tough points they’re able to help you get through it.
Today, Payal Kadakia says that the biggest challenge has been keeping everyone happy – both users and the studios – while still doing what’s best for the business. “It’s about balance,” she says. “You still have to make changes, but keep in mind how it could affect the other parts of the business. When we changed our name from Classivity to ClassPass three years ago I was so worried, I thought ‘what about the 2,000 people who already know us as Classivity?’
“But it didn’t matter. What mattered was the future of the business.”
And the future certainly seems bright for both Payal Kadakia and ClassPass.
Editor’s note: This interview was originally published in Thinkruptor Magazine Issue #1 and has been edited and abridged for republishing on the website. To read the full interview, download the Thinkruptor app or pick up a copy of the issue in our web store.
Interview by: Amy Richardson