CEO of Eight Sleep: Matteo Franceschetti

Yeah, let's jump into Miami. What's going on there? We hear so much about Miami, and I think you are a big advocate, especially on Twitter, about Miami. Can you build a great company there?

Yeah, I would probably say that now, in the US, it's probably the best place or one of the best places. There are so many people in tech, from crypto to web three to web two. There is a lot of money going around. There are a lot of influencers that can help you, particularly if you have a consumer business, right, from the mayor to pump. I can't keep up with the number of meetings and events. Last week, there was Miami Hack Week. There is Miami Tech Week coming. There is a Bitcoin conference coming. And then there is also sport, Formula One coming, tennis coming.

Does it have the same effect with the network's effects that San Francisco had, like, two or three years ago?

It looks like San Francisco in 2015. At least, I mean, I lived there in 2015, so it's the same, but it's probably better for two reasons. One obvious is the weather. So there are a lot of events outdoor in beautiful houses. So it's just really nice to hang there with other founders. And two, there is this new sense of a new community, right? So everything is fresh. Everyone is really positive. Everyone just moved here. So everyone wants to make the city a big deal, particularly the mayor.

Is there anything that you find in Miami and you couldn't find in San Francisco?

I think there is this attitude and energy. And the weather, and for me, the other big thing is here, you can have a house, right, instead of just an apartment. And so I work 90% of my time from my backyard. And this morning I played tennis at 7:30, and then by 8:30, I was back home.

What about hiring? I think one of the very good reasons that San Francisco was really good was Stanford was there, Berkeley was there. It's one of the best schools in the world in engineering. And it was really acting as feeder schools into the whole entrepreneurship community. Do you have something similar there?

This is the University of Miami. And I think it's starting a new trend there. But I would say right now, the biggest thing is there are companies that are growing quickly here, like Open Store. They're hiring a lot of people. A lot of people are moving here and then they will start their companies. If you really fast forward five, 10 years, we are really at the beginning of a movement because now these people come here, they work, they work at Open Store with Keith, they make it big and tomorrow they will start their own, I don't know, Coinbase.

And so at the beginning, there were a lot of VCs, but less operators. Well, instead now there are a lot of operators. And I think that is what will be the real game changer.

And I hear a lot from founders fund that you mentioned already that they're really big into Miami as well. Are there all the funds there? Do you usually find all the investors around?

I mean, there is them, right? There is SoftBank that is pretty big, but also Valor Equity Partners, Antonio moved here. I mean, that is how the deal happened. We met, we went a couple of times working at the beach together and discussing the vision of Eight Sleep, what we wanted to do. And then he led our $86 million round. And then regularly people are coming here, then a bunch of investors fly in for other boards because that is the other thing, there are board meetings. And so these people fly in. So right now, I think probably, I mean, 70, 80% of my board lives in Miami.

Speaking about the product, Matteo, what a fantastic idea. As a normal human being, 33% of our time is spent on bad sleeping. Both myself and Kyriakos use Eight Sleep and we are big advocates and fans of the product. Can you tell us more about how did you come up with the idea and how you started it?

Yeah, so everything started because I couldn't understand why we were spending a third of our life on a piece of damp foam while Elon Musk is taking us to Mars. I have always been an athlete. I was an entrepreneur. I wanted to sleep less to work more. I couldn't understand why. No, no, we pretend to go to bed and lie down over this piece of damp foam and wake up fully refreshed and recovered. It just didn't make sense.

So we started looking into that. We created first a cover that was really a sleep tracker, but then we immediately understood people kept asking for temperature regulation because some people feel hot, some people feel cold. We started looking into all the medical research and we understood that that is the biggest factor impacting your sleep quality outside sleep medical disorders. And so it was very clear that there was a strong demand and that there was plenty of evidence that this has an impact on, not even just on your sleep, but on toss and turns, wake ups, HR, HRV.

And so that is when we pitched that to Cosla and when Keith led our round to give us the money to build the pod, we built it. We launched it in May, 2019. And I think that that is when things really started taking off.

Perfect. For those who don't know you, can you give us a bit more details in terms of how do you improve the quality of sleep?

Yeah. So we invented a technology that can improve your sleep through thermal regulation and data. It comes in two form factors. One is a cover that you can install, a topper, that you can install on top of any mattress, or you can buy the whole mattress, which is substantially the Lamborghini of mattresses. But what we really do are two core things. One, our devices, they come with thermal regulation embedded and so temperature changes during the night based on your biometrics to help you fall asleep faster, get up to 20% more deep sleep, improve your HR and HRV, and reduce wakeups and toss and turns.

We have plenty of data that we deliver that. The second thing is the device is becoming, I would say almost medical grade accurate in a couple of different dimensions. Right now we are really accurate at HR, HRV. So we are above 90% accuracy compared to a medical grade device. But in the future, we'll start tackling respiration, which then means snoring and sleep apnea and other factors. So if you fast forward, if you really fast forward three years from now, your bed will become a sort of medical grade device that scans your body and monitors your health every single night, plus optimizes your sleep.

You know, it's funny, the other day when I started using Eight Sleep, I was quite stressed one day from work. I go back home, I sleep, I wake up. I start coming back and I get a notification on my phone. And it's like, oh, your heart rate was pretty high last night. You didn't sleep well. Maybe take it easy today. And I was like, is this like something from movies? It's one of those things that you would expect coming from the future.

