Welcome back to E&O Mondays, the free newsletter from Exits & Outcomes that features health tech puzzles, M&A flashbacks, new and under-the-radar funding news, paid content teasers, and other digital health odds and ends.
In this issue:
- Since 2022 is shaping up to be a big one for M&A, E&O took a look back at an early health tech acquisition…
- And… there’s a brand new kind of puzzle this week: A crossword! More on that below.
- But first: If this was forwarded your way, why not sign up as a paying subscriber to E&O by clicking right here…
M&A Rewind: RunKeeper’s Health Graph ambitions and what really led up to the $85M ASICS deal
I agree with the many health tech market watchers who have predicted that 2022 will be a record year for M&A. Every once in a while I’m going to dig into a past health tech M&A deal for a “where are they now” type featurette, which will hopefully include some hindsight-insight on the deals themselves.
First up is a look back at the acquisition of the popular running app, RunKeeper, which Japanese sneaker company ASICS’ acquired for about $85 million in 2016. What’s interesting about RunKeeper is that for years it told potential investors (and the media — read: me) that it was not just a running app company. It was also building a “Health Graph.”
Here’s the vision for Health Graph from way back in June 2011:
“Imagine a system that can identify correlations between a user’s eating habits, workout schedule, social interactions and more, to deliver an ecosystem of health and fitness apps, websites, and sensor devices that really work, based on a user’s own historical health and fitness data. The Health Graph has the potential to completely alter the health and fitness landscape.”
One of the fascinating things about this vision is the company’s timing. RunKeeper floated Health Graph in its corporate blog just a few weeks before Google announced that it would pull the plug on its untethered personal health record (PHR) offerings, Google Health. (It wasn’t until 2014 that Apple announced its plans for Health Kit, which is probably the closest thing to a successful version of RunKeeper’s Health Graph.) At the time RunKeeper’s running app was growing quickly: It had racked up 6 million users when it made its Health Graph announcement. That was up from 3 million in November 2010. Wired Magazine proclaimed that its Health Graph ambitions could transform RunKeeper into the “Facebook of Fitness.”
And then, toward the end of 2011, RunKeeper doubled down on its vision for Health Graph by announcing a $10 million Series B led by Spark Capital with help from Steve Case’s Revolution Ventures and existing investor OATV. The company said the money was to build out the Health Graph. Here’s RunKeeper founder and then-CEO Jason Jacobs at the time:
“The additional capital will enable us to grow our team (see our job openings here), improve our products, and generally move faster as we grow RunKeeper and the Health Graph into all that they can be. The health/fitness sensor ecosystem has made major strides in the last few years since we started the company. It’s going to come even further in the next few years, as new sensors are appearing almost every week. The timing is right for a consumer health platform to emerge to make sense of all of this health information across categories. We’re excited to keep working towards making RunKeeper that platform.”
What was really going on at RunKeeper back in 2011
In a recent podcast interview, here’s how Jacobs described his team’s state of mind just before they came up with the Health Graph concept and raised their Series B:
“[During] the first phase of Runkeeper, we were essentially unfundable… and so we bootstrapped. We were one of the first apps in the AppStore. We charged for the app initially and that wasn’t big revenue. It was like seed financing… And then we were having increasing success. We were in our element. We weren’t answering to anyone. We were doing it our way. And then started thinking about raising capital, not necessarily because we had some clear, long vision and, and we were cutting to the bone not pursuing it, but because, as the category was getting more crowded, we started worrying that… you know, we had a leadership position. We started worrying that that leadership position was going to atrophy.”
“The wrong reason for raising money”
RunKeeper wanted to raise money as a “signal” to the competition. To “make a statement” and to “box people out” and “discourage others from coming in,” Jacobs said.
“Which, to be honest, is the wrong reason to be raising money.”
“And then in order to get that money, we had to tell a big story. And there was a perception that running was too small as an addressable market. So we felt like we needed to tell a story beyond running, which again, like in hindsight, that is not a good reason to go beyond running. To go beyond running, you should do it because you believe that you can build something more impactful. Something you’re more excited about. A chance to have a bigger impact. A chance to create more value. A natural product extension… ”
“It wasn’t those things. It was like, ‘Hey, we need to tell a big story.’ So we started out telling a broader fitness story, but by the time we pulled together the deck to go raise the money, it was a health story: Aggregating the world’s health information. That had nothing to do with building a running app and community.”
Ironically, fundraising led to atrophy anyway
Jacobs said that they raised the money on the vision for Health Graph but also on the strength of their success in running so far. However, by the time they had secured the funding, which took somewhere between six months and 10 months, RunKeeper had taken its eye off of its core running app product.
“And our position was starting to atrophy. So it was almost like self-fulfilling. We were worried about atrophy so we started thinking bigger, and, therefore, it atrophied. If we were just laser-focused in running, maybe it would’ve been a smaller adjustable market, but we could have fricking dominated that market! Right. And those were the two choices, right? … Either you want a big TAM or you want a small TAM and a way to 10x your share of that TAM.”
