Inside Eight Sleep | Using AI to Sleep Better | CEO Matteo Franceschetti

22:02Yeah. I mean, it's like pretty quick turnaround.

22:06Turner Novak:I guess, what else are you guys cooking in terms of product roadmap over the next couple months, couple years, decade? How do you just think about what kind of opportunities you have? We think always in two buckets. One, there is hardware, and we are working on a lot of new products that will come out fairly soon. I'm really excited. So we'll keep doubling down on sleep enhancement. that that is our bread and butter, but with more functionalities. So we spoke about temperature, but another feature we have is we can raise your head if you're snoring and you will stop snoring. So we sell your bangs that goes underneath the bed.

22:44And as we detect snoring, we immediately raise your head and that will mitigate the snoring. And a lot of our customers absolutely love that feature. So you should imagine more things that we will control with the sleep butler, the sleep agent. you can think of light and noise and air quality and oxygen everything that we can optimize while you're asleep will do it this is on the other side on the software side we have an internal data already of a new page where we really maximize the power of ai and so this sleep agent will have its own page and it will be able to share in real time insights that change during the day based on the data that we collect.

23:27Instead of just giving you a wall with, I don't know, 20, 30 metrics, which we have in the sleep report, there will be this butler that will be able to report to you only what matters. What happened during the night is there is a certain trend, a summary of the night, and also certain recommended behaviors or changes that the agent can do to your bed for the following night to maximize your sleep.

23:51Turner Novak:Interesting. And I like that you call it a butler and not like an AI agent because, I don't know, it just makes it a little bit more human, makes it a little bit more like easy to identify with as a consumer. Yeah, thank you. And so I guess I want to ask you kind of going back to the earlier days of the company, but also I think personally, are you originally from Italy? Like, did you grow up in Italy? Yeah, born and raised in Italy. I moved here just 14 years ago, Matt. Oh, wow. Okay. I am very like not planned, but I've actually invested in two companies with one of them is actually based in Milan, Italian founders.

24:32Turner Novak:And then one, she's like half Italian, half Venezuelan and is in San Francisco. But I never thought I'd be investing in a bunch of Italian founders. But I guess there's actually a lot. And they I mean, they seem to be pretty good. All the ones I've met are pretty they're crushing it. So thank you. the college in Europe I mean the top 1 % in Europe is incredible as good as the US it's obviously much harder there I did a startup there oh really? yeah but it's very hard to raise money so we had to be profitable since from the beginning and that is how we made it happen otherwise it would have been impossible for us and so the VC fundraising landscape is much more difficult and that is why the ones that they make it, particularly if they remain in Italy, they are really world class because it was so impossible, so hard for them that if they made it happen, it's just because they are insanely good.

25:28Yeah.

25:29Turner Novak:Have you seen that one account on Twitter? It's called Compliant VC and it's this like parody account of a VC in Europe and he just tweets about how European startups are way better than San Francisco startups because in Europe, they support the government and they follow regulations and they help us increase tax revenue and stuff. And he'll make a joke about how like, wow, I just met a founder building in Berlin. I can't wait to spend six months doing my diligence and then a three-month regulatory review. And then in nine months, when I wire them the money, they're going to get ready to build or something.

26:06Turner Novak:It's just extreme, over the top. It's kind of like that over there. It's kind of not an exaggeration at the same time. Yeah, everything, all the procedure. I used to be a lawyer, so I understand the legal landscape. And even just incorporating a company, first, it's fairly expensive. It's probably in the$5 ,000 at least. And then it's fairly slow. You need to go to a notary. There are a lot of formalities that you need to follow that here don't exist. Like everything in life, there are good and there is the positive and the negative side of the coin. Yeah, I think we can keep moving on past this, but I think one crazy story someone told me, I think it's in Germany.

26:50Turner Novak:In order to close a funding round, you have to have somebody like a notary actually read every page of the documents out loud to everyone who signed or something like that. And it takes like a day. And you just sit there listening and read them out loud. There's got to be a better way. That's just a little bit ridiculous. hopefully we're able to figure out we need like DocuSign for European you know figuring out how to get their doc signed faster so so then was there like a certain point that when you decided okay I think you said you sold your first company in Italy and then did you move to San Francisco thinking I want to I want to go to the U.S.

27:30Turner Novak:and build a startup or how did that all kind of kind of play out so we saw that company that it was in solar and renewable energy then I moved to New York and we did something extremely similar here in the US. And then all the assets were acquired by Panasonic or a company owned by Panasonic. And then during that time, I started being an angel investor. And so I started being connected with people in tech. And after that exit is when I came up with the idea of Eight Sleep together with my co-founders. And I think there's like probably building this thing and getting the first kind of prototypes out was probably a challenge, I'm assuming.

