How to Secure Investment for Your Fitness Business

By Nan de Bruin

Published 16 September 2021

We are very happy to welcome Andy Kay and Mhairi Fitzpatrick from Socius Investment to our FitNation Lunch & Learn. Together with host Alex von Hagen they discuss what exactly investors are looking for when investing in fitness businesses. All in all, not an episode you want to miss!

Andy and Mhairi go further in-depth on how to secure investment for your business, and they divulge valuable insights on what to expect during an investment evaluation process. Finally, you learn all about fitness industry valuations, what that means for the industry – and for your business!

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Alex: Welcome back to all our listeners and if it’s your first time listening a warm welcome to this episode of Fitnation’s Lunch and Learn. On today’s show, we’re putting a spotlight on one of the most important elements of growth in your business that’s investments and investors.

Most, I think if not all businesses in the fitness industry they need some sort of seed capital to get their concept off the ground or to continue making it run or to get it to the heights that they really dream of and in that case, you likely need to turn to a team of professionals to make that happen.

So with that in mind, we’ve invited two very qualified individuals to discuss what investors are looking for in your fitness business. The team that we’re lucky enough to speak with today is joining us from Associates Investing which would be Marie Fitzpatrick and Andy Kay, they’ve helped invest in and launch some of the leading fitness brands in the UK and they also work across a number of other sectors as well.

So I think their experience and their insights will be very valuable, not just for the fitness industry, but for investing as a whole.

The key topics today that we’re going to focus on are around how fitness businesses can secure an investment, what to expect during that investment process and then also, we’ll take a look at fitness industry valuations, what that means for the industry, and then also what that means for your business as a whole.

So whether you’re looking for that initial investment or that next funding round to scale the business to take it to those next heights, I think there’s going to be some really great insights today. I’ll stop talking now without further ado, Marie, Andy, thank you for taking the time to join us.

Marie Fitzpatrick: Thanks Alex, it was a great introduction. Thanks for having us, great to be here. I thought we’d going to start a bit about background because it’s quite an important part of knowing your investors’ background actually. So I actually graduated quite a long time ago with a science degree actually, back in the eighties graduated ’84, so it was right in the middle of a recession.

So I had to quickly get a job, which I had to move to England for and tried science for a year, year and a half. I quickly realized I wasn’t a scientist and I thought, what will I do and really my passion was sport.

I loved sport in all its forms and after a stint in Germany actually playing handball, I came back and at that point, there wasn’t much of fitness industry in the UK, David Lloyd had one club but there was a small company called Fitness for Industry, they did a bit of corporate wellbeing management and hotel club management.

I joined them and what was good about them, Alex was you joined right at the bottom. So gym instructor, cleaning dumbbells, pool scum lanes before it works but you actually got trained in each level.

So from gym instructor, assistant manager, manager, then I went to regional manager and eventually national brand manager. I sort of launched the spirit brand for the then owners of Granada Health and Fitness. So it was a fantastic learning curve experience on all levels of management and fitness but really by the end of the nineties, the company had run its course.

So got made redundant, was quite happy about that and that’s time that chatter about starting a company and we went into corporate wellbeing. So with five grand of my redundancy money, chipped in with Andy and we started actually a corporate wellbeing company. So I’ll let Andy take over because there’s a bit of a story from corporate wellbeing and obviously Andy’s background.

Andy Kay: Thanks Marie, I think when I left university, it’s like Marie said, she tried, went into science, everyone tries something. I was someone who, I don’t know whether the researchers are born entrepreneurs but I was somebody who wanted to cut corners.

I wanted to get on with it. I wanted to earn a lot of cash when I was young and so I started a business in aerial photography, hired a plane, hired a photographer, flew all over Cambridge taking pictures of villages, and then sold those pictures door to door and that was a great learning lesson in business and early entrepreneurship for me.

It didn’t work that well, but it did give me enough money to get to a pub. So I was quite happy about that, but then I had to get a job and I got a job in the same company that Marie was working in, which is Fitness for Industry.

Didn’t know Marie at the time, but again, started as a gym instructor, that’s really important to later on in the story about what we do to invest in companies now because we’ve been on the night bus trying to get to work when everyone else is drunk.

To pick up where Marie left off, we sat in a coffee shop in Soho and we decided to start this business called Our Pleasure Management, which is a corporate fitness business.

Five grand in each, two PCs, me working from a rented room in London, Marie worked from her respective house in London and we just cracked on.

Those early stages were really important and really interesting because anyone who’s on the call or listening to this and is thinking about a self-funded startup, it’s the experience we gained from that that allowed us to become investors further down the line.

But we went on to we’ll tell you a bit more about that later, but we grew Our Pleasure Management, one client at the BBC, British Airways, Rolls Royce, all from self-funded startup and bedrooms.

We then went on to develop some health clubs one overlooking tower bridge and one adjacent to Olympia and that’s when we got into, I would say the bigger league of investing, where we needed to borrow venture capital money.

We successfully exited those businesses in 2014 and started socialists investing and that almost brings us up to date in terms of what we’re doing now. We started Socius Investing. Do you want us to say a bit about Socius Investing Alex? Would that help?

Alex: Yes, absolutely, go for it.

Andy: Well, Socius was born out of the experiences that Marie and I had had building businesses from that self-funded startup and working with VCs. So Socius is Latin for companion or partner. So effectively it’s partner or companion investing and Socius exists now to really invest in businesses and to build those businesses up faster and bigger than they would otherwise be able to do.

So if they are entrepreneurs or investors on their own. So that’s really the [inaudible 08:54] behind Socius but I think the important thing about Socius is we align ourselves exactly with the people we invest in, we’re not consultants in any way, shape, or form. We invest our money in the business, which means that our success is the same as their success.

