VirZOOM

The future of fitness, in partnership with Facebook!

Analytics

Raised to Date: Raised: $454,166

Aggregate Commitments $

Platform

Wefunder

Start Date

09/30/2020

Close Date

11/22/2020

Min. Goal

$100,000

Max. Goal

$535,000

Min. Investment

$100

Security Type

SAFE

Funding Type

RegCF

Series

Seed

Valuation Cap

$20,000,000

Discount Rate

15%

Rolling Commitments $

Status
Funded
Reporting Date

11/30/2020

Days Remaining
Funded
% of Min. Goal

454%

% of Max. Goal

85%

Likelihood of Max
Funded
Avg. Daily Raise

$8,569

Momentum
Funded
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Location

Cambridge, Massachusetts

Industry

Fitness & Wellness

Tech Sector

Hardwaretech

Distribution Model

B2C

Margin

High

Capital Intensity

High

Business Type

Growth

VirZOOM, with a $20 million valuation cap, is raising funds on Wefunder. The company has created the next generation of interactive and immersive in-house fitness through virtual reality. The customers get to engage in multiple virtual activities with a lot of fun. Eric Janszen and Eric Malafeew founded VirZOOM in 2015 and have raised over $11 million in previous rounds of financing. The proceeds of the current crowdfunding campaign, with a minimum raise of $100,000 and a maximum raise of $535,000, will be used to expand development staff and support staff and increase the marketing budget. VirZOOM has partnered with Facebook to expand its VRfitness offering for its Oculus users.

Summary Profit and Loss Statement

Most Recent Year Prior Year

Revenue

$219,279

$278,234

COGS

$161,459

$179,961

Tax

$0

$0

 

 

Net Income

$-2,827,248

$-2,277,396

Summary Balance Sheet

Most Recent Year Prior Year

Cash

$49,586

$7,977

Accounts Receivable

$37,602

$10,855

Total Assets

$183,922

$209,577

Short-Term Debt

$1,663,092

$9,207,015

Long-Term Debt

$281,745

$0

Total Liabilities

$1,944,837

$9,207,015

Financials as of: 09/30/2020
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Raise History

Offering Name Close Date Platform Valuation/Cap Total Raised Security Type Status Reg Type
VirZOOM 07/07/2022 Wefunder $30,499,157 $1,476,203 Equity - Preferred Funded RegCF
VirZOOM 11/22/2020 Wefunder $20,000,000 $454,166 SAFE Funded RegCF
VirZOOM 04/14/2019 Wefunder $8,000,000 $288,525 SAFE Funded RegCF
VirZOOM 05/31/2017 Netcapital $8,000,000 $548,968 Equity - Common Funded RegCF
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Ratings KingsCrowd Startup Rating Methodology Article

Analyst Report Analyst Report Methodology Article

Synopsis

Obesity is a serious and growing problem in the US. Cheap and easy access to unhealthy food and a generally sedentary lifestyle has led to the issue unfolding on a national stage. In 1999, an estimated 30.5% of Americans were obese while 4.7% were severely obese. By 2018, these figures grew to 42.4% and 9.2%, respectively. 

New technologies, however, are making it easier to achieve personal wellbeing. And people are responding with lifestyle changes. In 2008, only 43.5% of adults engaged in at least 150 minutes per week of moderate or 75 minutes of vigorous-intensity aerobic exercise. By 2018, this figure had grown to 54.2%. Less than a third of Americans engaged in twice that amount of exercise in 2008. By 2018, the figure had increased to 37.4%. We have also seen the share of the population that meets guidelines for muscle-strengthening exercise rise from 21.9% to 27.6%.

This new fitness-awakening is creating attractive opportunities for entrepreneurially-minded individuals. The most successful firm in this market today is Peloton, with a market capitalization of $37 billion as of this writing. One new startup hoping to grab a slice of this market as well is VirZOOM. In 2016, the business launched its first products — the VZ Bike and VZ Arcade. The original concept was to sell a fitness bike and gamified virtual reality platform to consumers. Since launching, VirZOOM has made significant pivots. 