And yeah, it's like, it's what we're seeing as well, which is, what is the future of this space, which is going to be prediction based on the data, rather than reaction that we knew all the time.

Right, so in terms of the product, though, why is, so it's like, how is temperature correlated with HRV? How is it correlated with deep sleep as well and REM?

Yeah, let's start from the latter. So you have obviously a circadian rhythm, right? Which is more or less your biological clock. And your body temperature already changes during the day and particularly during the night. When you hear people say, oh, you should sleep at 68 degrees Fahrenheit, that's bullshit. And the reason is that works for one hour, probably, of the night. But again, different sleep phases require different temperatures.

And at different points in the night, you need and require a different temperature. That is what we fixed. And that, so when you are in deep sleep, usually you need a colder temperature. When you are in REM, you need what is called thermal neutrality. And then a light sleep can be something that is more personal. And so what we see with our data, but people report it also through Whoop and Aura and other wearables, is they can see up to 40% more deep sleep.

They can see up to a 30 to 40% reduction in toss and turns and wake ups. And we just run a study, and actually I'm gonna tweet about that, where we see a meaningful improvement in HRV. So your HRV go up, I think by more than 10%, if I remember correctly, just in the first 15 days with the pod. And then we're working on another study that it seems to prove that we also reduce your heart rate at rest by using the pod.

But specifically about the four stages, right? Why do we need deep sleep? Why do we need REM? Should we try to optimize one of the two, for example, or is it for different processes?

So there are four different processes. So deep sleep is really more for, I would say, your body. So it's more about physical recovery, while instead the REM is more for your mental recovery. That is the time in REM when you are dreaming and when you are reorganizing all the information that your brain collected during the day. So deep and REM are extremely important. Light sleep is the one that can be compressed, and that is part of our mission to say, okay, can we compress sleep? Can we help you sleep only six hours and get more rest than when you were sleeping eight hours?

And what's the ideal in this? What's the ideal deep sleep time, let's say, and REM?

Yeah, so usually it's anywhere for each of them between 18 and 25%, assuming you sleep around eight hours. So call it really between an hour and a half plus. So it's all in the way it functions. So it's like using the DeepSleep app when we first got the mattress, and it all starts with the temperature that we select, the base temperature. That's the body position in terms of changing the temperature to maximize the deep sleep. Can you tell us more about how does your algorithm learn about how to adjust the temperature automatically rather than focusing on the manual input of the users?

Yeah, so there are really three ways temperature can be adjusted. There is one of the manual, your preferences. We learn the preferences. So think about a nest for your bed. Second, there are weather or temperature changes in your bedroom. So let's say the last few days in Miami was pretty cold for our standards. I received a notification that the bedroom is seven degrees colder, and the temperature automatically gets adjusted.

And the third, which is not the one that in the future will be the most disruptive, is an automatic adjustment in real time based on your biometrics. Because again, you need different temperature settings at different stages of the night, and also based on the different sleep stages, particularly DeepSleep and REM. So our machine learning and AI algo are working to achieve that. The interesting thing is now we start having thousands and thousands of customers.

And so we are really able to learn more than what I would say any sleep doctor has ever learned in history. Because in one night, we can potentially run a study with, I don't know, 50,000 people. And usually sleep studies apply to 50, 200 people, and they take eight months. For us, that would take one single night across a part of our user base.

What do you think is the best approach to find the right people?

I think you really need to develop a relationship. Looking back, the quality of our hiring at the time was not as knowledgeable as I am today. I still see early stage startups not aiming high enough in the quality of the people. It's illogical because if you have three people and you add one person, that is 25% of the IQ of the group. When you have 100 people, you have more flexibility in screwing up one hire. The obsession for the quality of hiring at the small stage is orders of magnitude more important. That's why investors care about the quality of the people.

That's exactly what YC partners mentioned. When you add one person, is it significantly increasing the value of the deliverable or is it linearly increasing?

A couple of questions I use are: Are they raising the IQ of the executive team? If they start their company tomorrow, would I invest? Do I enjoy spending time with these people? Sometimes you just don't click, like being friends. Each company has its own culture. For us, a lot of inbounds now are people already in fitness or training. We want go-getters in attack mode all the time.

When speaking about hiring, what do you focus on?

We focus on three key things: values and principles, chemistry, and technical abilities. We believe the last one is not as important as the first two. If someone aligns with the values and principles, they are hungry to learn and will learn how to do the job. We might get applications from Google and Facebook, but if they don't fit culturally, we reject them. It's about the team you're building.

You started investing and created your own fund. What mistakes have you made, and what should we avoid?

I oversimplify it: invest in people. You don't know if the idea will change, but if you trust the people, that's your best chance. Don't try to be too sophisticated about the time and what they are doing. The most unexpected companies can deliver the biggest returns. For me, the biggest returns are from people I knew from YC. It's all about people.

We had a chat with Lance Armstrong, and he said the only thing he follows when investing is founders.

What should we expect from Eight Sleep in the next two years?

A lot of great stuff. We are going above and beyond. I push the team to achieve more because we are passionate about what we are doing. There will be new hardware and software. It goes back to sleep compression and saving your life. We'll make steps towards these two north stars.

Matteo, what a fantastic discussion. Thank you very much for your time. We learned a lot from you today, and it's great to catch up again.

Thank you so much. We speak soon?

I guess. Bye-bye.

Bye-bye.