Peloton, a maker of Internet-connected fitness bikes, is riding high after raising $325 million in new funding this week, valuing the company at $1.25 billion.
The newly minted “unicorn,” which was founded by CEO John Foley, sells a $1,995 bike that comes with an attached tablet for streaming spinning and exercise classes live. Customers pay $39 monthly to ride along during an unlimited number of classes. The bike’s sensors collect data like revolutions per minute, speed, and distance, which is transmitted via the Internet to the company. During classes, riders can have their speed matched against others who are taking the same class at the same time.
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Peloton’s rise has also coincided with spinning chain SoulCycle’s growth. SoulCycle, which filed paperwork to go public but has not yet listed on an exchange, offers classes at its retail chains around the U.S. and in Canada. Peloton, by comparison, is focused on bringing spinning classes to customer’s homes.
Foley chatted with Fortune about why he started Peloton, what the new funding would be used for, and the potential for an IPO.
(This interview was edited for length and clarity)
Fortune: Where did you first get the idea for Peloton?
Foley: I was working in technology. I love consumer Internet, and software, and technology, and six or seven years ago, I was going to SoulCycle and fellow spinning chain Flywheel and noticing I work harder in those classes than in an average gym workout. When someone coaches you through and you have the motivation of other people in the class, it’s a better model. But I had young kids, and I couldn’t plan my workouts a week in advance. I wanted the work out on my time, in my location, and on my terms. I thought that there must be a way to have the best seat at a much better value. I wanted to figure out a way to bring this home. You wouldn’t go to a spin class with no one in it. That’s why the community is so important. We stream content and bring community into the experience so you don’t feel alone. You can see the instructor and riders in the studio and see how other people in the class are performing by the leaderboard. It brings the offline experience in.
Tell us more about why you raised $325 million from these investors?
We raised from four kinds of investors. First we took “crossover money from institutional investors like Fidelity and Wellington, which will be helpful as we consider making the transition from a private company to a public one. We also took money from late stage venture investors like Kleiner Perkins which is the best in the world. And NBC Universal is a strategic investor since we stream twelve hours of live TV a day. No media company is getting people to pay $39 per month for one channel of content. The fourth type of investor was the private bank of JP Morgan Chase, which invested tens of millions from their client base of high net worth individuals.
How do you plan to use the new cash?
We just launched yoga classes, which was the first non-spinning class you could take from the bike. And we are in the process of building a studio in New York City that will let us stream content from four different studios. We’re also going to be building content for other types of fitness equipment. Similar to our current studio in Chelsea, the new studio will be open to members who want to take a class in person.
Do you plan to open other studios?
We like the authenticity of offering a real class to members but we don’t want to be in the studio business.
What else are you going to be doing with the new money?
We’re going to open new Peloton stores in Denver and Seattle. We’ll have 22 stores that sell bikes, open by next month and 33 retail outlets by the end of the year. We’re also doubling the size of the software and engineering team and increasing marketing spend to get the word out about the company.
Tell us about your commercial strategy
We’re excited about a new partnership with Westin hotels where they are putting Peloton bikes in their gyms and potentially in some hotel rooms. It was in response to our customers’ demand that we expanded to hotels.
While it seems like we could expand to gym chains, we’re not pursuing it right now. We have deals with high-end apartment buildings to put the bikes in building gyms. But we feel like if a person in a commercial gym uses a Peloton bike and then purchases it for their house it might hurt the gym partner. So we are getting into that space lightly.
How big is the team?
We’re 400 employees including studio and retail stores.
Is an IPO in the future?
I think it’s a natural part of the Peloton growth story. I feel like 10 years from now we will be public. I like the idea of going public mostly to get the word out for how special the experience is, to build awareness and improve people’s health and fitness.