We’re all aligned and we crack on and the thing that I think defines Socius and the reason it’s partnership investing is we do proper real work. We don’t sit in the board room and say, please, can you make us more money or drop the please, can you make us more money, we do real work.

We might pitch with people on big pictures [inaudible 09:34] if there’s an employee handbook that needs writing, we’re writing proper jobs that we do to help our companies to grow.

Is Investing a Science or an Art?

Alex: Awesome. So Marie, with a background in science then, would you say investing is more of a science or an art or a mixed combo to both?

Marie: What a great question. I would say it’s a combination of both because you need to research properly, know what you’re doing in the competitive landscape and so on, but you also need a feel for something, a passion for something because it’s very quickly obvious, certainly speaking from the investor point of view recently where people have a passion for something, or they’re simply doing something to make money.

Nothing wrong with doing something to make money, that’s fine. But if on our side of things, we were looking for people with a passion for their idea or what they wanted to do, that was our preference that starts to come down into the art bit of it where you’ve got the chemistry as well, because really it helps to have chemistry between the parties because you’re going to work closely like Andy was saying about aligning, interests do have to be aligned.

If your interests are not aligned, it does become a problem, and certainly even Andy and I right at the start when Andy’s alluding to us in Soho, sitting in that coffee shop in Soho talking quite a lot, a lot of it was about when are we going to get Porsches, just laughing. It’s about what do you want about this? And what do I want about this?

Because if you don’t align together and you’re a 50/50 partnership, which is what Andy and I were, that can cause problems. Is it science or art? It is definitely both.

How to Secure An Investment

Alex: Nice. Nice. Okay. Let’s think about how fitness businesses can maybe secure an investment. This is probably foreign territory or uncharted waters for a lot of people as they start this venture, they know they probably need to do it, but how do you get that started?

So from the earliest stage, say someone has a vision of their new business concept for an existing one and they need that initial funding to really get it started, they’ve put up their family members, they have hit up their friends and it’s not enough to make it to where they need it to be, outside of Google, where would they go to get hooked up with people like yourselves?

Andy: I think Alex, Google is a good place to start, but I understand why you’re saying outside of Google, but there is so much information available now that you can find out anything. So there is an onus on the new startup to actually do some research before they start to look. I think the areas where it’s useful to do the research is what type of funding are you likely to need?

So if you are a startup, you’re not going to go to a private equity company because that just isn’t anything that they’re going to be interested in. So you’re going to look at seed funding or you’re going to look at angel investing or you might look at crowdfunding.

So I’d say get familiar, which you can do on your own by Googling around and looking at those vehicles and try to pick a sweet spot where you think you’re going to be and that’s really important.

Talk to people who are in your network and you might be very young and the people in your network might be typically young also, but going beyond your own network in some other people’s network and just trying to get some conversations with people who might have done that before.

So there really isn’t an opportunity, just get talking, basically. So as you’re firming up your idea, you’re looking at what sort of funding you might need and there are advantages to all of the different ones.

So for example, crowdfunding would suit certain businesses that want to; there was a good example in fitness, which was One Rebel and they did crowdfunding and then James Bellfoes, the founder of One Rebel and he wrote quite an interesting piece, a few years back that was saying that they did that because it really suited their brand, it suited the fact that if you are somebody who’s looking for something to invest in, and you’re a person in the crowd, you sort of want to own a cool boutique health club business in London, don’t you?

You sort of think that’s quite a nice thing to do. So we really suited the business to go down the crowdfunding angle and the advantages they got from crowdfunding, for example, were probably they got more, they then gave away less equity because it’s a desirable thing to do and there’s a crowd investing in it.

So you can think about all these types of things, if you’re going into seed investing, there are certain tax breaks that investors like, like EIS or SEIS, which gave either a 30% on the EIS store, 50% tax relief on SEIS, that’s massively important to investors.

So look at if there are any attractive things that you can add to your pitch that make it interesting for an investor. But I’d say in summary, talk to people, get yourself prepared, understand where you’re aiming, which sort of funding you’re aiming at and then you start speaking to people. There are people out there whose whole residential is to lend money. So [inaudible 15:06] for meetings and crack on.

Alex: Nice. Okay. Things like that, I mean, I’m not personally starting a fitness business that needs investing, at least right now. But things like what you just said there, like understanding the tax breaks that could be available for not only effort for the people who are helping you out, that’s stuff that I think people don’t even start to realize in these early stages. So I think that’s really awesome.

Andy: So the way to find that out is the HMRC website, but something EIS or SEIS you will read about on that website on the HMRC website, and you will understand, or you’ll be able to ask questions about it in 10 minutes. The difference to an investor, investing your businesses is that if they put 30, 50,000 pounds in, in real terms, they’re only investing 25,000 pounds if you can get SEIS qualification, massive, massive advantage if you’re talking to an investor about that.

What to Prep In Early Stages to Attract An Investor

Alex: Nice. Okay. Yeah. Good to know. To give these new entrepreneurs the best chance for a successful investment, what kind of things do you think they should have prepped in the earliest stages alongside their business plan?

Marie: Well, I would say do some internal examination of your motivations and focus because quite often what I found is sometimes people just rely on a deck, a slide deck, and they think that’s everything, but actually it’s the person is very important.

So make sure you understand your motivations, your focus that you’ve got clarity on your product or idea, whatever the idea is and it needs to be something you can explain easily. If it’s too complicated to explain, it’s probably not the right idea, you’ve got to be able to see it simply and it’s got to be something that either solves a problem, if you like very broadly or is very enjoyable, very broadly.