Years of board-company tension with little growth
Following the funding, RunKeeper’s board was constantly pulling it toward its bigger vision for the Health Graph, because that’s what they signed up to fund. Meanwhile, RunKeeper’s team wanted to focus on making the existing running app and community great. And that dynamic existed for the company for years.
“As a first-time entrepreneur, I didn’t rip the bandaid and have the hard discussion and get everybody calibrated. We kind of lived in that mode for a few years, which was like quicksand. It got the company to a pretty unhealthy place where we were still growing, but growth had slowed a bit. It wasn’t lighting the world on fire. And we had been profitable before the round, but we deprioritized revenue. So it was like the worst case because we had a little revenue and flat [growth], which is worse than having no revenue.”
Refocus on the core and get help
RunKeeper was at a crossroads. It ended up doing an inside round of financing with existing investors, cut a third of its team, and hired a “real number two for the first time,” Jacobs said.
“Which I desperately needed, because, in hindsight, I’m not the best operational CEO. I’m more like the visionary madman, storytelling, right, inspiration. But you need someone to [do] org charts, process, budgets, KPIs, right? That’s just not what I’m good at. And that really changed the trajectory of the company. We got focused. We got healthy. We got profitable. We got back to our running roots, which felt really great.”
The acquisition: ASICS buys RunKeeper for $85 million
“Once we had permission to own who we were, then everything felt right. And we got our narrative back. We got our mojo. A year later we were acquired by a running company to be the digital consumer IT across their whole company, which was amazing.”
At the time of the acquisition in March 2016, RunKeeper had grown its user base to 33 million.
The aftermath: Burnout and moving on
Jacobs said that by the time the acquisition happened he was “cooked”.
“It had been such a long ride of like prolonged wartime. And if that acquisition hadn’t happened, although we had a viable ongoing path, I don’t think I had gas left in the tank to stick with it personally. And it did happen. And not only did it happen, but it happened in a way where the investors had probably written us off. I would’ve if I were them, but we ended up landing a plane and making them all money. And then having a great outcome for the team.”
Jacobs was the biggest shareholder still at the time of the acquisition:
“For me, it was life-changing personally, just financially as the largest shareholder. And honestly, after I had time to rest and recover, that just messed with me because… I wasn’t proud. I wasn’t celebratory. I felt survivor guilt. I was like, ‘I’m not worthy. I don’t deserve this. This company should have been running to the ground. And I got lucky.’ That’s how I felt. With the passage of time, I’ve gotten prouder about it.”
Jacobs stuck around at ASICS for about 16 months. He said he was making more than he ever had in his life and was seeing the world thanks to many trips to Japan and elsewhere, but — here’s a familiar story to most entrepreneurs — he didn’t feel like he belonged in a large (public) company with many layers of bureaucracy:
“By the time I left, the integration was done, succession was done and I basically went to them and said: ‘Look, you may put the founder on a pedestal or [think of me as] the spirit of the company, but I have to be honest with you: The place is running great and I’m not doing anything. You’re not going to be a high-performing culture for as long as I’m here because the tone gets set from the top. And I’m not setting a good example because I don’t have anything to do because I’ve delegated.’ And I said, I’d stay as long as they wanted me to. And I did. I stayed actually for quite a while after that to see through succession. But it just obviously wasn’t a long-term fit and I was intellectually honest about that and transparent and direct about that. And, and those relationships are intact.”
Next ventures: Live TV startup and climate venture fund
After leaving ASICS, Jacobs moved out of fitness (and healthcare). After taking close to a year off, he went on to start a live TV startup called Two Way Labs that seemed to take inspiration from the once-popular TriviaHQ app. Jacobs found it easy to raise money from investors for Two Way. After seven months of tinkering, he returned almost every dollar to investors and decided to pursue something more important and less vapid. Something with purpose.
Today Jacobs hosts a popular climate change podcast called My Climate Journey. He’s built a community and venture fund around the podcast. One of the recent episodes dug into his career — that’s where the quotes above are from — hear it in full right here.
Do you have a past digital health acquisition that you’d like E&O to dig into? Hit reply and let me know.
New: Digital Health M&A Crossword
This week E&O has put together a new puzzle: a crossword.
Theme: This week the theme is Digital Health M&A.
Hints: Most of the deals and clues are about M&A from 2021 and 2022, but I included a number of older deals too for those with longer memories.
Buttons: If you hit the “Solution” button, then every answer will fill into the puzzle. If you hit “Reveal” then the full word that is highlighted will reveal itself. “Revert” will clear everything and start the crossword over, which is helpful if you accidentally hit “Solution.”
Hit reply to this email and let me know what you think? Play the crossword right here!