This Weight Loss App Could Be Worth Billions
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We’re always suspicious of companies that don’t have venture capital (VC) backing. That’s because companies that get funded by VCs have undergone a lengthy vetting process that serves to weed out – using a battle-hardened, repeatable process – startups that don’t have the potential to hit home-runs for investors. Even with proper VC vetting, only one out of ten startups will actually undergo a liquidity event that produces the oversized returns that VCs are expected to show their investors. One VC firm with a lengthy track record of unearthing success stories is Sequoia Capital.
Over the past 47 years, Sequoia Capital has been partnering with founders who now represent more than $3.3 trillion dollars’ worth of publicly traded market cap. (To put that number in perspective, the combined market cap of all +3,300 companies on the NASDAQ is only around $10 trillion.) Between 2009 and 2017, Sequoia had 19 exits, nine of which they invested early-stage (investing earlier can mean exponentially higher returns.)
The main man over at Sequoia is a Welsh journalist turned venture capitalist, Michael Moritz, who often gets berated for speaking his mind. In January of last year, he was accused of “comparing Silicon Valley unfavorably to China” and “publicly dismissing today’s employees in Silicon Valley.” Not even a year later, the tune changed when another Sequoia investor, Doug Leone talked about how “ruthless” Chinese entrepreneurs are and that “they’re putting in a whole lot more hours.” The same publication that criticized Moritz took a step back stating “Silicon Valley’s demise may not be just as a result of increased costs of living or investors overlooking talent in other geographies. It may be because of heightened competition abroad.” Maybe those people with a demonstrated track record of investing in the world’s most successful startups – including global hot spots like China, India, and Israel – know exactly what they’re talking about. That’s why when Sequoia said one of their fastest growing companies is a weight loss app called Noom, we decided to take a closer look.
What is Noom?
Founded in 2008, New Yawk startup Noom has taken in $114.7 million in funding from names that include Samsung, Qualcomm, and of course Sequoia Capital which led a Series E funding round of $58 million that closed just days ago. Noom has spent the past ten years working with more than 45 million people to create “proprietary behavior change programs” that lead to “meaningful health outcomes and lasting behaviors.” Noom’s mobile application is able to input data – steps, blood pressure, glucose, and weight – from hundreds of medical devices that can then be used to offer personalized guidance towards achieving a healthy weight. In 2016, Noom published the world’s largest mobile weight loss study with over 30,000 participants. 70% of them lost weight.
Update 05/25/2021: Noom has raised $540 million in Series F funding to gear up for an IPO later this year or early next year with a targeted valuation of nearly $10 billion. This brings the company’s total funding to $657.3 million to date.
The Noom brand has already become well-known having been recognized by Google as the 3rd most searched diet in 2018. People who use Noom and adopt a healthy lifestyle can expect to lose 1-2 lbs per week, and 78% of them realized a sustained weight loss over 9 months with 64% of users losing more than five percent of their weight. Those success rates are tied to behavioral changes that the app encourages through monitoring food intake and providing one-on-one coaching. Since the app has been around for so long, there are loads of big data that can now be used to personalize each weight loss program.
Why Noom’s Weight Loss App Works
In today’s instant gratification society, you need to show results fast or people will grow bored. Noom starts out by estimating how much weight you can realistically lose in a reasonable amount of time based on how you answer a series of questions. The end result is a suggested plan that you can sign up for like the one seen below.
Once we decide to accept that offer and begin using the app, we would then start using the food logging app and recording exercise routines. At this point Noom would know quite a bit about our daily habits like what we eat, where we eat, and when we eat. Because we’ve paid money for this app, we’re more likely to use it as suggested. People who successfully lose weight on the platform generate more big data which can be analyzed using artificial intelligence algorithms so that the programs can be even further optimized. The humans serve to provide encouragement and personalization. This hybrid approach is detailed in a Forbes article published a few years ago which talks about how a human coach combined with the output from AI algorithms was three times more effective than just using an AI-based coach. The same article provides insights into how Noom uses psychology to motivate people.
Noom started out by trying to motivate people using gamification methods – points leaderboards, badges, etc. – but found that the most effective way to motivate someone is if you make their efforts visible for other people to see. They refer to this as an “accountability program” and it’s also a great way to keep you using the app. If you want to cancel, you don’t go to “Settings – My Account – Cancel Subscription.” You don’t get to give up that easy. In order to cancel the app, you need to contact your virtual trainer and tell them you’re a big pansy who doesn’t have the fortitude needed to continue a program you already paid for after experiencing a few minor setbacks. That’s a genius move that will only serve to increase customer retention and success rates.
If you’re looking for the best weight loss app, choose the one that the world’s top success predictors decided to throw millions of dollars at. There are plenty of other apps out there trying to use big data to provide better fitness advice or using artificial intelligence to provide personalized health advice. As of 2017, over 60 million Americans had a gym membership. If Noom can capture just 17% of these people at $199 a year (that’s the cheapest subscription that requires a yearly commitment,) then that translates to more than $2 billion in Annual Recurring Revenues (ARR). Then there’s the potential of marketing Noom’s food database – one of the best out there – to diabetics who can use it to track their daily caloric intakes.
There are competitors but they might just be too late to the game. A recent TechCrunch article quotes a Noom investor as saying “Noom is so far ahead of the competition when it comes to technology, execution and brand recognition that it will be difficult for any company to catch up.” And it looks like some of the world’s most astute fortune tellers over at Sequoia agree.
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