And really you’ve got to understand with absolute clarity what your idea is and if you can’t explain it to your mum or your 12-year-old brother or sister, then really you need to think about what you’re doing and is it exactly like, so I would say, do think about it, don’t just assume, because you’ve done some research on some competitors in the same space and you’ve got forecast together.

And by the way, putting a forecast together, anyone can do that, this is literally a spreadsheet exercise. So those things are elements that you need, but it’s not something the investor’s going to hang their hat on completely.

They need to understand that you have complete clarity, that you understand the consumer value proposition, or if it’s a B2B, the business value proposition very clearly with absolute clarity. I would say that personally, I think that’s important, and speaking to someone who’s sort of often in the past tried to over-complicate things, I have to pull myself back from that and see what exactly do I mean here.

There’s nothing wrong with being simple, people think that they have to put lots of fancy words or fancy concepts around it, but you don’t really, you need to be able to explain it very simply. So bit of internal examination as well as what I would say outside of your business plan, but your business plan just have to be good and well peered well-structured well-researched, that’s what I would say.

Alex: I think that’s good advice. Would you say there’s any kind of books or anything, whether it’s, you both have bookshelves behind you, so yes, I mean, I imagine.

Marie: Personally, I’m not a massive reader of business memoirs and all that sort of thing and [inaudible 18:52] and seeing how he did it, that’s just not my cup of tea. But one book that did influence my thinking was Thinking Fast, Thinking Slow by Daniel Kahneman, he is a Nobel Laureate and it’s a very, very interesting book, it’s about lots of things, but it’s a lot of it’s about inherent biases and how you think and how you react to situations.

It’s actually based on proper research and proper data and it’s one of the few books I’ve read where I thought, wow, it’s really good. I mean, that is making me think about how I am in lots of situations and how I react in certain situations and I think it’s just a great book to read if you can. It’s not strictly business, but it does inform business and business sessions and how you want to meetings and how you approach certain things. So I’d definitely recommend that.

Alex: Andy, do you have any that spring to the top of mind?

Andy: Yes, I do. I do read those business books that Marie doesn’t read, the breakthrough brands [inaudible 20:00]. I read one recently called Shoe Dog, which is by Phil Knight and he’s the founder of Nike and when you see Nike now on the streets you think it’s always been a complete success, but that is a proper journey of resilience for that guy to get that to work.

So that’s an interesting story and the one I’m reading at the moment is, I’ll show you it’s called The Automatic Customer and that’s about turning any business into a subscription business and it’s by John Warrillow and that’s fascinating because coming back to investment, one of the things that’s really powerful in terms of valuations is when you want to exit a business is if you’ve got recurring revenues.

If you look at obvious examples like Netflix and Netflix is a fantastic story because they started selling DVDs, mailing them out to people and then I think the story goes something like they had 98% of the revenue, which was selling DVDs, and the owner of Netflix said, I want to do a subscription business.

So he immediately turned off 98% of their revenue and decided to focus on subscriptions and now you know how big Netflix is. Same with Amazon Prime, they’re not putting you on prime for the good of your health, they’re putting you on a prime for a recurring revenue subscription, all the other things they’re going to do down the line.

So I’m fascinated by the strapline on that book, creating a subscription business in any industry. It is appealing to me because I want to understand how we might help some of our people who’ve invested in to do that. I read a load of books. I think the other thing Alex is for me, I read nine nonfiction books to one fiction book, and I just like it, I’ll read. A guy gave me a book on engines, I’ve got no interest in cars but I read it.

Marie: I’m the other way around, I will read nine fiction books to one non-fiction book, but that’s…

Alex: That’s the balance you guys strike as a team.

Marie: Yes, that’s the balance we strike. Yeah, that’s right.

Alex: Andy, what do you think the investors of Netflix said to the owner? Because this was also before the subscription economy was as big as it was, so what do you think they said when he said I’m going to turn off 98% of my revenue?

Andy: Well, I listen to a podcast, I can’t remember the exact story, but I think, I mean, the guy who made that decision was the guy who was able to make that decision, he must’ve been the boss of it. He must’ve met with an incredible amount of resistance because if you think about back at that time, they might’ve been turned over less than a hundred thousand dollars a month or something like that.

I mean, it was a small company compared to what it is now. But if you’re turning off 98,000 of that hundred thousand, you’ve got an immediate problem next month when you can’t pay anyone’s wages. So I don’t know exactly how it went, but yes, that’s a fascinating end story. These companies it’s like Netflix has been gone for over 20 years, I think people think that they started a few weeks ago, but they’re not, they’ve been going a long time.

So you have to work hard in business and long in business, I think one thing Marie and I have learned is that again, when you going into this everyone comes up with a business plan, it’s a three-year plan, but how do you know it’s three years?

We built our health clubs in London with a three-year plan, but I think we’d probably in there nine years because things change, there’s a financial crash, there are things along the way that don’t go exactly as planned, or it goes better than planned. But yes, the one thing for sure, you cannot say is I’m going to start a business. I’m going to exit in three years from today.

Alex: Yes, I hear those conversations a lot with the growth plans, it’s like, okay, if that was so easy, everyone would be doing this.

Marie: Yes, exactly.

Andy: The classic thing on the spreadsheet hero thing that Marie alluded to earlier, and everybody can do a spreadsheet if you’ve got investors and you’re coming to the end of your financial year, and it’s some March year-end, and you’re doing 50,000 revenue forecast in March, but you’re forecasting a budget for next year, April’s revenue should not be 90 grand.

People think that yes, the new year, it’s all going to be different, I’m going to go from 50, I’ve been doing 35, 40, 45, 50, 90, it’s never going to happen and that is often what happens and you do get into, I mean, if I go back to our experience working with venture capitalists, the people in [inaudible 24:41] will grow, no doubt about it but there was an element of that.

