CARROT

As we have all witnessed, healthy living trends have taken over younger generations and are also slowly infiltrating the lives of older individuals. From working out to counting your macros to Chipotle-style salad restaurants, living a healthier life will be at the core of generations to come. Modern-day wellness refers to holistic healthy living characterized by physical, mental, social, and spiritual well-being.

Even fast food giants like McDonald’s and Taco Bell have been pressured into introducing healthier alternatives to their traditionally calorie-heavy food menus. Consumer packaged goods companies like Pepsi and Coca-Cola have also invested in and acquired multiple healthy snack brands.

To truly understand the growth of this industry, we have to look beyond food. Beauty companies are starting to turn their attention to natural and organic materials. The way gyms are being operated and the way clothes are being designed are also changing due to wellness trends.

Currently, the wellness industry is a $4.2 trillion economy with a presence in fitness, apparel, nutrition, beauty products, corporate wellness, mental wellness, cannabis, sleep, travel, and real estate.

CARROT is disrupting the corporate wellness industry. The startup brands itself as a gaming company that “has successfully gamified corporate health and wellness.”

The corporate wellness services industry is currently experiencing rapid growth. The global corporate wellness market size is expected to reach $84.9 billion by 2025 at a 6.8% CAGR. Today, the industry is generating $9 billion in annual revenue.

CARROT is a company riding the growth of the wellness economy with an app that promotes active living through incentivized walking. CARROT claims to have a unique focus on personalized fitness. Its proprietary algorithm features a personalized “Activity Goal” that gives each participant daily, customized targets to help ensure long-term engagement and success.

In addition to offering individuals a free platform to earn rewards, CARROT’s business model targets corporations looking to implement a corporate wellness program. CSRROT understands that employers are trying to curb rising healthcare costs by investing in these programs.

The average 2016 healthcare cost per employee was $13k, and the annual amount invested in wellness incentives per employee was $700. It is clear that many companies will try to invest more in preventative care — helping employees get and stay healthy.

Traction:

Since its launch in January 2016, CARROT’s patent-pending “gamified” approach to health and wellness has attracted more than a dozen paying clients amounting to over 60k users. Since June 2016, more than 80k CARROT licenses have been purchased.

In March 2016, Henry Ford Health System in Michigan launched a six-month CARROT Health and Wellness pilot program intended to evaluate the program for potential company-wide launch in January 2017. When CARROT achieved a more than 30% participation rate in just six weeks, Henry Ford Health System cut short the pilot and signed a multi-year contract with CARROT to provide its app to over 25k employees.

CARROT has been able to establish a global presence with licensed users participating in the US, Canada, Russia, Turkey, Brazil, Norway, Sweden, Switzerland, Austria, and several other countries.

Competition:

Although the space is growing rapidly, there is currently no incumbent that controls the market when it comes to corporate wellness programs. Though there are many other startups, we think CARROT has plenty of room to run. With hundreds of thousands in ARR from the client base they have built locally, we think CARROT could become a market leader in the midwest and become an attractive acquisition candidate.

Simplicity:

Barriers to participation have been eliminated at every turn. Clients like that CARROT — unlike traditional activity-based programs — is fully inclusive, allowing any individual to fully participate, regardless of level of their ability or the activity.

CARROT is a simple, easy-to-manage program. Because most rewards are digital, HR requirements are also minimized. There is no need to purchase Fitbits, and there is no password required when signing up. Keeping adoption simple for the customer is highly attractive to their base.

Business Model:

In addition to the easy onboarding and simplicity of the app, pricing is also simple. The company sells to businesses and charges a one-time setup fee of $2500 plus a “per employee per year” license fee of $10 for the first 2000 employees. Per employee per year drops to $2 for each additional employee after 2000.

On the B2C side, CARROT plans to introduce Carrot Premium in the future. The membership will allow any user to enjoy the same benefits as participants in a corporate wellness program.

The company has been able to attract over a dozen corporate clients in a span of fewer than 3 years. The team is already nearing cash flow positive and has been able to manage the business with a very lean staff, showing its ability to scale with minimal additional capital requirements.

Founder:

Michael Antaran is founder and CEO of CARROT. He holds a bachelor’s degree in mechanical engineering from Wayne State University and also a master’s in mechanical engineering from Oakland University.

Antaran left a secure job to build a new startup focused on creating mobile games. Although he was doing well, Antaran’s wife was concerned that the company was contributing to a very big problem in society where people are hypnotized by their mobile screens. Because of this, Antaran told us, “So we decided it was time we were part of the solution, not the problem. As a software company with a reputation for making fun, engaging mobile games, we decided to ‘gamify’ health and wellness – and we called it ‘Carrot.’”

In 2014, Antaran was selected by Goldman Sachs to participate in its 10k Small Business Program in Detroit. The following year, Antaran was one of just 16 U.S. entrepreneurs selected to participate in a special business development program hosted jointly by Goldman Sachs and Bloomberg in New York City.

The Recommendation: Top Deal

 CARROT typically delivers 6 times greater participation than traditional wellness programs while requiring 1/6th the annual incentives budget.

 In addition, the company is making an effort to appeal to all individuals from marathon runners to wheelchair users, not just the already-fit ones that most other companies focus on. CARROT is delivering a daily participation rate of 85%.

With such a strong product market fit, a scalable and capital efficient business that is nearing cash flow positive and a unique market positioning, we are doubling down on our earlier Top Deal rating.

Analysis written by Shihua Wu on November 15, 2018.