Foley and two other ex-Peloton cofounders are launching Ernesta, a direct-to-consumer custom-cut rug business, with $25 million from Addition and True Ventures and a team of former managers from their former company.
Peloton’s former CEO, John Foley, is launching a new startup—and this time it’s not a bike he wants to sell you—it’s a custom-cut rug.
Foley is launching Ernesta, a direct-to-consumer custom rug business, alongside two cofounders from his Peloton days, Hisao Kushi and Yong Feng. Ernesta is coming out of the gate with $25 million in venture capital funding and a founding team made up entirely of ex-Peloton managers.
Rugs might seem an unlikely next product for Foley, who cofounded Peloton in 2012 and famously took it public in 2019, as its exercise bikes and peppy streamed virtual classes faced massive demand during the pandemic—then stepped down as growth slowed and its stock tumbled. But in an exclusive interview, Foley told Forbes he’d been thinking about a company like Ernesta for “the better part of 20 or 25 years.”
While still CEO of Peloton, no friends took him up on his offers to help fund such a business, Foley said. So after resigning as CEO of the exercise equipment company in February and as executive chairman in September, Foley’s been fixated on getting Ernesta off the ground. “Trying to sit on the beach for a week, I was thinking about it, because I couldn’t help myself,” Foley said. “I am hungry, I am humbled, and I have time on my hands to do this company myself.”
Ernesta’s hoping to slot into the market in between home decor retailers and custom rug sellers at the high end. The company plans to sell 50 different styles of machine-made, custom-cut rugs in five colors each, Foley said, at prices closer to retailers like CB2 and West Elm: $8 to $40 per square foot. (For comparison, a basic 5-by-8-foot rug at West Elm listed at $349 would cost $8.73 per square foot.) Ernesta will encourage shoppers to engage on social media, Foley said, for use cases like posting sample options to an Instagram story. The company may also reward designers who engage with Ernesta to help spotlight certain styles and curate offerings, he added.
“Rugs might seem like a potentially uninteresting category, but there’s probably at least one in your house.”
From its founding team to its investors, however, Ernesta does represent a Peloton reunion. Addition, which led the $25 million Series A funding round, is led by Lee Fixel, a Midas List investor who was an early backer and board director at Peloton while an investor at Tiger Global in 2014. (In a 2020 Forbes profile of Fixel, Foley claimed that if he had money to invest beyond Peloton stock, he’d invest it in Fixel’s fund.) True Ventures, which also wrote a sizable check in the round, first backed Peloton in 2015.
And in addition to Kushi, who worked with Foley at IAC properties Pronto.com and Evite.com, and Feng, two Peloton cofounders who are launching Ernesta with Foley, the company counts five former Peloton managers as founding team members: chief marketing officer Alan Smith, chief operating officer Jamie Beck, vice president of people and business operations Kristy Foss, head of design Eric Hwang and vice president of product Marissa Vivori.
“With Peloton, we didn’t know if it would be a success or not, but I knew that working with good people was a valuable way to spend my time,” Kushi told Forbes. “Rugs might seem like a potentially uninteresting category, but there’s probably at least one in your house. They’re ubiquitous, and people don’t spend a lot of time worrying about them.”
For investors, a bet on Ernesta—named as a “feminine extension” of Ernest, for Ernest Hemingway, one of Foley’s favorite writers, with a nod, he said, to Bob Marley, too (“Nesta” was the songwriter’s middle name)—is as much a bet on Foley and his hand-picked crew. For a venture firm, writing an early check to a founder who built a household name and took it public is typically a no-brainer move. And while Peloton has had well-publicized challenges such as store closures and layoffs since, Foley’s departure lacked the drama of other high-profile CEO falls like WeWork’s Adam Neumann, who was still able to raise $350 million in funding for a next act with serious question marks.
By focusing on community and culture around its rug designs and the buying experience, Foley said he hoped to recapture some of what helped Peloton break out as an industry-leading brand. But his next act will follow a different playbook in another key aspect: Ernesta won’t attempt to vertically integrate its supply chain. Instead, the company will work with business-to-business partners in Georgia to source rolls of carpet in bulk, then cut them to order in a New Jersey warehouse to ship either directly or through logistics partners. By eschewing storefronts and sourcing within the U.S., Foley claimed Ernesta could reach 50% gross margins—even on its first orders when the company starts selling to customers in spring 2023.
Foley also said he planned to run Ernesta more like a private equity-backed business, not one that used considerable venture and growth-equity investment to scale at all costs. Home decor, and rugs specifically, are not winner-take-all markets, Foley said, adding that the company’s research estimated that more than 100 million rugs are sold in the U.S. each year; a Custom Market Insights report from July estimated that U.S. residential rug sales would reach $18 billion this year, and $25 billion by 2030. To be successful, Ernesta needs to capture only a fraction of such volume, Foley said.
“I want to show discipline, I want to show profitability and have a real focus on unit economics,” Foley said. “I want to control my own destiny.”
A bruised (in ego and personal finances) entrepreneur of Foley’s experience might make for a more motivated one, investors hope. “I love the fact that he’s got a chip on his shoulder,” said True Ventures cofounder Phil Black. “It makes his next company more interesting to us as an investor.”
Touring Ernesta’s mostly empty Chelsea office in October—leased recently enough that Foley had to point to the spot where one of his new rugs would go—Foley admitted that his new area of focus might come as a shock to some. “When we went into the fitness equipment category ten years ago, people were scratching their heads,” he said. “We believe that ten years from now, people will say, ‘Well, of course, this is one of the great design brands in the world.’”