It was, you need to hit this number or else and actually that’s not really helpful because that number you can easily write it on a spreadsheet, but come April the first, second, and third you’ll roll in revenue is not 90, it’s still 50 and you’re off target.

Data Points for Evaluating Growth Potential of An Investment

Alex: Maybe a good segue then to the next question that I had for you guys is what kind of data points are you evaluating when it comes to basically anticipating the value and the growth potential of an investment, what kind of stuff do you guys look at?

Marie: Well the numbers do have to be solid. So, I mean, Andy’s saying that about your forecast can’t suddenly jump. Broadly, the numbers have to make common sense because you just need to be able to explain changes and why certain things are where they are, if you like.

So usually I do big broad numbers when I’m looking at spreadsheets, usually, they’re full of numbers and you’re saying, oh my goodness, look at that. But just do some simple back checks, it’s usually to see do they make sense? Have they got the right amount of cash in the business because working capital is important.

So one can start with a hundred thousand in the bank and you might a show a forecast that goes down to like 2000 in the bank and then goes back up and you might think that’s all right. As an investor, you’re looking at it going, I don’t think so. Just having 2000 pounds in the bank is not where you want to be, you need to give a bit of a margin in there because as we all know, hardly anyone hits a forecast, hardly anyone and that is just an absolute fact.

So one has to bear that in mind and what was the other thing I was going to see about the numbers? Actually, I’ve forgotten. Cash, make sure it makes sense.

On your pricing policy, this is quite an interesting one when you’re BC, even if you’re B2B, just make sure you do understand your pricing policy and why you’ve done what you’ve done. So currently one of our investments, I wouldn’t say who, but we were having a zoom call just bringing us up to date and just questioned on the pricing policy and everything got a little bit fuzzy a little bit, not quite sure what’s going on and one has to be clear about why you’re charging, what you charge.

That might sound easy, and you might peel off your competitors’ pricing policy and stick it on but is that the right thing to do? And why have you done it? So things I look for are cash level, do the numbers make sense, and have you worked through the pricing policy?

Alex: So if someone just comes to you guys and said, okay, it’s going to be 40 pounds a month for the membership but they can’t back up why it’s going to be 40 pounds or what’s accounted for in that membership costs, that’s a red flag.

Marie: Well, it’s a bit of a, you can turn it around to say well would you pay 40 pounds a month for that? How many people do you know, pay 40 pounds a month for that of if that pricing an app and you see how many apps right now on your phone, are you paying a subscription for? And how many are you on freemium? Or if it free with adverts, would you pay for it?

And you just have to make people think about how, just because you wish for something to happen, doesn’t mean it’s going to happen. Pull them back to real life and say, okay, how many people do you know, pay for that? And it just brings it right back down to proper practicalities and if you’ve got the answer, great.

Commonly Overlooked Things Businesses Miss in Early Investment Stages

Alex: That’s a good one to keep in mind and I feel like we may have already touched on some of these already, but what would you guys say are some commonly overlooked things that a new business would miss during an early investment stage that if they knew an advance could probably give them a better leg up?

Andy: I think I mean, it sort of follows on from your last question really, but I think Marie is right with what Marie described as pulling back from those numbers looking big, because that point about when you want to start a business as an entrepreneur, you want to believe it’s exactly the right thing to do and sometimes you want to believe so much that you ignore the fact that it’s not actually the right thing to do.

So I think you should ask the people around you when they think it’s a good idea and I talked to my wife, Julia, about some ideas I’ve got and she just immediately says, nah, I don’t think that’s good because of this, this and this and my initial reaction to that, and this is something to guard against if you are an entrepreneur, is to get defensive and to say, no, this is a good idea. Why don’t you think that’s a good idea? Why don’t you think it’s worth 60 quid a month? When actually that’s the wrong thing.

So I’d say, go down the pub with your mates, tell them your idea and see if they can challenge it and if you can’t answer those challenges, you probably need to rethink it a bit. It’s not that your idea is dead, you just need to rethink it and I think that sort of thing is what I would start to look for in the early stages and they would be commonly overlooked things for an entrepreneur to do because you’re making a mistake, you want it to be true, but it’s not true.

Everyone’s watched Dragons Den and it’s hard to watch when the dragons say you put 400 grand into this, really, and it’s this bad, you need to call the plug on it and actually pulling the plug on it when you’ve sunk 400,000 pounds, it’s like someone addicted to gambling. I just need to place another big bet and I’ll get my money back.

That’s a really tough thing to walk away and go that one was a really bad idea and I’ve lost forty thousand pounds, I need to go again and do something sensible, that’s hard to walk away from. I find that really difficult because I am an optimist.

I’m the sort of person who doesn’t want to give up. If you’ve got me on your football team and we’re three-nill down with two minutes to go, I think we’re going to win four-three, that’s quite dangerous in my work, the investment because you have to know when to pull the plug. So those types of really human things are overlooked in the [inaudible 31:05].

Expectations for the Investment Process

Alex: I like the Andy K pub challenge, take them down there, see if you can get challenged and see if you can answer and if not, back to the drawing board. You heard it here first. Maybe you guys could walk us through what someone expects actually during the investment process. So not the preparation of it, but now okay, you found the investor, what does this look like from the first conversation to a successful business, to something for you guys that’s producing positive returns?

Andy: Do you want me to start on that one, Marie? We’ll check in together.

Marie: Yes.

Alex: Loaded question, but yes.

Andy: If you think about that whole thing that you’ve just described, that whole journey from first meeting somebody to having a successful business, that’s a lot of time and energy and meetings and phone calls and information exchange. Where would I start?

