Tonal Could See Valuation Fall 90% As Post-Pandemic Market Takes Toll

The smart home gym company could agree to a funding round that values it at $200 to $300 million, a far cry from the $1.6 billion valuation Tonal was looking at two years ago.

Tonal’s strategy to raise the price of its equipment and membership fees may not be going according to plan.

The smart home gym company is reportedly considering raising additional money to stay afloat, but the new investment would value Tonal at a sliver of the $1.6 billion it was worth at its height. 

According to The Information, Tonal is in talks to close a $125 million funding round that would value the company at between $200 and $300 million. That valuation is nearly 90% less than the $1.6 billion Tonal was pegged at two years ago. 

Tonal, which makes an internet-connected strength training system and has been dubbed “the Peloton of weightlifting,” capitalized on the at-home fitness craze that emerged during the pandemic as people were locked out of brick-and-mortar gyms. 

The San Francisco-based company’s sales surged 800 percent from December 2019 to December 2020, with the Amazon Alexa Fund becoming a prominent investor and a slew of athletes including Serena Williams and LeBron James putting money in as celebrity backers. 

Tonal achieved unicorn status in March 2021, after a new round of funding injected another $250 million into the company’s coffers and valued it at $1.6 billion. At that time, an IPO seemed imminent, and the smart home gym company was hiring a spate of new executives. 

Since then, though, Tonal, like other connected fitness companies, has struggled readjusting to the post-pandemic environment. Fitness enthusiasts have returned in large numbers to in-person workouts, often leaving behind their home-gym set-up. 

Peloton, a giant in the connected fitness space, has been dealing with its own financial woes. Lululemon announced it would be pivoting away from its Mirror, a piece of smart gym equipment the athleisure company paid $500 million for in 2020 when the pandemic was in full swing.

Tonal’s situation, though, might be more extreme. 

Over the summer, the smart home gym company announced it was laying off 35% of its workforce and would be shutting down its Los Angeles studio. The company’s founder and CEO Aly Orady called it “a challenging time for Tonal.”

“I’m asking for you to stick with us while we figure out the next steps,” Orady said in August. 

In January, Tonal announced a second wave of layoffs. The company also said it would be raising the price of its signature training device from $3,4995 to $3,995 and increasing its membership price from $49 to $59.95 per month.

Bloomberg reported in February that Tonal was engaged in funding discussions that would have valued the company at $500 million or less. Tonal also reportedly discussed a potential acquisition with several companies, including Peloton, but nothing materialized.

For Tonal, that $500 million valuation figure may already be a thing of the past. 

The Information reports that private equity firm L Catterton is leading talks on a potential $125 million round that would value Tonal at just $200-$300 million. Notably, the deal would also include “cram-down” financing, a mechanism where existing investors from previous rounds see their stakes dramatically reduced and where some smaller investors could find themselves cut out of the deal altogether. 

Cram-down deals are generally considered undesirable in VC circles, and are often accepted only in instances where a company needs a cash injection to continue operating.

If Tonal is actually considering such a deal, it would speak to the direness of the smart home gym company’s financial situation.