Eight Sleep - The 500MM Dollar Category Creator
Eight Sleep is a category creator in the Sleep X Tech space, the company is helping CEOs, top VCs, and best in class athletes get a good night's sleep. Here's the behind the scenes look.
Editor’s Note: Thank you to 37 new people who decided to subscribe to our newsletter, including execs from Cohere, and JP Morgan Chase & Co. Term Sheet Digest is a weekly newsletter that focuses on the secondary markets and the biggest news in tech.
Eight Sleep makes smart mattresses, and other adjacent products that leverages thermoregulation, data, and technology to help their customers sleep better to improve their health and fitness.
The company was started in 2014 by Matteo Franceschetti, Massimo Andreasi Bassi, and Alexandra Zatarain, and it was a part of Y Combinator S15 Batch.
Eight Sleep has raised $162Mn from Y Combinator, Founders Fund, and Khosla venture among other blue-chip funds in the valley, it is currently valued at $500Mn.
Matteo Franceschetti, CEO of Eight Sleep was a top-performing athlete and a top-performing student early in his life. In his early professional career, he worked for Freshfields Bruckhaus Deringer and then Allen & Overy, both members of Magic Circle of the British law firms.
But during his early life and then early career, he always wanted to be an entrepreneur. During his early career, he also realized that prioritizing good sleep was the reason why he excelled at every single aspect of his life - as a student, as an athlete, and as a lawyer. He also realized that most people spend 1/3rd of his life sleeping but there hasn’t been any game-changing invention that helps people sleep better.
Joined by Massimo Andreasi Bassi, Alexandra Zatarain, and Andrea Ballarini Matteo started Eight Sleep in 2014. The founders were rejected twice by Y Combinator but raised $100,000 and sold more than 8,000 units of its first product in pre-orders through a crowdfunding campaign on IndieGoGo.
Eight Sleep Products - From Mattress to Everything Sleep
Eight Sleep started its journey by building smart mattresses and sheets, the company now focuses on the entire sleep and rest product catalog - pillows, blankets, humidifiers, melatonin, etc.
Its first and most successful product is the pod mattress which uses machine learning and other artificial intelligence-based algorithms to improve your sleep by changing temperature and monitoring other physical parameters to provide an overall picture of your health. Eight Sleep also launched the pod mattress to go with the mattress which has the same heating and cooling technology as the mattress
.The biggest growth lever for the company was its initial set of users. The mattress and even the sheets are on the higher end of the price spectrum for mattress and bed sheets. So, the company attracted a lot of highly influential people with high net worth - most people in the tech industry - CEOs, venture capitalists, and star athletes which propelled the company into becoming an aspirational brand for many.
The products are fully backed by scientific evidence. They leverage thermoregulation, a process by which organisms maintain a static internal body temperature despite changes in external temperatures. Using the mattress and pod cover, its users can maintain a constant external temperature, and it tracks other sleep-related data using which users can create a perfect environment to maximize their sleep benefits.
The products come with the Eight Sleep app which helps users take an inventory of their sleep patterns, and also control setting on the products.
Due to the exponential success of its first two products, the company expanded beyond mattresses and covers. They created pillows that are again temperature-controlled and can be controlled by the Eight Sleep app. Temperature-controlled gravity blanket, lavender sleep spray, Melatonin tablets, and humidifier.
When athletes started using their products Matteo and the team saw an opportunity in the products for athletes to wind down and recover from injury. The team released compression recovery boots, and massagers to relieve sore and stiff muscles.
All the new product additions propelled Eight Sleep not just into a mattress company but a category creator of sleep and rest tech startup. All of its products are some of the most innovative health-tech products that the industry has seen in the last two decades. To keep up with the innovation in science and technology the company put together a Scientific Advisory Board (SAB) to collaborate on the intersection of product development and advancement of science.
Competition
Once you create a new category, the competition is bound to crop up. Sleepme and Sleep Number are some of the prominent companies that launched a similar product line as Eight Sleep starting with the mattress. Then there are legacy mattress companies who sell mattresses, but they don’t compete with Eight Sleep directly because Eight Sleep’s promise is better health by providing a smart mattress, not just a comfortable mattress to sleep. Eight Sleep’s customers are in the market for the entire sleeping experience even though it costs 5X more expensive than a regular mattress.
Eight Sleep’s pod can track heart rate, HRV, respiratory rate, time slept, sleep stages, and disturbances — all of which data is displayed on the app on a dashboard. These features of Eight Sleep might be replicated by wearables like Whoop and Oura, so people looking to bio-hack their sleep by using the data might prefer wearables instead of an entire mattress.
Eight Sleep in Secondary Markets
Eight Sleep has raised $162Mn in total funding from investors like Y Combinator who continued to invest in its follow-up rounds. The company makes hardware which is an intensive venture because of the research and development that goes into making a product, yet the company hasn’t raised a >$100Mn round like other successful startups in the ZIRP era. All their decision points towards the company being conservative with raising and spending money and focusing more on free cash flow, instead of running after funding and valuation.
Due to less focus on raising funds, the secondary market stocks of Eight Sleep do not reach the marketplaces, and one or two transactions that took place were settled privately. The outlook of the company looks promising because of its cult-like following. The product is also the best in the market 2X or 3X better than its next competition. If Mark Zuckerberg can get a good night’s sleep by using Eight Sleep while running Facebook (now Meta), the product is good for everyone else.
Top Stories
Cato Networks, the Tel Aviv-based startup, valued at $3B, lands $238M ahead of its anticipated IPO. LightSpeed Venture Partners led the round with participation from Adams Street Partners, Softbank Vision Fund 2, Sixty Degree Capital, and Singtel Innov8, bringing Cato’s total raised to $770 million.
CrowdStrike confirms its Bionic.ai, a security posture management platform for cloud services, acquisition for $350M. Crowdstrike will merge Bionic’s tech with its Falcon product.
Please share this newsletter with your friends, family, and colleagues if you feel that it’ll add value to their lives - probably the best compliment we can get :)