28:15Turner Novak:Had you done anything like that before? Like, had you ever built a hardware product? No. And I think the biggest challenge was not even the prototype because Max, my co-founder and CTO, he's a hacker and he was able to build it for the past. I think we lacked the full understanding of how complicated it is to go from a basic prototype to something that you can really manufacture at scale. And there is where we were really blind. And so we built the first prototype. It was working and it was not cool. We were able to raise a bit of money from family and friends. We do a crowdfunding campaign. I think at the time it was the 16th or 17th largest in the world.

28:58I was told they 1 ,000 pre-orders. we go through YC but then manufacturing is not happening and I had to move to China so I go to my wife who is actually one of the co-founders and I say manufacturing is not happening I have to move to China and she says when do you go and I say tomorrow and she said when do you come back once I have fixed it four months later but I fixed it and so the people we hired back then are still people we have with us today but consumer hardware where it's really, really hard, particularly in the early days, because shit happens, and you end up burning more money than what you expected.

29:40Having good unit economics is really hard. Having repeated purchases is really hard. And the speed of iteration, particularly on hardware, is extremely difficult.

29:50Turner Novak:Yeah, it's really slow. If you miss one generation of the product, you probably need to wait another 12 months if you're really fast. and so that means you need to survive for the 12 months and so the first probably three four years they were the toughest and then as things now really started taking off particularly with the our technology things were incredible the key thing in consumer hardware you really need to have product market fit or you're not gonna make it if people love your product then you have the chances to make it. But if it's nice to have, then you're in trouble. So you really have to build and create a new thing, like a new product that people truly love.

30:35Turner Novak:But it's probably difficult because you can't just go vibe code an app or whatever and like, oh, it looks like people are using this. You actually have to go and build this thing. How do you know what to build and what to do? And I step back for a second and then I answer, which in the early days is obviously a disadvantage because you're slower and it's more risky. But if you really cross the cusp, at that point you have an incredible mode and much more defense stability. So once you reach our stage, you're in a better position because you already went to a pain that very few people can overcome.

31:13Then we started with the idea of a cover that was just tracking your sleep. and then as I was doing customer discovery and talking to people about the product, everyone said, look, that is cool, but does it cool? And my partner wants it warm, I want it cold, does it do that? And literally 100 % of the people I was talking to, they were asking for that. And so after we shipped the 8 ,000 units in pre-orders, we were able to raise money from Kostla Ventures with Kithra Boys and Vinod. because they were bullish on the idea. And that is when we built the pod, which is our current technology. And it went from zero to multiple hundreds of millions in a matter of 40 years, five years.

31:59Turner Novak:Interesting. So I guess it might be interesting to kind of talk about the fundraising journey because I think a lot of founders building consumer hardware like this, they probably run into a lot of the things that you run into. How did you raise money for this? It sounds like initially was the first round. It was like people that you knew really well. and then it sounds like you did the crowdfunding round after that yeah I would say particularly the first three rounds they were really hard so first we had a family and friends, it was probably a million then we got rejected by way, see, twice but the third time we got in and after demo day we raised six million in a day And that was probably the easiest time to raise in the history of the company.

32:49Because YC, hardware was still very hot. There were investors from all over the world. So it was the right time. Then what happens is that investors start to realize, because there it was immediately after Nest got acquired by Google. And so there was a hype around hardware. A year later, everyone hated hardware. Because a lot of companies, they were in trouble. crowdfunding was not working a lot of companies sold i don't know six seven million on crowdfunding and they were going bust and so investors didn't want to touch consumer hardware particularly there was no subscription which we have the time we were able to do a a small a then we did a b or a1 whatever it was the name convincing causal adventures and there you is just because if and be not, they have always been very bullish on sleep.

33:44And so they knew there would be a company that could dominate a trillion dollar industry. It was just a matter of finding the right funders. So they gave us the money and I think we raised around$9 million. Then the next round was funders fund.

34:02But it was never easy because then we had Valor Equity Partners, first investor in Tesla and then recently we raised$100 million. So overall we raised, I think somewhere between 250 and 300 million, that range. But each round was very difficult. It's not that we had an insane amount of people that were begging to invest. But where we were lucky is that at the end of the day, the people that invested were always some of the best. And the reason was that it was easier for me to convince them that we were the right team than convincing them there would be a massive company in sleep. All these people, right, Keith, Vinod, Trey Stevens, who's the founder of Unreal, Antonio Brasquez, first born member of Tesla, and one of the closest people to Trilog.

