Deep End Fitness is raising a convertible note with a valuation cap of $3M, interest rate of 5%, and discount rate of 25%. Given the company is a services-based fitness company, the valuation is very good, as reflected by a very high price score. This indicates the combined low valuation cap and slightly higher than average discount rate put Deep End Fitness at the very high end of all companies in our database. 

The overall health and fitness market is quite large with Statista noting the industry recorded revenues of over $96B in 2019. Obviously, Deep End Fitness operates in an incredibly niche segment of the overall health and fitness industry due to its focus on underwater sports and fitness. This particular segment is not highly popular, nor is it highly accessible for a large audience. Due to the niche nature of underwater sports and fitness, the market score for Deep End Fitness is its lowest across all five metrics. It is worth noting, however, that this market could potentially grow like Crossfit did.

Deep End Fitness founders Prime Hall and Don Trans have deep experience in underwater training and fitness as both served as Marine Raiders. Both have also worked as fitness instructors, experience which is directly relevant to Deep End Fitness. Given their military and fitness experience, this team seems well-positioned to bring discipline, focus, and strong industry experience to the company. However, it is important to note that neither has past entrepreneurial experience, and that for the purposes of our algorithm, their military time does not count as relevant industry experience. Thus, Deep End Fitness’ team score is low.

It goes without saying that Deep End Fitness’ premise of underwater training is quite unique. Not only is the premise unique, but the company is also attacking the space in a smart way by renting out underutilized commercial and residential pools for their classes. Although the startup has a highly differentiated business, it is priced similarly to other fitness regimens. The high quality differentiation with few direct competitors, but low price differentiation results in a slightly above average differentiators score for the company.

Deep End Fitness’ raise page notes that 2020 revenues YTD amounted to a little under $80,000. For a business that relies on group classes in the water, it is no surprise that COVID-19 hit the startup particularly hard. Aside from revenue, the company has raised a little over $570K in capital to date. The growing revenues, capital raised, and more led to above an above-average performance rating for the company.

If the pandemic worsens and fitness classes and pools continue to shutter for long periods of time, the company may not make it through the end of the pandemic. Additionally, this particular niche of underwater training may not gain popularity like Crossfit or Zumba has. Lastly, a startup focused on fitness classes like this may not grow fast enough to generate substantial returns for potential investors.

If underwater sports and fitness gets extremely popular, Deep End Fitness would be able to grow substantially in a short amount of time. The team’s ability to introduce and increase accessibility to this type of training creates a strong brand and community that allows for the students to become the trainers and also creates a sticky product and service. Additionally, the attractive price of the offering means investors have an opportunity to jump in early on a startup that could potentially explode in growth.

Deep End Fitness has been rated a Neutral Deal. Despite the differentiated service and the strong team, there are a number of issues that are largely out of the company’s control. Is there product-market fit? Will the pandemic end sooner rather than later and allow this startup to pick up where it left off? Can this team create a strong brand and community that really allows this company to scale sustainably? Deep End Fitness is intriguing given it has introduced and made accessible an innovative way to physically train. However, there are many risks at this time that prevent this startup from being a very good investment opportunity. The concept is promising, but it needs to develop further in order to be more than a Neutral Deal.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out at support@kingscrowd.com. 

Analysis written by Francis Vu.