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Tonal announces new funding round, CEO shares 'goal of $100B in valuation with an IPO along the way'

Tonal, an at-home fitness workout, announced a new $110M round of funding on Thursday with backers like Delta-v Capital, the Amazon Alexa Fund and Mousse Partners, Stephen Curry, Paul George, Bobby Wagner and Michelle Wie. Aly Orady, Tonal CEO, joins Yahoo Finance's The First Trade to discuss.

Video Transcript

BRIAN SOZZI: Peloton rival Tonal announced today it has secured $110 million in new funding. You may have heard some of its newest backers, sports stars like Steph Curry, Paul George, and Michelle Wie. Tonal Founder and CEO Aly Orady is here to chat about the capital raised now.

Aly, big-- big raise for you guys, no doubt about it here. What was the pitch to the likes of a Steph Curry, Paul George, and Michelle Wie?

ALY ORADY: Well, for them it was-- it was different than institutional investors. Tonal's a really revolutionary piece of equipment. We're the leaders in connected strength. And for a lot of them just touching the equipment for the first time was-- was really-- what really set their minds.

Steph Curry's a great example. He actually bought the product on his own, paid full price, used a pseudonym. We didn't even know it was him. And then a year later, fell in love with the product, called us up and said he wanted to invest, really viewed it as revolutionary.

For institutional investors, it was really, you know, you have the leader in strength training, and now a sudden and permanent shift in consumer behavior around work out from home, an acceleration of a trend that was already there, and they really just knew that it was time to invest.

ALEXIS CHRISTOFOROUS: So you say a sudden and permanent shift. So you think this shift to working out from home and not necessarily at the gym is here to stay. Raising $110 million, that's a lot of money. What do you plan to do with it?

ALY ORADY: Well, it's really-- for us, it's really about accelerating our marketing, accelerating our growth, scaling our supply chain, and continuing to invest in our product. Tonal is revolutionary. We've-- we spent 3 and 1/2 years on product and technology development before we launched, filed dozens of patents. And that technology lead, those product investments are one of the reasons why we're so far ahead of the rest of the market. We intend to continue to make those investments to maintain that lead, and, of course, just scale our business, which is everything from marketing, brand awareness, and supply chain.

BRIAN SOZZI: Aly, I'm sure you've seen what-- what Peloton has come out with in recent weeks, new hardware, but also even upgraded software. What's the next level iteration of your product?

ALY ORADY: Well, we built our-- our system built on intelligence. Our platform is based on intelligence from the ground up. We use AI in every element of our system, the way our workouts are presented, our weight recommendation engines that choose how much weight you should-- you should lift and adjust you in real time, the pacing of the workouts.

And so for us our investments and our lead, a lot of that is really in building out smarter and smarter AI, more and more personalization. You know, when you want to strength train, you hire a personal trainer, and that involves a lot of personalization. And so it's an area where we-- we really are-- had to become the leaders and the innovators when it comes to not just connected fitness, but truly intelligent fitness.

BRIAN SOZZI: Aly, I imagine you're now approaching a crossroads as a founder, either go the route of Mirror which sold out to Lululemon for $500, or you can eventually become a public company and potentially have a valuation like Peloton at $24 billion. What are you inclined to do? You have raised $200 million so far.

ALY ORADY: We're intending to go all the way. We're building-- we're building our business for scale. You know, our internal goal, our audacious goal is $100 billion valuation. That's what we'd eventually like to get to, with, of course, an IPO along the way.

But you'll see-- in the announcement we made, you'll see things like we-- you know, we recently announced we launched clinical trials with the Mayo Clinic in order to do some research around using-- using Tonal in physical therapy and rehab, clinical types of environments. Those aren't the types of things that you do when you're-- you're planning on selling. Those are the types of things you do when you're trying to build a really, really large and sustainable business for decades to come. And that's really how we think about it.

ALEXIS CHRISTOFOROUS: Aly, I can see Peloton being a competitor, Mirror being a competitor. Did you ever think you'd have to deal with a deep-pocketed tech company like Apple? I mean, they came out this week with the new Apple watch, unveiling the first fitness experience built into that watch. How does that factor into your strategy? And might we even see you partner with Apple on something like this?

ALY ORADY: Yeah, we do welcome their entry into the space. The way we see it is this is just further-- further validation, it's an affirmation of the shift to work out from home. It's something that's, like I said, here to stay. When we look at the market, we really are thinking about modalities and form factors. People need to do cardio. They also need to strength train.

You know, we have certain vendors out there that are really, really great at cardio. Others are great at strength training. I think-- I think this puts Apple in a position where the-- the I need to work out with something in my pocket, that form factor, is something where I think they're going to do-- they're going to do very, very well. But you can't get the same type of workout you can get with a serious piece of fitness equipment like Tonal. It's the most incredible piece of fitness equipment ever created, and for a certain set of users, they need those types of workouts, and you can't achieve it with just bodyweight.

BRIAN SOZZI: Aly, before I let you go, early in the week I spoke to Peloton founder John Foley, and I asked him if he was interested in making acquisitions and building out a portfolio. They're sitting on close to $2 billion in cash. It's a lot of money. They don't have a lot of debt. And he frankly told me there are not a lot of attractive fitness companies out there digitally connected, and his response caught me by surprise. How would you respond to that?

ALY ORADY: Well, I would say that we, of course, have our own philosophies. You know, we started with a strength-first platform. They started with-- with a studio-- they went after studio fitness as kind of their original platform, and they're building on top of that.

We started with strength training, and I think we're just approaching the market with very, very different philosophies. You know, this is-- you know, this is a $60 billion-plus TAM. I think John said he was targeting 100 million users. When you look at a market that large, there's room for multiple players, and they certainly will come at it from very, very different angles.