34:48I didn't have to convince them that there will be a trillion dollar company in sleep. I just had to convince them that we could beat that company because we are going to work hard and we are the right people. While I started with a lot of other people, it was much harder because they had to be convinced about the business opportunity in general. And so we ended up with some of the best investors in Silicon Valley, if not the best, because of this unique angle.

35:20Turner Novak:So it's like a trick for fundraising. It's just figure out the people who actually believe what you're doing. And that's like half the battle. Because I mean, I'll have conversations with friends and they'll say, what do you think about that eight sleep company? It's just a mattress. Like there's no way that's a venture-backed company. I'm like, I don't know. I mean, is it just a mattress? I don't know. Like, I don't think so. I think there's actually a pretty big opportunity there. Like you spend a third of your life sleeping. For a lot of people, I mean, your biggest purchase is maybe your home, your car.

35:54Turner Novak:Mattresses are pretty expensive products that people spend a lot of money on. And I think especially today, we're kind of at a point where people will spend each incremental dollar of income they have, they will spend it on a luxury good or like something that improves their life. And we just spent the last 30 minutes talking about how important sleep is. So it's like, would somebody pay a couple thousand dollars, like a year or a month or whatever it is to like be healthier and get more sleep? I don't know. I kind of think the answer is probably like some people would. If you can get up to 30 % better sleep and you're paying a dollar or two per night, would you pay that?

36:35I think the answer is yes. The main thing is if you look at mattresses, which again, we are not a mattress because we are a device that goes on top of the mattress, but I call them dumb mattresses. And so we go to bed at night and we pretend to fall asleep and wake up eight hours later fully refreshed. First eight hours is the equivalent of a trip from Miami to Milan every single day. Because we are unconscious, we don't realize how long that time is. But it's literally worth flying from New York to Milan every single day. That flight is a pretty long flight. So, if you can optimize it for$2 a day or$1 a day, I would consider it.

37:18Turner Novak:Yeah, like you think people pay$1 ,000 to get first class on a flight like that. Yeah, for one trip. Right here, three times per month. And second is, these mattresses, the latest technology for mattresses was memory foam, which was invented around 1966 in the 60s from the NASA for space. Okay? That is the latest weekend innovation we had in sleep. and we all sleep on these pieces of dumb foam. We have iPhones, we have OpenAI, Elon Musk is taking me to Mars, but we still spend 30, 40 years of our life on a piece of dumb foam that does nothing for us. And that really is the part that doesn't make sense.

38:08And so for a small amount, I understand our product is still fairly premium, and over time, we will make it more affordable to more people. But the fact that we need technology to enhance our sleep for our health and our happiness and our longevity, I don't think is debatable.

38:26Turner Novak:So then when you were hiring people and trying to convince people to join you, I don't know how easy that was, but I would assume there's a lot of people that are like, hardware, sleep, is this like a real problem? Like, I want to go join like a B2B SaaS, like whatever company was hot at the time. Was it hard to get people to join? Or was like, did you have like a thing that worked really well for hiring people, maybe in the early days and then today? It was much easier than what you would expect because of our mission, right? At the end of the day, again, we are a healthcare company. We are substantially a wearable company.

39:00We just have a different form factor. And so people from Apple Watch or from other wearables companies, they all want to join us. Because actually, we are the only wearable that does something for you. We don't report the data. We have our sleep buckler, which based on the data can do things for you. but now the most interesting thing is the the number one way to recruit is these people already have our product and they love it so much so they're already in pack they're already doing hardware i don't know a couple or they're doing software i don't know meta whatever you you pick the top company they have the product they love it they see we are hiring they want to join us and that's the best way because they already know the product then on our side because we are so hardcore and we work so hard then it's just a matter of alignment if you join a sleep you're on a mission you're going to war we need to move as fast as possible to deliver better sleep to millions of people

40:04Turner Novak:yeah the mission alignment's interesting like I'll have I'll be trying to help a portfolio company hire and they're just doing some boring like compliance thing or something. And I'll like send it to, like I'll try to convince my friend and they're like, I don't want to do that. Like that seems lame. And so one thing I thought was kind of interesting on the website, you didn't mention it earlier, but on the website, it said you launched supplement products and then you also have like a jet lag supplement. Is that like pretty new-ish? Yeah, we launched them recently. I travel 250 days a year because I travel across all our offices.

