Sweat Equity. Jason Kelly

to 1964) helped kicked it off, becoming the first generation to favor sweating over smoking, opting for Jane Fonda workouts and Arnold Schwarzenegger movies. And while they held onto those habits into their retirement years, their influence on their children, and how those kids have lived those lessons, is what really accelerated the fitness boom. As Generation X came into the workforce, fitness manifested itself largely in the pursuit of slightly more extreme activities. A chunk of Generation X (born roughly between 1965 and 1979) took up running and cycling, pushing endurance sports from the fringe into popular culture. Marathons and triathlons especially have become a borderline-cliché badge of honor for forty- and fiftysomethings who came into adulthood in the 1990s.

      Those generations especially helped propel running, which saw a surge in the past twenty years that moved running, notably in long-distance races, from the fringe to the mainstream. The number of people who finished races in 1990 quadrupled to more than 19 million in 2013. During that same period, the number of women increased more than nine-fold, to the point where there were about 30 percent more women finishers than men. Back in 1990, men had nearly a three-to-one advantage.2

      What Baby Boomers created and Generation X accelerated, Millennials – especially Millennial women – have codified into their everyday work and social lives. This demographic, born in the two decades between 1980 and 2000, have pushed fitness into a defining personal characteristic, both through activities like running and especially in their enthusiasm for boutique fitness. And that’s where it gets really interesting for anyone who cares about business and economics. The massive social shift toward fitness has created a multifaceted, global, economic juggernaut, with entrepreneurs, investors, and the world’s biggest companies scrambling for a piece of the growing market worth hundreds of billions of dollars.

      As both observer and participant (I’ve run more than a dozen marathons and numerous other races, and taken the odd yoga or fitness class along the way), I went in search of the people defining this new economy. I found entrepreneurs and investors who manage to make a living – and in some cases, millions or even billions of dollars – feeding our obsessions with races, classes, clothes, and equipment.

      This book is a snapshot of sorts, a glimpse inside an ever-changing series of overlapping businesses. I emphasize “ever-changing” because some of these companies may flame out or slowly fade. Kapoor says she’s constantly on the lookout for what’s real and what’s fleeting, what will play for a few months among the maniacally fit cognoscenti in certain New York or Los Angeles neighborhoods, and what will translate into an actual business that can take root in places between the coasts, transcend a fad status, and be a sustainable activity for employees and consumers, and profitable.

      Kapoor’s among those with a deep conviction that while the players are dynamic, the underlying fitness economy is solid, and growing. There’s a lot of money in sweat.

      CHAPTER 1

      Money Moves

      Despite all the evidence for this new economy of mind and body – the races, the studios, the endless conversations at work and on weekends about someone’s latest and greatest workout or personal best triathlon – I wasn’t convinced it was real. Until I found the bankers.

      Bankers and journalists, sometimes much to our mutual chagrin, pursue our jobs by similar means: We follow the money. And it’s clear that Aarti Kapoor, and her increasing number of competitors, are finding lots of it to chase. The money’s seemingly everywhere. It starts by leaving our wallets as disposable income, directed at fitness, and our bodies, as never before. We’re spending billions on race entries, memberships, and class fees, plus all the stuff it takes to get us outfitted.

      And it’s not just our own dollars. Consumers’ money is often augmented, directly and indirectly, by employers, many of whom see a healthier workforce as happier, more productive, and cheaper. Those health initiatives often come from highly placed, high-octane fitness nuts who made it to the corner office, and want to push health down through the ranks.

      What we’re buying has also changed. Technology, as always, acts as jet fuel for the most radical changes in how we live, work, and spend time and money. Technology is pushing our homes and offices ever closer to a Jetsons-like existence. Software programs, gadgets, and an Internet-connected world have all changed our perspective on our minds and bodies. We have unprecedented access to data about ourselves, our habits, and our lives.

      Technology plays a dual role, connecting and alienating us at the same time. On the one hand, it enables us to run faster and work out smarter, with new machines and techniques and means to measure every calorie, watt, and step. It allows us to share our achievements in real time and congratulate and encourage each other. On the other hand, our broad technology addiction is pushing us to seek meaning away from the growing din of the information age. We’re drawn in that search for meaning to what the sociologist Ray Oldenburg called “third places” – the first two being home and work – where we socialize and connect. That reaction is adding another dimension to this economy and an opportunity – one that’s based on physical, not virtual, space.

      All of these colliding elements draw money, and, in turn, the people in the business of moving money around – venture capital and private equity investors eager to capitalize on growth industries, entrepreneurs with a big idea, and savvy executives looking to reinvent their companies. From food purveyors to workout equipment manufacturers to fitness centers and race series, smart money is moving in. Now some of those investors are starting to reap financial rewards as companies like Lululemon, Fitbit, SoulCycle, and Mind Body pursue initial public offerings, a key milestone in creating an enduring enterprise – enterprises supported by consumers and businesses that, when successful, ultimately reward their creators and investors.

      And where there’s money to be made, there will be investment bankers – the well-educated, well-heeled set who make their living connecting buyers and sellers. Yet given the relatively early nature of this economy, those bankers aren’t legion. They’re tucked into smaller investment banks, firms outside of Wall Street’s bulge-bracket banks like Goldman Sachs, Morgan Stanley, and JPMorgan Chase.

      Piper Jaffray’s Brian Smith is one of them. He grew up in Northern California, and, armed with an economics degree from Claremont McKenna, he went to work for Bain & Co., the management consulting firm that a few decades ago begat private equity stalwart Bain Capital. After two years at Bain, he got an offer from a shop in Connecticut called North Castle Partners, which had a distinct focus on sports, health, and wellness. “They were doing some interesting investing,” he says. “They were investing in brands that I loved.” He was on staff there when the PE firm owned Equinox, the high-end gym operator.

      After a stint in the nutritional supplements industry, he reunited with a North Castle partner, Brent Knudsen, who was opening a merchant bank – a type of firm that both arranges deals and raises money from investors for those transactions. It was 2006, and while fitness was coming on strong, it lacked anything cohesive in terms of financial advice. “There was no banker, no one working this segment of the market,” Smith says.

      The new firm, Partnership Capital Growth, set up shop in San Francisco, drawn to the city’s long-standing commitment to a lifestyle steeped in health-consciousness. Smith, now married to a California girl, was back in his home state and the firm worked with companies like Anytime Fitness, KIND Healthy Snacks, and Muscle Milk, and managed $200 million in assets. At the end of 2013, Partnership Capital linked up with Piper Jaffray, creating a relationship with the 120-year-old Minneapolis-based bank. There, Smith has worked on the sale of Pure Barre to Catterton and the purchase of California Family Fitness by Perpetual Capital, as well as an investment in Orangetheory Fitness.

      Down the coast in Los Angeles, Brian Wood at Imperial Capital is using a similar playbook. He’s been in the investment banking business longer than Kapoor and Smith, graduating from Notre Dame in the mid-1990s and earning an MBA from Georgetown at the start of his banking career.

      His first job out of business school took him to Houston and a then- exciting opportunity at Enron. When the company imploded amid an accounting scandal a year and a half after he arrived, Wood headed back west and took a job in the investment banking group of The Seidler Companies,

2

Running Event Finishers, 1990–2013. Running USA, www.runningusa.org/statistics.