Announcing Lightspeed’s Series B investment in the first mental health unicorn
There are very few apps that boast about putting their audience to sleep, but then there are very few apps like Calm. What started out as a guided meditation app seven years ago is now a fully featured mental wellness service, with music, meditation and even masterclasses on everything from managing your relationships to eating in a mindful way.
But it was when Calm introduced sleep stories that the app truly took off. Today millions of Calm users can drift off to the dulcet tones of actor Matthew McConaughey or singer Leona Lewis reading them a bedtime story.
I should know, because I’m one of them. Calm’s sleep stories have reduced the time it takes me to nod off from 30 minutes to less than 5. That’s more than 150 hours of extra sleep every year. Thank you, Calm.
Not only is Calm addressing some of the most important mental health issues many of us struggle with — insomnia, anxiety, depression, and stress — it’s also growing at a phenomenal rate. Every second of every day, Calm adds another user, with more than 50 million downloads and almost 2 million paid subscribers. It is the top grossing health and fitness app in the iOS store and was named Apple’s 2017 App of the Year. Calm quadrupled revenue last year and is now a profitable business. It has the potential to become one of the leading consumer brands in the wellness category.
Calm’s founders, fellow brits Alex Tew and Michael Acton Smith, are two of the most savvy executives I know. So it is with great pleasure I announce Lightspeed’s $27m investment in Calm’s Series B along with TPG and many celebrities who are joining the platform.
Vitamin or Aspirin?
At Lightspeed we often ask if a product or a feature is more like a multivitamin or an aspirin. In other words, is it something that’s a nice to have and you know you should take it, or is it something that fills an immediate need? There’s value in both, but the latter tends to generate higher levels of engagement, retention, and NPS (net promoter scores).
We understand the benefits of meditation; like taking vitamins, we all know it’s something we should do every day (though few of us do). But when someone has a headache, they instantly reach for the aspirin.
When Calm launched Sleep Stories two years ago something remarkable happened. User engagement spiked, while retention and NPS improved. When one in four people have trouble sleeping, a product that can address that changes from a nice-to-have to a must-have.
Sleep Stories transformed Calm from a vitamin to a true Aspirin.
Celebrities on Calm
Calm has been extremely careful about making sure celebrities interact with the product in a truly authentic way. The old model is for brands to pay celebs huge sums of money for endorsements, whether or not they actually use the product. That strategy may attract attention, but it doesn’t inspire trust.
On the other hand, Calm focuses on celebrities who interact with Calm in a more authentic way as they: 1) invest, 2) create content and 3) engage with the product.
The celebrities involved with Calm are true fans. They often invest in the company, giving them skin in the game and the ability to see upside in the company. They are often users themselves who tell their followers about their favorite stories and meditations. And some — like McConaughey, British actor Stephen Fry, and musician Moby — contribute exclusive content to the app.
Thanks to the partnerships Calm has with celebrities — including Tamara Levitt, who both writes and reads daily meditations and has now become a celebrity in her own right — the cost of creating exclusive content is very low. This results in attractive margins for the business and consistently high customer retention. It was this combination that showed us Calm had not only built a true brand but also a strong business, one we are honored to partner with.
Consumer subscription businesses
While Lightspeed invests in a wide number of businesses that sell directly to consumers, subscription-based models are particularly interesting to us. Subscription boxes such as Stitch Fix or FabFitFun learn what their customers like and curate items they’re more likely to want, saving them precious time. Over 15% of online shoppers have already signed up for at least one product subscription box.
Within digital subscriptions, Calm offers an interesting parallel to the Chinese podcasting market, which at $7.3bn is 23 times bigger than the US podcasting market. While the US podcasting business is built around advertising, the Chinese market is both built on subscription and (like Calm) largely focused on self-improvement.
We have seen several instances where China pioneered business models that were later adopted in the West, including digital virtual goods, live-streaming video, and eSports. We believe the subscription-based audio app market in the US is just beginning and Calm is in the epicenter.
Going deep on sleep
Old-school meditation apps would teach people the skill of quieting their minds, and call it a day. Users would learn and churn. In addition to brilliant meditation content, Calm offers high quality content that brings people back night after night. In this model, users stay and pay.
Calm’s sleep stories have been listened to more 150 million times, making it already a part of popular culture. However, Calm’s smart, scrappy, 65-person team is just getting started. It’s focused on building a true global brand, a Nike for the mind, where international expansion has already begun. And everybody on the planet could use a better night’s sleep; 7.5 billion people makes for quite a large total addressable market indeed.
We are hiring!
☞ To hear more of my thoughts in the future, follow me on Twitter
☞ If you liked this post, Please “clap” to help to promote this piece to others or let me know your thoughts in the comments