From Billionaire to Broke: The Rise and Fall of Peloton's John Foley and the Key Lessons for Founders

The Great Fortune Reset for Founders After IPO: Lessons from John Foley, Peloton’s CEO

John Foley, the co-founder of Peloton, offers a compelling story of meteoric success and a sharp financial downturn—illustrating the highs and lows of entrepreneurship in the modern era. Once a billionaire, Foley’s fortunes were closely tied to Peloton’s stock, which soared during the pandemic and plummeted shortly after. His experience offers critical lessons about wealth management, market dynamics, and the importance of diversification for entrepreneurs who take their companies public. This story highlights not only the rise and fall of Peloton but also the strategies founders can use to protect their financial futures.

Losing Almost Everything: John Foley’s Financial Collapse

John Foley’s financial downfall was rapid and severe. After stepping down as CEO in 2022, he revealed that he had "lost all his money" and was forced to sell nearly everything, including his $55 million East Hampton home. Most of Foley's wealth was tied up in Peloton stock, which plunged in value as the company faced a series of challenges, including declining demand, product recalls, and bad press. His personal fortune was not diversified, which left him highly vulnerable to the company’s downturn.

Foley’s belief in Peloton’s long-term success led him to hold onto his shares, despite warning signs. Much of his wealth was "on paper," tied up in Peloton stock rather than liquid assets. Foley also pledged 3.5 million shares as collateral for loans with Goldman Sachs, which magnified his financial exposure when the stock began to fall. Additionally, as a founder and executive, he faced restrictions that limited his ability to sell large portions of his shares early on without raising concerns among investors. By the time the stock price plummeted, Foley was hit with margin calls and couldn’t sell at favorable prices, severely impacting his net worth.

The Rise of Peloton: John Foley’s Billion-Dollar Vision

John Foley’s entrepreneurial journey began in 2012 when he co-founded Peloton with the idea of merging fitness with technology. He envisioned a future where people could enjoy high-quality, connected fitness experiences from the comfort of their homes. Peloton’s breakthrough came with its subscription-based model, which combined stationary bikes and treadmills with live and on-demand fitness classes. This interactive experience quickly gained a loyal following.

1. IPO and Pandemic Growth: Peloton went public in 2019, with Foley leading the company to a highly successful market debut. As the COVID-19 pandemic forced gyms to close, Peloton saw demand skyrocket, with people turning to at-home fitness solutions. By late 2020, Peloton's valuation peaked at nearly $50 billion, and Foley’s personal net worth exceeded $1 billion.

2. Cultural Phenomenon: Peloton became more than just a fitness company; it built a community around its subscription service. The company's instructors became fitness celebrities, and by early 2021, Peloton had more than 3.6 million members with high levels of engagement. The company seemed unstoppable as its brand became a household name during the pandemic.

The Great Fall: Peloton’s Struggles Post-Pandemic

As quickly as Peloton’s fortunes had risen, they began to fall after the pandemic. The reopening of gyms led to a steep drop in demand for at-home fitness products. Peloton, having overestimated the lasting demand, overinvested in production, resulting in an excess of inventory that significantly hurt its sales and stock price.

1. Product Recalls and Negative Publicity: Peloton faced a major setback in 2021 when its Tread+ treadmill was linked to the death of a child. The resulting recall severely damaged the brand’s reputation, leading to costly legal and regulatory battles. Moreover, negative portrayals of Peloton products in pop culture—like a character's death after using a Peloton bike in Sex and the City—further hurt public perception and caused a temporary 11.5% drop in its stock.

2. Leadership Changes and Financial Collapse: In February 2022, amid mounting pressure, Foley stepped down as CEO and later resigned from Peloton’s board of directors. Peloton’s stock continued to fall, plummeting by as much as 90% from its pandemic high. With his wealth closely tied to the company’s stock, Foley saw his fortune evaporate. He had to sell personal assets, including his luxury home, to cover loans backed by his Peloton shares.

3. Production and Supply Chain Issues: Peloton’s aggressive ramp-up in production during the pandemic backfired when demand fell. The company struggled to manage the excess inventory and faced significant financial strain from supply chain disruptions.