40:42So we have quarters in New York, San Francisco, China, Milan, and Boston. And so I developed the product with Peter Attia, which is one of the greatest doctors. He has a very famous book in terms of longevity. And so we developed these supplements. There is a line of supplements that they help you just to relax and calm down at night. And they don't create any form of dependency to, so you can take them literally every single night. And then there is a jet lag supplement, and that is specific for jet lag, and is amazing. Obviously, I'm biased, but people should try it, because that is very affordable.

41:22And substantially, when you travel based on the delta in terms of time zone, you take more or less capsules, and it's going to put you asleep. And you don't feel the jet lag anymore. So it doesn't matter if I travel to Europe, if I travel to Middle East, whatever, now I have my plan in our app. There is a whole jet lag protocol that uses all these supplements and you will not feel jet lag anymore.

41:48Turner Novak:So how does it work? Does it like release like a melatonin or something or like change your heart rate or temperature to just like help you fall asleep based on the new time zone you're going to? Yeah, there are two ingredients. One of the two is melatonin, as you were saying. And so you take three capsule. If it's the first night or two capsules the second night or one capsule the third night, you adjust the dosage. And based on that, once you take it, within an hour, you will feel super sleepy. You fall asleep. You want to take it at the right time. So whatever is your usual bedtime. It doesn't matter.

42:21Let's say you land in the Middle East and you usually go to sleep at 10 p.m. At 10 p.m., you take the three capsules the first night. You go through the whole night and you adjust quickly. And then in the app, we also give you a protocol of things you could do in the morning, like sunlight or exercise a little bit when you should eat. And so we have really transitioned you to the new time zone.

42:44Turner Novak:Yeah, because I've definitely, I've done a little bit of research around, like, you know, you want to eat about 12 hours before you want to wake up. You don't want to eat like three hours before bed. So that's probably like, that's like a self-control thing. Like, if you need to tell the person, give them the instructions and they got to stick to it. So just generally thinking then, Is there like an opportunity to do things related to women's health? Because it kind of feels like an underexplored area. Have you done much there yet? Not yet. That is part of our focus. We are working on that as we speak.

43:17And you will start seeing more and more results early next year. And the reason is this. We have seen a lot of demand from women, particularly women going through menopause because they have hot flashes. And with our product, we can cool them down when they have hot flashes in the middle of the night and we can help them to stay asleep or go back to sleep. And so literally every woman on earth who is going through menopause with hot flashes, if they can afford our product, they will see a meaningful benefit from it. Just because, again, we can cool you down in a matter of minutes while you're sweating.

43:58Then, as a derivative, we have seen a lot of interest from women also during their pregnancy because their biometrics and their temperature changes during the different trimesters. And so we are working on programs also for women during that period to help them, particularly also with the base, which is designed for snoring, but in reality, a lot of people use it also for just comfort. We even see women using our base to be able to feed the baby after they gave birth, just because it's easier in the middle of the night to raise themselves with the base and then feed the baby. And so there are all these very interesting features that humanize the product and solve a lot of micro problems for women.

44:43And we believe we can do an amazing job for them.

44:47Turner Novak:Yeah, and it's interesting too, because I don't know what the specific number is, but I believe women control like 70 % of all consumer spending, like every household like i was like i think about my me and my wife like it's usually i sometimes have input but she's usually the one who's like really driving a lot of our decisions so i feel like it's a pretty big market that you guys can unlock yeah and what we love is we are a painkiller and not a vitamin and that is always what excites me like another thing we didn't expect is for people with cancer going through chemo and they have hot flashes.

45:24I didn't know and we didn't expect. And so now we see a lot of these people buying our product because they have hot flashes while they're going through the therapy of no chemo. So those are the things that make me really proud because some of these people write me and they say, I was unable to sleep for months. Now I can finally sleep again. Thank you very much. That is the best message you can receive as a CEO.

45:50Turner Novak:Yeah. And so one thing you mentioned just from like a business model perspective, you mentioned initially you did not have a subscription product. So people would just buy it and then maybe they might come back to get like a new generation of the product. But then at some point you layered in the subscription. How did that kind of work over time? Well, as we started applying more and more intelligence, as what we were saying before, right? So now we run a lot of computational activities on the cloud. And that has a cost. And that is how we can provide more advanced biometrics, more biometrics in general, and also come back to you with insights.