First, it abandoned the bike and made the VR system compatible with any exercise bike. Early on, users had to acquire a special sensor to connect their bike with the system. Technology has improved so much, though, that today VirZOOM sells the platform without a sensor or any other hardware. Instead, its wide collection of games and other content can be accessed through a purely digital platform. 

The VZFit, as management calls it, allows users to play in any number of virtual reality worlds. VirZOOM’s VZ Explorer game allows users to digitally travel on more than 10 million miles of Google Street View. Users can ride curated routes, creating their own, and ride routes that others users have made. The VZ Trainer is an intensive training program. And the VZ Play platform allows users to race others, play tank battle games, and engage in other collaborative and solo activities. Currently, VirZOOM is working on the development of a new generation of the platform. The goal is to allow the use of a controller to play games even if the user doesn’t have a bike. To further strengthen their offering, the business has partnered up with Oculus for content creation.

All users will be given a free 7-day trial over the platform’s premium service. After that, in order to participate in VirZOOM’s digital platform, users will need to pay a monthly fee of $9.95 or an annual fee of $99.95. The sale of third-party apps through the VZFit service can also provide an additional revenue source for the company. Moving forward, investors should not anticipate any of the company’s sales to include hardware. This is except for what they are still unloading from their inventory. But it would not be a bad idea to consider cross-selling equipment like controllers and Oculus headsets. 

The current VirZOOM Wefunder raise has been rated a NeutralDeal by the KingsCrowd investment team.

Price

The pricing asked by VirZOOM of its investors and prospective investors is a steep one. Its valuation cap has been set by management at $20 million with a 15% discount. This is a rather high valuation cap given the stage the company is presently in. As a result, our system rated the company low when it comes to the price being offered to investors.

Market

VirZOOM’s market is significant in size but highly competitive. The current industry leader for tech-enabled exercise — Peloton — believes that the total addressable market consists of about 75 million individuals. It also involves 36,500 health clubs and boutique fitness operators. The individual count drops to 20 million for their connected fitness and digital household features when you add pricing to the mix. This makes sense for Peloton because of the high cost of their bike. One advantage VirZOOM has is that it no longer sells hardware. So, in a sense, its product could be viewed not only as a direct competitor to the content provided by Peloton, but also as complementary to Peloton’s cycles. 

Taking Peloton’s 75 million person count and applying VirZOOM’s pricing to the mix gives us a market size of between $7.50 billion and $8.96 billion. The total obtainable market, meanwhile, would be about 95 million households in all.  This implies a market opportunity of between $9.50 billion and $11.35 billion.  This does represent a small piece of the broader market. According to one source, the online virtual fitness market was worth about $6.04 billion last year. Between 2020 and 2027, that source believes the industry should grow by 33.1% per annum, taking it to $59.23 billion by the end of our forecast period. This growth is significant, but the space does appear to be crowded by players like Peloton. 

Altogether, the market opportunity is fairly small right now. The existing space is also already dominated by major players. These combined factors make VirZOOM’s place in the market rather questionable, and as a result, its market score is quite low.

Team

VirZOOM has an extensive team of experienced individuals working for it. At the top of the company are its founders: Eric Janszen and Eric Malafeew. Janszen serves as CEO at this time. At present, he is also still working as the Executive Chairman for mKues. That business focuses on providing services for brands and content creators. He also serves as an Economic Analyst at Twin Focus Capital Partners, a wealth management firm for accredited investors. Previously, he was employed as a Board member for TruTouch Technologies, which was working on a sensor aimed at detecting blood-alcohol levels. He also served as the founder and President of iTulip, Inc., an online provider of economic and financial services information. Other roles Janszen has held include serving as the EIR for Trident Capital and as Managing Director of Osborn Capital. Both of these firms were VC-backed and ultimately led to nine exits, including two IPOs and acquisitions. Most of Janszen’s experience is on the financial side of business. These strengths give him the potential to excel in that capacity within VirZOOM. 

