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Headspace, a Los Angeles-based maker of a meditation app, has raised $36.7 million in funding from Spectrum Equity. Headspace would not comment on its valuation but said it has increased from the reported $250 million valuation from its prior round.
The funding comes a few months after Headspace co-founder Rich Pierson replaced Sean Brecker as CEO. Not long after taking the helm, Pierson laid off 13 staffers who were part of an in-house branding agency. He also hired Ross Hoffman, a former head of content partnerships at Twitter, as its chief business officer.
Alongside the layoffs came accusations of “cultural woes,” according to Fast Company, which Pierson says is a part of the company growing up. “We have a very idealist mission and it’s very special and brings an incredibly passionate set of people to come work with us,” he says. “At the same time, we’re growing and we went from 15 people to 160 people in less than two years. We’re growing up as a business and for some people, that’s really different and some people don’t like it. We’re going from a startup to a real business with real revenue and real ambition.”
That ambition is big – thus the monster round of funding. Headspace has now raised a total of $73.7 million in funding and is cash flow positive, thanks to the annual $96 subscription fee paid by many of its users. More than 16 million people have downloaded its namesake app, though the company will not disclose how many are active users or subscribers. The company does not disclose its annual revenue but Pierson says it’s above $10 million and “maybe” above $50 million.
Headspace plans to continue capitalizing on the fact that it has convinced tens of thousands of users to actually pay for content – something the world’s most sophisticated media companies struggle with. It will use the new capital to expand internationally, translating its app into more languages. Headspace also plans to sell expand into more types of content, including nutrition, exercise, science, and kids content. “I feel like we have cracked the hardest thing, which is that we’ve got people to pay for our content,” Pierson says. “[Now] how can we support that and make it a more valuable subscription?”
Lastly, Headspace plans to seek out more corporate partnerships. Human resources departments at large companies including Google, Genentech and LinkedIn have bought subscriptions to Headspace in bulk as a perk for their employees. Corporate mindfulness is a trend, but Headspace has not done much to capitalize on it until now. Currently, corporate accounts make up just 3% of the company’s revenue, but Pierson thinks it can rise to 50% in the next few years.
Why team up with a private equity firm for that? Pierson says Spectrum Equity has deep experience with three areas that are critical to its future success: subscription businesses, enterprise businesses, and international expansion. “I think they’re real company builders,” he says. “They think about long term. They’re not swing for the fences at all costs.” Those skills complement Headspace’s the media-focused investor, Chernin Group.