The first tip I would say is after we’ve just gone through 18 months of zoom calls, I would say once you get face-to-face, I think it’s really important to get face to face in the beginning because Marie’s talked about that chemistry that you need between an investor and a managing director, and you need to feel that and see that and you don’t really get that very easily over, if in the initial stages of zoom, you know, you need to get face-to-face.

Marie: I would chip in there, Andy and just say, remember, they’re doing due diligence on your numbers and due diligence on you. They’re looking at you as well, so you’re busy staring at your screen presenting, they’re busy staring at you. So what Andy’s saying there is exactly right, they’re doing due diligence on you and we’ve done that a couple of times, done it well, done it badly.

Andy: Yes, absolutely. But that process really it’s about there’ll be initial meetings, there’ll be an information exchange. Before you get to a situation where you’re signing a nondisclosure agreement, there’s probably been a few conversations. Then you sign a nondisclosure agreement, you get more information, then you’d have more meetings, then you would ask more questions.

At that point, if you are the business owner looking for investment you need to make sure that there are no skeletons in your closet, you’ve got all of the information out to investors because once you go beyond that and you into heads of terms and you’re into a due diligence process and possibly an exclusivity period, you are wasting a lot of your own time and a lot of investors time, if you haven’t been straight up to that point.

Because obviously it’s going to be found out and then you’ve destroyed the trust. It comes back to that chemistry Marie’s talking about, if you’re dead in the water. Actually investors like Marie and I, or anybody, they know it’s not a perfect world.

So that first meeting you have, or that first phone call, you’ll get someone presenting their idea and it is the best idea on the planet, for sure. But once you get into the ribs of it, it’s not quite as good, but it still might be very good and it still might be investible, but you’ve just have to be straight up and honest and get it out there.

But yes, that process, I mean, Marie and I did a due diligence process and it lasted six months and do you know what? We got it completely wrong, really bad investment. I would obviously never name it, but it was a bad investment, still paying the price and it was a bad investment.

If I’m being honest with myself and I wouldn’t say this with Marie, in my mind, I knew that there was a route from investing in that business to making millions of pounds and what I ignored, what I didn’t ask myself was, are you sure about that or is that do just the dream that you wanna follow? This was only a few years ago, so we all make mistakes, absolutely.

Do you know what if I had my time again, of course, I would never do it, but I sent it to Julie, my wife the other day, it was a bit of a shame we lost all that money, but I have learned.

Marie: I was going to say another thing early in the process to watch when presenting and this is some advice actually Andy and I give a friend of ours who was starting a business not long ago when he show us his forecast, is he had quite a lot of salary in for himself. So he wanted money and then start business then his salary and then actually in the conversation he said, and I don’t want to use my savings because I need savings and we’re just going name that is not acceptable.

You cannot take money off of people, I’m not going to sit in front of you as an investor and give you my money in order for you to pay your salary and have your savings, that’s not how it works. Although it’s hard to hear and of course everyone needs to live, but be prepared for the fact that you may need to support yourself for the first whatever it might be, unless you’ve got an instant revenue gain, which doesn’t often happen.

Investors don’t really like seeing that. So don’t swoon in with a spreadsheet showing yourself 175 grand a year because you’re the CEO, you’re the CEO of nothing, there’s nothing there. So don’t do that, that’s for me and I think, can’t speak for every investor on the planet obviously, but it’s not great.

Alex: I think that’s a, a really good call to the fact that you guys are evaluating them as a person. What’s their motive, what’s their end game here and of course, as an entrepreneur, of course, they want to create something better for themselves and they’re not doing it not to make money. However, but when they expect those returns to come, I think is definitely what I’m hearing here, that it’s gonna be important.

Marie: Yes, absolutely.

Investor’s Perspective of Success

Alex: Okay. And from your guys’ aside, what does success look like from the investor’s perspective?

Andy: You are definitely in it to make money and you’ll hear people say, oh, when I get 10 times my money back or five times money back, in some private equity and venture capital, fair enough.

They have got ratios that they’re working to, it goes back to that point we made about crowdfund early on, the reason in the James Bellfell, One Rebel example, the reason James can get a more sympathetic valuation, I give away less if he goes down the crowdfunded is because the person at home putting a thousand pounds into One Rebel, doesn’t have to go to their boss on Monday morning and say, I’ve done this deal. Whereas a venture capitalist does have to go to their boss and say, I’ve done this deal and private equity the same.

Marie: The first start of business is not to lose money, that is the first order. And that is harder than it seems.

Alex: Second and third too I think.

Marie: But like Andy’s saying, it depends on why you’re investing. Some investors are in it from a softer point of view, they’re happy with a very modest return, as long as they’re helping the local economy, helping the business or it’s a vocational investment.

And then at the other end of the spectrum is your VCs, your PEs, and particularly those listed on a stock exchange because they must submit their returns and they must show growth. So it’s a question with many answers.

Alex: Would there be any other kind of metrics other than just the returns that would be really important for you guys to focus on in terms of what deems it to be successful?

Marie: There’s an ethical component. I mean, both of us where, I mean, I just would invest in cigarettes, just an example. I like the fitness world because generally speaking it’s a good sector. It’s got its faults but there’s an ethical, there’s a moral component, I would say, both in for the sector and the people you deal with but that’s not easy.

Andy: I completely agree with that Marie, it’s really important. I can remember when we did our first self-funded startup, the only 10 that we didn’t submit when we’re doing corporate fitness was British American tobacco, we said no we’re I’m going to do that. So its just, you’re putting a fitness center into a cigarette company that was a difficult, difficult thing to square.

I think in terms of the other things I look for, you do spend an enormous amount of your life at work and it is important to enjoy and it is important too, for me too, we invested in and we’re going to meet David Hopkins later on, who’s the MD of Pro Inside Mr. Shopping company, Marie and I invested in 2015 or something like that. He’s been a great investment, I’ve learned the load from working with Dave, even though Marie and I are his investors, I’ve learned lots from working with him. So I think there’s a learning thing.

