Newton Running Gets Cash and Talent Infusion

The Boulder, CO-based Newton brand, which expects to see revenues jump 70 to 80 percent this year, will get an initial cash infusion of roughly $20 million from Fireman Capital Partners (FCP), the investment firm run by Paul Fireman, the former chairman and CEO of Reebok International, LTD, and his son, Founding Partner Dan Fireman.  Fireman sold RBK to Adidas Group in early 2006 for $3.8 billion.

In an exclusive interview with Sports Executive Weekly, Dan Fireman said that FCP, which was founded in 2008 and made its first investment in 2009 (Hudson Jeans), is an $80 million fund today.  He explained that the firm looks at investments in the $10 million to $50 million range with companies with an enterprise value in the $20 million to $30 million range on the low side to the $100 million to $200 million on the high side.  We invest in things we know, said Fireman. 

Fireman confirmed that Newton had sales of approximately $10 million in 2010 and should end 2011 with $17 million to $18 million in sales.  He said Newton is in 250 running specialty doors today.

The Fireman Capital Partners investment portfolio also includes Hudson Jeans, Evolution Fresh, Serena & Lily, IdeaPaint and Pilla. FCP points to their rebranding efforts for Hudson Jeans an example of the firm’s expertise and unique ability to help clients grow.

Breakaway Partners, which is managed by former Reebok executive Dennis Baldwin, is co-investing in the transaction and working closely with the company on strategy, branding and marketing.  Baldwin and another former Reebok exec, Steve Liggett, who ran product development, manufacturing and marketing for 15-plus years at Reebok, will represent Fireman Capital on the Newton Running board. Baldwin was formerly chief marketing officer at Reebok and also SVP global footwear at Reebok.

Breakaway currently has approximately $50 million under management and provides venture capital and strategic branding and marketing services to high growth consumer brands. Other investments include Ruelala, Ideapaint, Mission, Truefit and Moobella.

I see the continued growth of natural running as a long term trend, while minimalist shoes have a place in the market, they also ignore the issue of protection when running on hard surfaces, explained Baldwin.  Newtons differentiator is that its design promotes natural running form while providing energy return technology in the forefoot strike zone to reduce impact force and increase efficiency aka run faster with lower risk of injury.

While Baldwin and Fireman both recognize the current opportunity in the natural/minimalist category, they see a particular advantage with Newton because it started in the category. Newtons advantage is that all it does is create shoes to promote natural running form, said Baldwin. We do not need to explain away decades of building high heeled running shoes that cause inefficient heel striking, pronation, excess impact force and injuries, etc.

‘Why would Nike, or any other running brand, invalidate years of marketing and product development around motion control, stability or other technologies, added Fireman when explaining the predicament other brands may find themselves in when talking to the consumer about natural running.  Newtons advantage is they dont have any history in those other technologies.

Fireman said the opportunity for Newton also resides in the ability to create more visibility of the natural movement characteristics of the shoe.  Fireman sees redesigning the shoes so the technology is evident, much like the Nike Air or Reebok Pump shoes.  Reiterating comments made by his father in another published interview, Fireman said the Newton product today tends to look like every other running shoe on the wall.  We will draw some technology out in the forefoot, he said.  The design will better emphasize the natural movement aspects of the product as different and innovative.

Newtons CEO, co-founder and early investor Jerry Lee, confirmed to SEW he and Danny Abshire, who co-founded the business in 2005, will retain a majority stake in the company while also confirming that the size of Fireman’s group’s investment.

Lee said that the company began exploring a possible equity investment in late 2010 as it sought a way to sustain the brand’s strong growth.
“As we continued to project our growth, there was need for at tremendous amount of working capital,” said Lee.  Equally important, however, Lee noted that he and Abshire had built the company by themselves through grassroots approaches “and we were looking to add a partner with some experience in the footwear business to avoid those pitfalls that can be very costly. So we were looking to bring an asset to the company as well as the money.”

Lee also said Newton wasnt looking for a larger shoe company because he felt that a merger would likely ruin the culture of the brand and organization.  Said Lee, “We have built the company with a lot of passion and strong beliefs but were also having a lot of fun and enjoying it.  To turn it over to someone who doesnt have that same passion, the whole vision had the potential to get lost.”

Lee said Newton came down to a limited number of suitors in the end and they grew increasingly comfortable with FCP.

“Their expertise in the business immediately became clear and I also saw we shared an excitement for the company and I saw the passion that Paul still had for footwear,” said Lee. “And as we explored how the partnership would develop we found out we would be able to engage people who were very instrumental in the Reebok world.  And then we talked about philosophy and direction and we were all on the same page.  It all came together.”

But he said Paul Fireman particularly shares a passion for the opportunity around natural running.

“Were aging as a society and people that have been running for a long time are sustaining injuries,” said Lee. “So the concept of natural running was basically unheard of before we started but now there’s books like Born to Run and all kinds of studies out there saying the best way to run with less injuries and less impact is the natural running technique. So thats something that Danny and I started the company on and Paul shares that same vision.”

Moreover, he said Fireman will particularly help broaden Newton’s technologies by introducing them at lower price points. The plan is to expand Newton Runnings product offerings to include lower-cost shoes in the $80 to $100 range. The companys shoes currently retail for $135 to $175.

“It’s going to be less on performance and more about guiding the foot in the proper position as well as providing lesser impact on foot strike,” said Lee. The lower-price options are targeted to reach the market in late 2012 or early 2013.

No management changes are expected and the company will remain in Boulder, where its warehouse and R&D team are located. Said Lee, “It’s the running Mecca of the world in our opinion and it’s where we belong.”