4. Market Competition: Peloton also faced increasing competition in the connected fitness market, as more companies entered the space and consumers shifted towards more affordable fitness options. This growing competition, coupled with strategic missteps like price cuts to boost sales, further eroded Peloton’s profitability.

Lessons for Founders: Protecting Wealth After IPO

John Foley’s experience highlights crucial lessons for founders on how to safeguard their wealth post-IPO. Here are some strategies founders can use to mitigate risks:

1. Planned Stock Sales (10b5-1 Plans): Founders often face restrictions on selling shares, such as lock-up periods and insider trading regulations. A 10b5-1 plan allows founders to sell shares on a pre-determined schedule, reducing concerns about market timing and inside information. This helps maintain a steady diversification of wealth over time.

2. Gradual Share Sales: Selling large amounts of stock at once can trigger market panic, known as “market overhang,” where investors fear future sales. Founders can avoid this by selling shares gradually, balancing the need for liquidity with maintaining investor confidence.

3. Secondary Sales Before IPO: Founders of private companies can sell shares in secondary markets to institutional investors before an IPO. This provides liquidity without waiting for the company to go public, allowing founders to diversify their holdings earlier.

4. Structured Financing (Loans Against Shares): Founders can use their shares as collateral for margin loans or other structured loans, unlocking liquidity without outright selling their stock. However, as Foley’s case shows, this comes with the risk of margin calls if the stock value drops.

5. Hedging and Diversification: Founders should diversify their wealth gradually, well before an IPO, through bonuses, cash investments, or other ventures. Using hedging strategies like collar transactions can help protect against significant stock price drops.

The Next Chapter: Foley’s New Venture

Despite the setbacks, Foley remains optimistic and focused on rebuilding his fortune. His latest venture, Ernesta, a custom rug company, has already secured $25 million in venture funding. Foley sees potential in the fragmented rug market and believes Ernesta can generate significant revenue in the coming years. Although he is no longer a billionaire, Foley is determined to bounce back, proving that entrepreneurship is a long game filled with both challenges and opportunities.

Foley is Not Alone: Other Founders Who Faced Similar Losses

John Foley is not the only founder to experience a dramatic financial reversal after seeing early success. Several other high-profile entrepreneurs have faced significant losses after their companies’ stock prices fell:

1. Travis Kalanick (Uber): Kalanick’s aggressive leadership helped turn Uber into a global powerhouse, but internal scandals and regulatory issues led to his ousting. Although he did not lose his entire fortune, Kalanick was forced to sell large portions of his stock under pressure from investors after Uber’s volatile IPO.

2. Adam Neumann (WeWork): Neumann’s grand vision for WeWork led to a peak valuation of $47 billion, but governance issues and a failed IPO led to a massive devaluation of the company. Neumann lost control of WeWork and saw his wealth significantly reduced.

3. Eike Batista (EBX Group): Once the richest man in Brazil, Batista’s fortune crumbled after his oil company, OGX, failed to deliver on its promises. His overreliance on projections and lack of diversification led to financial ruin when the market shifted.

4. Masayoshi Son (SoftBank): Son’s massive investments in companies like WeWork through the SoftBank Vision Fund saw sharp declines in value. Though still wealthy, Son lost tens of billions during this period due to risky investments in unproven startups.

5. Vladimir Tenev and Baiju Bhatt (Robinhood): After Robinhood’s IPO in 2021, its stock initially soared but quickly fell amid concerns over its business model and regulatory issues. Both founders saw their net worths take a significant hit as the stock dropped by over 80%.

Conclusion: Navigating the Entrepreneurial Rollercoaster

John Foley’s story is a reminder that entrepreneurship is fraught with risk, and fortunes can change quickly, especially after a company goes public. Founders must prioritize diversification, strategic planning, and financial prudence to protect their wealth in the long run. As Foley and others have shown, resilience and the ability to pivot are crucial traits for entrepreneurs facing the inevitable ups and downs of the business world.