If you come out of an investment, you’ve learned a lot and you’ve got a contact that you will take into the future with you, brilliant. They’re important parts of it, no spending all your life at work doing something you don’t enjoy as well. So you get some, there might always be your friends, but actually, for me, I have made a lot of good friends in working with people. Obviously, it’s something about how you work with people as well.

Alex: Absolutely.

Andy: There might not be a billion friendly relationships in private equity to entrepreneurs. There might be, I don’t know but certainly, you can be and still invest and still work.

Marie: The enjoyment point is very important. One has to enjoy what you do, if you don’t, it does come through.

When Does An Investment Collaboration End

Alex: I would agree with that, yes. On that note you just mentioned about I think you said David, his name was, when would you say the collaboration between two parties finishes up or does it? Do you ever part ways?

Marie: I mean it may stop because it might be a full and complete exit and they move to America, I don’t know. But most of the time it hasn’t stopped, we know apart from knowing almost a lot of people from our general network from working all the way through, most of the time it keeps going in some shape or form and they may recommend you to speak to one of their friends who’s got an idea.

Can you help out my friend? We do quite a bit of that actually. So it could be any sort of relationship going forward. I mean a successful exit is always pleasurable, it’s a very cheerful thing, it’s something to celebrate and it’s something that you’ve always got in common as a shared history, which is important and only you exactly knows what’s going on. It’s kind of a bond.

Alex: I could imagine. Well, it’s like you literally grew something together there. There was a concept and you guys were instrumental in making that happen.

Marie: We’ll always know Dave, I mean he’s a great guy.

Andy: It’s interesting because when we sold our first health club that we built in London, so Marie and I built a health club, which is called 37 Degrees. It was overlooking Tower Bridge, 30,000 square feet, a fantastic concept at the time and we sold that to Third Space or we sold that to the owners of Third Space and that was, I mean it is a thrilling moment when you get your first big exit, it’s a thrilling moment.

Like Marie says the relationship with the investors who backed us there, the VCs who backed us to do that deal, it ended in terms of a business relationship then because everyone walked away and was happy but we had a zoom call with it’s another David, a few months back and we keep in touch with him and if something comes to me or to Marie that isn’t in our space.

So for example, it needs, let’s say 10 million pounds I would pass it straight to that David because he might be interested and we might get involved in some way, but it might not be that we’re providing the money they’re providing. It comes back to that talking to people and you should build relationships all through your career, whatever you do and that is with people who impress you, but more importantly with people who you’re working with at all levels.

So if I’m working in a fitness business now, and I’m talking to someone who joined last week as a fitness instructor, who is 20 years old, that person’s really important to me because why not? Why do you have to be the boss or a loop or be not quite frankly, be a good person all the way through, be consistent and those relationships will come to fruition in the end and it makes your life comes back to having more fun, people are good.

Talk to ’em all and be nice to everybody and eventually, they’ll be running Netflix and they’ll remember you and you might get a free subscription.

Alex: Nice. I think that’s good advice and yes, if it ends of the free Netflix subscription, that’s a bonus. There you go. Exactly.

Andy: One of my businesses might of looking for a social media and marketing expert, do you know what that person’s likely to be 20 years old because they know way more about it than I would ever know about it. There are some incredible young people and young talent coming through, I think, in the fitness industry at the moment.

The Transition of the Fitness Industry

Alex: Awesome. Awesome. Well maybe then we can shift a little bit and talk about the industry as a whole. I think along with a lot of other sectors, there have been some crazy valuations coming through. So as far as like fitness industry valuations, what that could mean for the industry and then what also it means for businesses, smaller businesses who are up and coming, I guess maybe taking a step back a little bit, let’s talk about how the investment landscape has changed since you guys have started, I think since you guys have started this entire like tech, all these software as a service companies who are getting these massive valuations that have started, so maybe you guys could talk a little bit about where it was when you began and where we’re at now.

Marie: Well, so where we began in business is quite a long time ago, that’s when we still had compliment slips and brochures. On the investment side, really, I think it’s exactly what you’re alluding to, it’s the level of tech investment is just huge and incredibly influential and I think one of the slight disadvantages of that is the valuations can be very frothy and it sort of raises expectations to a level that you’ve just got to be careful with.

We work as a great example where it was basically office blogs, really, like a couple of table tennis tables in it and bars and got way, way overvalued and was incredibly frothy and the investor there, the main investor, SoftBank lost a lot of money on that.

So it comes back to the clarity of the idea and that still applies in tech, is it a good idea? Has it got the focus? Has it got the right consumer proposition? But tech certainly is a massive, massive change and we’ve invested in a film tech product about a year and a half ago, I can’t remember Andy, was a year and a half?

Andy: I say its longer than that, two years, three years probably.

Marie: That’s a good double example of she was in the right space, she was in tech and particularly women in tech and tech about women, which is a huge growth sector. So she had a great idea and it was very clear and also she, in terms of talking about an impressive person and having chemistry was very impressive.

I mean she didn’t even have a slide deck, that’s how good she was. She sat in front of me and Andy and another investor just absolutely with crystal clarity could explain what she was doing and why she was doing it and the passion behind it as well. So I’m moving a little bit off-topic, but that it is still, it’s almost like the basic principles should still apply. It should be a great idea, they should have passion for it and it should either solve a problem or be very enjoyable.

So even though things get very frothy, you have to sort of maybe ignore the froth, wrap a cold towel around your head and just look at it in the real cold light of day. It’s something our investors used to say to us, our first one. So, let’s all have a moment and think about but tech definitely, digital definitely, that’s a massive, massive change and speaking is not a digital native one has to rely on your analytic skills plus going back to good basic principles on to assess whether it’s a good idea. Because I am not a digital native for sure. But yes, that tech thing is as we all know, massive.