The other co-founder of the business is Malafeew. At present, he works as the CTO of the firm. Unlike Janszen — whose experience is valuable but not domain-specific — Malafeew’s experience involves the gaming industry. Previously, he worked as the Chief Architect and Engineering Lead at Harmonix Music Systems. This gaming company has been responsible for such hits as Guitar Hero and Rock Band. Before working there, Malafeew was a Lead Engineer for MBL Research, a distributed game development studio founded by Mark Lesser. And before that, he was a Game Engineer at Kaon Interactive. All of these roles are very relevant when you consider that what makes VirZOOM unique is its gamification of the cycling experience.  

The collective experiences of VirZOOM’s founders are incredibly relevant, and their domain expertise is particularly noteworthy. Together, they appear to be a force to be reckoned with.  This has led to VirZOOM receiving a very strong score for team. 

Differentiators

VirZOOM finds itself in an odd spot in the market. In the sense that it provides content, it’s a competitor of bigger players like Peloton. However, its content is also complementary to any bike system — including Peloton’s — so long as the user in question utilizes an Oculus headset. The emphasis on gaming could make it an attractive player for investors and customers who are interested in that niche. But it’s important to keep in mind that content can be curated by anybody. If the firm can capture a large enough market, it could make a nice bolt-on acquisition for a player like Peloton. But if a competitor targets this opportunity before VirZOOM achieves a critical mass of users, it could prove problematic. VirZOOM’s partnership with Oculus reduces the risk of something like this occurring due to Oculus’ market-leading position in the virtual reality headset space. VR-based gamification combined with a strong partnership have yielded VirZOOM with a high differentiators score.

Performance

Surprisingly, the performance of VirZOOM has been mixed in recent years. From 2018 to 2019, for instance, the company’s revenue actually fell, declining from $278,234 to $219,279. Its net loss over that period widened from $2.28 million to $2.83 million. The only positive development was that operating cash outflows improved, narrowing from $1.73 million to $1.56 million. It is possible that some of this discouraging financial performance was a result of VirZOOM’s pivot away from hardware, but we were unable to confirm this. This year, monthly recurring revenue of $18,500 (through July) indicates revenue for 2020 will be about $222,000. Though cash flow will be higher than that, expenses are aiming to be around $1.75 million. These losses and cash outflows are significant for the size of the business. As you might expect, this has left the firm with a lot of debt — $836,859 of it as of year-end 2019.

Despite VirZOOM’s revenue struggles, its number of users is continuing to grow. It has more than 6,000 accounts spread across 42 countries. Though not all of these are regularly active, the number of regularly active users has increased 45% from last year. VirZOOM’s revenue and growing number of users has netted it a very high performance score.

Bearish Outlook

VirZOOM is an interesting business, but it has some challenges. The company’s high debt, significant cash outflows, and net losses are all problematic. While the company’s continued product evolution shows it is taking business seriously and keeping up with the times, the drastic changes also indicate a lack of market awareness early on. As a result, it opted to target the high-margin service space and abandon hardware entirely. Investors may be concerned with VirZOOM’s retention rates, which are not awe-inspiring. Nor is the revenue trajectory of the firm in recent years at a time when the market is growing.

Bullish Outlook

On the bullish side, VirZOOM does have some things going for it. Its subscription offering looks interesting. In addition, the games the business has developed look like they could be attractive for a large number of users. Its partnership with Oculus should also help to reduce some uncertainty. While the user base is small, its year-over-year growth rate is solid. Management, particularly the CTO, has extensive experience in this domain. The fact that so many investors are contributing capital toward this campaign is also nice to see — the more the firm raises today, the better off its financial position will be moving forward. 

Executive Summary

Right now, VirZOOM is an interesting business with a cool concept. By focusing on the VR and gaming aspect of digital fitness, it has positioned itself as complementary to many existing products and companies. The management team has strong experience. The company’s growth this year relative to last year was robust. And VirZOOM’s timing is good as the industry as a whole is growing nicely. On the other hand, there are plenty of problems and risks investors should consider — from the high valuation cap to the worrying revenue and user retention. As it is right now, VirZOOM is a Neutral Deal. 

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

Analysis written by Daniel Jones.

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VirZOOM on Wefunder
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Platform: Wefunder
Security Type: SAFE
Valuation: $20,000,000
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