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Good morning! It's Thursday, December 14th. Today, we’re looking at Eight Sleep, a $500M company that sells mattress covers for over $2K!

THE FEATURE

A $500M Valuation for Selling Mattress Covers

Consumers have long regarded mattress covers as mundane bedroom essentials, which makes Eight Sleep's meteoric rise to a $500M valuation seem almost unbelievable. 

This stunning valuation is partially explained by the brand's popularity in Silicon Valley, with tech titans like Elon Musk and Mark Zuckerberg praising the product for improving their sleep. 

Let's dive in and figure out what makes Eight Sleep's mattress cover so special. 

The Road to $500M

Eight Sleep was founded in 2014 by Matteo Franceschetti and three other co-founders. Francechetti had worked as a lawyer and co-founded Global Investments but wanted to become a full-fledged entrepreneur with his own product. 

Realizing there had been no recent innovations in the bedroom to improve sleep, he worked to create a mattress cover that could monitor the sleep state and improve it through a heating and cooling system. 

Franceschetti initially sought an investment from startup accelerator Y Combinator but was rejected twice. Rather than give up, Francechetti started a crowdfunding campaign on IndieGogo and raised $100K from selling 8K pre-order units. 

Having proven consumer demand for the Eight Sleep mattress cover, Franceschetti returned to Y Combinator and was accepted. 

Since then, they've been highly sought after by investors. Following a Series C funding round in 2021, Eight Sleep has raised a total of $150M at a $500M valuation!

The Business Model

Eight Sleep's business model is similar to that of companies like Apple, Tesla, and Peloton– combining hardware sales with a subscription service. 

At the center of the business is the Pod Cover, which can heat or cool different halves of the mattress depending on user preferences. The mattress covers are priced at around $2,400, increasing and decreasing in price depending on the size of your bed. 

Eight Sleep customers who want the most tech-enhanced approach to sleep can subscribe to the $15-a-month Pro Plan. Subscribers get full access to the Eight Sleep application that unlocks the full utility of their mattress cover. 

The most important tool is the Temperature Autopilot program, which automatically changes the mattress cover temperature based on your current sleep status to assist transitions into proceeding sleep cycles. Eight Sleep's premium app also tracks your sleeping patterns, heart rate, HRV, and respiratory rate, all without using a wearable device. 

Eight Sleep has essentially locked away all the innovative uses of its product behind its subscription plan, and that's the genius of it. 

After getting customers to invest $2.4K in a mattress cover, $15/month is a relatively easy sell since it provides access to the features that make the product actually worth it.

Franceschetti's Playbook for Securing Investments

With $150M raised, Eight Sleep founder Franceschetti knows a thing or two about pitching to investors. Lucky for us, he's laid out his investment playbook at length. Here's the core takeaways: 

• Find the Right Investors: Franceschetti looks for investors who trust founders and give them the freedom to run the company as true entrepreneurs. 

• Assess What Value They Bring: Investors aren't just valuable for the cash they bring to the table. Look for investors with experience in your industry or adjacent ones that can provide invaluable input– remember, they will have skin in the game too. 

• Create a Viable Prototype: You may not have the investments to create a perfected version of your product, but if you can create a minimally viable one that demonstrates your value proposition, that's enough. 

• Show Traction: Eight Sleep showed its traction through a crowdfunding campaign that sold 8,000 pre-orders. There are other ways to show consumer demand, but crowdfunding is a common path to take. 

• Perfect Your Pitch: The pitch that sold Y Combinator on Eight Sleep involved creating a bedroom in the investment firm's offices and tangibly showing how it works. Investors want to see the value, and you may have to get creative to show it to them.

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