46:32And then this 24-7 sleep butler that in real time can adjust things. And so there is really a computational cost. When people say, oh, why this device has a subscription

46:43Turner Novak:is to deliver all the value that we deliver is because of that. And I think the value is proven in our retention, which is insane. Like literally almost very, very, very few of our customers stop the subscription after one year, two years or three years. And the reason is we hopefully we are proving that we can deliver so much value that again, for a dollar a night for you and your partner, this is more than worth the mark. Yeah, that makes sense. What's your personal sort of like fitness or health regimen? I'm assuming you use a sleep. I'm assuming you track and optimize that. What else? What other kind of stuff do you do?

47:22Well, I'm fairly extreme. And so I fast. I usually eat once per day or maybe twice. I definitely skip breakfast. I usually never intake more than 500 calories before dinner, but I train every day. So on average, I probably burn in a day between 3 ,000, 4 ,000 calories.

47:44Turner Novak:And you make it all back up. at dinner? Yeah, majority. Then I'm at like 8 % body fat. So I'm really skinny. I'm at the peak in terms of HRV, which is pretty good for someone who has been running the company for 10 years that was able to keep my self in shape. My heart rate is at the lowest it has ever been. As I said, I train every day. Particularly, I play paddle at a competitive level when I can or I'd go to the gym. I do an ice bath every single day. I do probably a sauna two, three times a week. And I'm on a keto diet. So I almost never eat carbs except Friday night when I have pizza with my wife.

48:31So I'm very regimented. I don't advise. I don't recommend this to many people who could say I'm a robot. But that is also what helps me to perform and stay stable as we build a company.

48:45Turner Novak:Well, and it's probably good that you, as somebody who's like, you're building a company for like a certain percentage of consumers that really wants to optimize this stuff. Like, it's probably a good thing that you're constantly just iterating on the different areas that someone might want to optimize their health. And like, you're, you're basically, you're your own customer in a sense. So it's probably a good thing. I think the, the type of guinea pig who is testing things for our audience to then maximize their their own sleep i'm extreme and i think it's it's fine and at the same time i think of my job like i'm an athlete myself if if i want to know help the company grow and achieve what we want to achieve i need to make sure i'm a peak performance and so i try to treat myself as an athlete for as much as i can and i know you you do a lot of like sports car racing is that considered a sport or is that more of like a leisure thing i mean when when i do it is a true sport it's very competitive i did a few years ago the 12 hours of abu dhabi where i finished third but yeah whenever i i can i i race with cars because the passion i had since when i was a kid i was gonna have a lot of time for that but it's really good for my brain because it's all about not taking decision quickly at high speed.

50:13There is adrenaline. So yeah, I love it. I just work and play paddle and three times a year I race with cars.

50:23Turner Novak:A lot of people don't realize how physically demanding that is. You look at the F1 guys and they're in very good shape. It's because it's super stressful. Your mind is constantly thinking and you have to be like super quick, the fastest reflexes of any human in order to do that. So yeah, I think it's a lot harder than people realize. Two things people underestimate. The first one is the braking. It's almost the equivalent with the car side drive. You need to put a pressure of 160 pounds-ish just with the left leg multiple times. Wow. And you need to go full, no, full power. That is one. And the speccon is particularly in GT cars.

51:09Inside the cockpit, it gets really, really warm. Like you're probably in the 100, 210 Fahrenheit. And then you have the helmet and the gear. And you're there performing for a couple of hours. I pick perform.

51:24Turner Novak:That'd be really uncomfortable for most people. No, yeah. And so I remember when I stopped racing cars for many years, then I was able to just go back a few years to go. And I was not in the shape of it. a micron shape and after an hour right because it's a matter of a tenth of a second there now that your is not seconds is a tenth of a second and so if you just become a tiny little bit slower because you just get a little bit tired or you're sweating a little bit too much you merely lose three tenths of a second oh wow and that's like everyone else you're competing against is probably not missing that three-tenths of a second.

52:04Turner Novak:So you're like immediately in last place. Yeah. Well, this is a lot of fun. Thanks for taking time to come on the show. No, of course. Thank you for having me. It was a great chat. And I hope you thought it was a great chat. Thanks again to Numeral for supporting this episode. Head to numeral.com for the fastest, easiest way to stay compliant with US sales tax and global VAT. If you missed it, make sure to check out last week's episode with Rahul Vora, sharing the lessons he's learned selling to companies, including going behind the scenes of the most recent acquisition of superhuman mail, and how he almost died selling his first company, Reportive, to LinkedIn.

52:38Turner Novak:If you like this conversation, please like, comment, subscribe, and name your sleep butler after me. If you don't want to miss a future episode, subscribe to my newsletter, The Split, linked in the description to get each episode plus a transcript emailed directly to your inbox every week. Thanks again for listening. See you next time.

52:58You