Foley and two different ex-Peloton cofounders are launching Ernesta, a direct-to-consumer custom-cut rug enterprise, with $25 million from Addition and True Ventures and a staff of former managers from their former firm.
Peloton’s former CEO John Foley is launching a brand new startup – and this time it’s not a motorbike he desires to promote you — it’s a custom-cut rug.
Foley is launching Ernesta, a direct-to-consumer {custom} rug enterprise, alongside two cofounders from his Peloton days, Hisao Kushi and Yony Feng. Ernesta is popping out of the gate with $25 million in enterprise capital funding and a founding staff made up solely of ex-Peloton managers.
Rugs may appear an unlikely subsequent product for Foley, who cofounded Peloton in 2012 and famously took it public in 2019, as its train bikes and peppy streamed digital courses confronted large demand throughout the pandemic – then stepped down as development slowed and its inventory tumbled. However in an unique interview, Foley instructed Forbes he’d been fascinated about an organization like Ernesta for “the higher a part of 20 or 25 years.”
Whereas nonetheless CEO of Peloton, no associates took him up on his provides to assist fund such a enterprise, Foley mentioned. So after resigning as CEO of the train tools firm in February, and as govt chairman in September, Foley’s been fixated on getting Ernesta off the bottom. “Attempting to take a seat on the seashore for per week, I used to be fascinated about it, as a result of I couldn’t assist myself,” Foley mentioned. “I’m hungry, I’m humbled, and I’ve time on my arms to do that firm myself.”
Ernesta’s hoping to fit into the market in-between house décor retailers and {custom} rug sellers on the excessive finish. The corporate plans to promote 50 totally different kinds of machine-made, custom-cut rugs in 5 colours every, Foley mentioned, at costs nearer to retailers like CB2 and West Elm: $8 to $40 per sq. foot. (For comparability, a fundamental 5’ x 8’ rug at West Elm listed at $349 would price $8.73 per sq. foot.) Ernesta will encourage customers to interact on social media, Foley mentioned, to be used circumstances like posting pattern choices to an Instagram story. The corporate might also reward designers who have interaction with Ernesta to assist highlight sure kinds and assist curate choices, he added.
“Rugs may look like a probably uninteresting class, however there’s in all probability not less than one in your own home.”
From its founding staff to its traders, nonetheless, Ernesta does symbolize a Peloton reunion. Addition, which led the $25 million Collection A funding spherical, is led by Lee Fixel, a Midas Checklist investor who was an early backer and board director at Peloton whereas an investor at Tiger International in 2014. (In a 2020 Forbes profile of Fixel, Foley claimed that if he had cash to take a position past Peloton inventory, he’d make investments it in Fixel’s fund.) True Ventures, which additionally wrote a large verify within the spherical, first backed Peloton in 2015.
And along with Kushi, who labored with Foley at IAC properties Pronto.com and Evite.com, and Feng, two Peloton cofounders who’re launching Ernesta with Foley, the corporate counts 5 former Peloton managers as founding staff members: chief advertising and marketing officer Alan Smith, chief working officer Jamie Beck, vp of individuals and enterprise operations Kristy Foss, head of design Eric Hwang, and vp of product Marissa Vivori.
“With Peloton, we didn’t know if it could be successful or not, however I knew that working with good individuals was a worthwhile technique to spend my time,” Kushi instructed Forbes. “Rugs may look like a probably uninteresting class, however there’s in all probability not less than one in your own home. They’re ubiquitous, and folks don’t spend lots of time worrying about them.”
For traders, a guess on Ernesta – named as a “female extension” of Ernest, for Ernest Hemingway, considered one of Foley’s favourite writers, with a nod, he mentioned, to Bob Marley, too (“Nesta” was the songwriter’s center title) – is as a lot a guess on Foley and his hand-picked crew. For a enterprise agency, writing an early verify to a founder who constructed a family title and took it public is often a no brainer transfer. And whereas Peloton has had well-publicized challenges akin to retailer closures and layoffs since, Foley’s departure lacked the drama of different high-profile CEO falls like WeWork’s Adam Neumann, who was nonetheless in a position to increase $350 million in funding for a subsequent act with severe question-marks.
By specializing in group and tradition round its rug designs and the shopping for expertise, Foley mentioned he hoped to recapture a few of what helped Peloton escape as an industry-leading model. However his subsequent act will comply with a special playbook in one other key side: Ernesta gained’t try and vertically combine its provide chain. As an alternative, the corporate will work with business-to-business companions in Georgia to supply rolls of carpet in bulk, then lower them to order in a New Jersey warehouse to ship both immediately or via logistics companions. By eschewing retailer fronts and sourcing throughout the U.S., Foley claimed Ernesta might attain 50% gross margins even on its first orders when the corporate begins promoting to prospects in spring 2023.
Foley additionally mentioned he deliberate to run Ernesta extra like a non-public equity-backed enterprise, not one which used appreciable enterprise and growth-equity funding to scale in any respect prices. Dwelling décor, and rugs particularly, should not winner-take-all markets, Foley mentioned, including that the corporate’s analysis estimated that greater than 100 million rugs are bought within the U.S. every year; a Customized Market Insights report from July estimated that U.S. residential rug gross sales would attain $18 billion this 12 months, and $25 billion by 2030. To achieve success, Ernesta must seize solely a fraction of such quantity, Foley mentioned.
“I wish to present self-discipline, I wish to present profitability, and have an actual concentrate on unit economics,” Foley mentioned. “I wish to management my very own future.”
A bruised (in ego and personal finances) entrepreneur of Foley’s expertise may make for a extra motivated one, traders hope. “I really like the truth that he’s received a chip on his shoulder,” mentioned True Ventures cofounder Phil Black. “It makes his subsequent firm extra attention-grabbing to us as an investor.”
Touring Ernesta’s mostly-empty Chelsea workplace in October — leased just lately sufficient that Foley needed to level to the spot the place considered one of his new rugs would go — Foley admitted that his new space of focus may come as a shock to some. “After we went into the health tools class 10 years in the past, individuals had been scratching their heads,” he mentioned. “We consider that 10 years from now, individuals will say, properly in fact, this is likely one of the nice design manufacturers on this planet.”