Andy: I think I would add to that as well actually. There’s is a huge tailwind behind wellbeing, health, fitness, I’m trying to think, it’s like if you were and it is an obvious example, but if you were a camera maker, there isn’t a tailwind behind making cameras because everyone’s got a phone, but everything health, wellbeing, healthcare has got tailwind behind it. So those valuations might be frothy but there might be some reason for that in the massive picture or sort of macro picture rather than the micro picture.

COVID’s Impact on the Investment Landscape

Alex: Yes. I think the obligatory COVID question then, how would you guys say COVID has shifted the investment landscape over the past year and a half?

Marie: It’s a hard one. I mean, it’s like whether it changes the investment landscape or investor behavior or investor confidence, because frankly, I mean, I’ve lived through two full recessions and a financial crash professionally, actually bein in work in those times, but nothing has been like this.

I mean, this is literally a global stop and having said that, I think one thing, from a personal point of view is the ability to quickly change and adapt is a great thing and recognize what’s happening, I think, okay, instead of pushing against it going with it and saying, right, well, how am I going to change? How am I going to move forward? And that sort of adaptability can take different forms.

I mean, you can go back to pro insight, David Hopkins the MD there, after the initial shock approached it incredibly well in terms of keeping his customers on board, even though mystery shopping stopped completely, but keeping engaged with his major clients all through the lockdown, staying positive, keeping his staff engaged, keeping his clients engaged. So that was a very quick adaptation.

On the fitness side, it was a quick pivot into digital, even though nobody had ever, quite a lot of people had never done an online class. So quickly, everyone was like, oh, zoom, zoom, quick, get on, send everyone a link and suddenly they are doing it. So adaptability and pushing forward I think that has changed the landscape both for investors and investiees, it’s showing that adaptation, it’s been an incredible, well touch wood we don’t have to live through this again.

Andy: I think if you are investing the business now, it is difficult as an investor because of the uncertainty that COVID has introduced into the landscape because if you’re a business that was doing well pre-COVID and then has fallen off a cliff and is now trying to build again, the question is, will it build back to the same level? So health club’s a great example, isn’t it?

Because 25 to 30% of membership lost, is that going to recover? Actually, nobody really knows, and then the businesses that have done really well during COVID and post-COVID is that entirely related to the pandemic, and will that fade out? So it doesn’t bring this uncertainty into the investment landscape.

So uncertainty could be read as an opportunity for some investors by are they going to get it cheap. So that’s something to guard against if you’re looking for money, so you need to be solid on what you believe you’re worth and stick to that, but at the same time realistic.

So I do think COVID has of course muddied the waters but there are still lots of deals that are happening in fitness and elsewhere. The other thing I think, if I was just focusing on the health club part of fitness when Marie and I opened 37 Degrees, which was in pre-2010 I can’t remember exactly when.

Marie: 10th of May 2006.

Andy: Back then everyone was talking about the gym, like a 37 Degrees or a Third Space as the hub at the center of the wheel, and off of that wheel was spokes where we were supposed to as gym owners back then engage our members in digital do stuff out of the club that added to their overall wellbeing and sort of like pathway into fitness etcera.

But actually, none of the gyms did because we were all focused on selling memberships. You think about LA Fitness in the day, if you work for LA fitness, you have to report your sales stats at nine o’clock in the morning, 12 o’clock in the afternoon, five o’clock in the afternoon and nine o’clock, what’s that all about?

So what the gyms lost the opportunity was being the hub of the wheel and now the hub of the wheel is Amazon, Apple, you name it, Peton and the gym’s part of the spoke now, and the gym’s going to have to get used to that. So in my opinion, COVID’s accelerated a shift in our world, but generally, there’s a big tailwind behind the world of wellbeing.

Alex: We would say the same thing as well. I mean, it’s kind of as COVID was hitting and in those initial months it was like five years of digital transformation and taking place for a lot of these businesses over the course of a few months, it was very Rocky at times, but now it’s just like, I think the tailwind is the really right way to look at it.

It’s like there are going to be good things coming because of that but it was a hard learning curve for many organizations I think, and still is, still is believe me from some of the conversations we have elsewhere. From the fitness industry valuations, I mean, we see publicly-traded companies, Basic Fit, for example, billion-dollar valuation, a lot of IPOs out of the US, especially like huge, huge valuations, I think peer gyms considering an IPO again and then of course Peloton madness was like the defining fitness industry thing in COVID.

So how do you guys think big valuations on the market help fitness, say smaller fitness businesses who are starting their journey?

Marie: That’s an interesting question. I mean, confidence is good in a sector, investors have confidence in the sector, but one has to come back to examining what these businesses are, are they actually fitness businesses or are they actually tech businesses or is Peloten actually a subscription business with tech, not a fitness business, not a subscription. So I like the confidence and it’s good to see some IPOs because back in the; where was the first IPO, Andy? Was it a Sporter or was it LA Fitness?

Andy: Yeah, I don’t know, LA fitness definitely or sometime in the nineties I think, or maybe early two thousands.

Marie: Yes, they did float and then they were taken back private again. So there was a few fingers burnt in the confidence spot. So actually to see some IPOs I personally think is good, it’s good confidence and it’s just being careful what the business is. Don’t base your own valuation on that.

Will it trickle down into small business owners? It’s hard to say actually, Andy’s right, it’s kind of almost different businesses now, a little personal training studio although can be very successful. It’s not the same as a tech business on the stock market, that’s selling subscriptions.

Alex: I think that’s a really good way to put it because I think as you say, it makes complete sense, but I hadn’t really thought about that is like, what actually is the business, are they a subscription? Are they a tech business or are they a fitness, are they a gym?

Andy: Absolutely, I love the confidence thing though. It does mean that people are making billions in our sector, which is great. But yes, you are really up against Apple and Amazon and Peloton, if you want to make billions, they are four to five recently floated that’s a very successful business, franchise business endorsed by Mark Warberg, now they’ve got David Beckham. It’s good, it’s all good stuff but you go into an F45, it’s essentially circuit training from the 1970s, but I mean, without being anyone from F45 whose listening, don’t take that personal.

IPO Shared Price Values

Alex: Maybe just a hot take from either of you guys, would you say some of these IPO, like the share prices, do you think they’re overvalued or undervalued or does it vary too much between business?

Andy: Honestly I don’t know.

Marie: Neither do I.

Alex: That’s why I’m asking you guys because I don’t know either.

Andy: I think good luck to them if it’s work if they do an IPO and the share price goes are brilliant, but I honestly, it’s really impossible. If I was trying to give you a sensible answer, I’d probably be just fibbing.

Marie: Me too. In fact, if I knew the answer, I’d have bought Bitcoin at $10 a pot but I don’t like everybody else.

Andy: I think Alex, well in terms of, I mean, Marie and I when we start at Socious, we haven’t gone to an investment school or university, we learn our trade from being gym instructors.

We had a self-funded startup and just cracked on and made some mistakes and made some great decisions, then we borrowed millions and millions and millions of pounds off of venture capital but I personally have never worked with private equity or done an IPO so I don’t really know much about that space. If you’re an entrepreneur, you’re much more likely to want to talk to Marie and I and start off.

Alex: No, I think the journey that you guys have had to get to this point is really cool. Because I think a lot of people would think the investment team is very detached and they don’t know the business and they don’t know this, and they’re just in it purely for returns and not to say that you guys aren’t there for that, that is the business model, but there’s more to it and I think that’s really special.

Andy: Yes, absolutely.

Potential Good Investments in Certain Industry Trends

Alex: Well guys, as we start to round up our conversation, let me know if you don’t want to reveal too much on this one being investors, but what industry trends have you guys seen that are sticking out that you think could be a good investment opportunity in the, well, maybe next six to 12 months, but also in the next coming years?

Andy: I would say, post-COVID, I’d say stuff that’s away from the cities, the housing things moved out of the cities. So outdoor fitness is a big one. I’m sure you’d agree with Marie on that one.

Marie: I would, I think out outdoors in general, experiential outdoors, outdoor fitness, outdoor activities. I think that’s really going to play a big part.

I think people build the awareness, I mean, I couldn’t have been the only one going out my daily walks and as COVID started, so it just did make a difference actually being outside and I think Andy’s right, that sort of seeps into everyone’s sort of psyche and anything that’s along that lines, I think it’s got a good chance and I still see the FemTech space is a big and growing space at the moment.

Andy: I agree with that, Marie. Sue has just written a book called The Unstoppable Rise of Women’s Sport, I think is the title, but my wife and my daughter are incredibly keen netballers, netball is growing as a sport, absolutely. I think that’s prize money at the open for the lady last week, it needs to be more and more, I think anyone who’s investing in women’s sport…

Marie: And I think the mixed element, actually, I just want to say that because I so enjoyed the Olympics, the mixed triathlon and there is another couple mixed ones. So the swimming mix really, it was just great to see sort of men in and women celebrating each other and winning together and that is great for kids to see that.

Alex: I agree. I saw it on the track as well for the first time.

Marie: I think it’s brilliant and Andy Murray actually tweeted out, sports are not doing this are they’re missing something and I think he’s right, actually. So I’m future, well we’re drifting a little bit off, sorry, I’m bad at this. So started with femtech, but I think this sort of female sport and like mixed stuff I think is really, it’s got future in it.

It’s good fun and the cricket hundred’s been massive because they put the women’s game on before the men’s game didn’t they that’s been a massive boost for women’s cricket. So the whole thing mixing together is healthy, I think.

Andy: And it would be easy to say subscription businesses because I’m reading a book on subscriptions, but Tech is like a billion different ideas. It just happens to be facilitated through technology and I think we picked it up and the thing to guard against is to think you’ve got the best idea and to think that you can attract tens of millions of pounds before you are even making any revenue and just because you’re a tech startup.

So we do get a lot of people coming to us with tech ideas and actually, that’s where you need to wrap a cold tower around your head and think about what was saying earlier about, is this a good business? Just because there’s a sort of a movement towards tech or FemTech or whatever it is or outdoors, that’ll be a good business.


Alex: Amazing. Well guys, this has been for me personally, an incredible conversation. I’ve loved hearing the insights that you guys have shared and also the journey that got you to this point. I think those who are listening to this are going to get a huge amount of value as well.

So of course I want to thank you both for taking the time to join us today. Where can listeners who are interested in learning more about you guys and the work you’re doing, where can they go to find you guys?

Marie: Well, we’re both on LinkedIn aren’t we Andy and we have our website

Alex: I think we’ll put those in the show notes as well and I think if there are people who are listening in and as I said a few times already, I think the story that you guys have where you have been in the same position as probably a lot of the people that you’re going to talk to be on the floor of the gym, not in the boardroom exclusively. I think that’s really an important part of the relationship that you can build.

So I hope that anyone who’s listening and wants to get in touch with you guys can do so and a successful relationship can blossom from that.

Marie: Thanks, it’s been great, Alex.

Alex: Well, thank you so much. This has been another episode of Fitnation’s Lunch and Learn. We’ll see you next time and thank you for tuning in.

Nan de Bruin

Visual storyteller and winter sports enthusiast


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