Equal Ventures Focus Area: Care Economies
This is one of our current interest areas for investment at Equal Ventures. Our other areas of interest can be found in our overview post.
Market Overview & Shifts
Our interest in the care economies is focused around two segments of dependent care: childcare and eldercare.
On the childcare side, the associated costs have become an increasingly large burden on dual-income families. 32% of families spend over 20% of their annual household income on childcare, with costs continuing to rise. Costs for nannies and sitters rose 25% between 2013 and 2018, with in-center costs rising almost 15% during the same time period. The industry also faces concerns as leading marketplaces such as care.com come under fire for the lack of vetting of care providers. While birthing rates have dropped, some theorize that we’ve seen a permanent shift in birthing age (from late twenties to early thirties) that is specific to millennials, which ultimately could lead to a surge in demand for childcare in the years to come. These concerns are only amplified by COVID which has resulted in significant closures of legacy centers.
On the eldercare side, we’re on the verge of unprecedented growth in the number of seniors in America. The number of seniors over the age of 65 is projected to increase to 78M by 2035, up from 47M in 2016. The vast majority of seniors are not prepared for retirement, with the median savings for wage earners aged between 56 and 61 being $17,000. Nearly half of all Americans do not have any savings at all. This is in spite of seniors being expected to spend more during their retirement than predecessors, as out of pocket expenditures and premiums increase for Medicare and are coupled with labor shortages and rising wage expectations. As with the childcare segment, the senior care segment also suffers from limited transparency around the quality of care by different facilities and/or home care agencies with countless horrifying stories being reported over the past several years.
COVID will have a transformative impact on both these industries as urban centers become less concentrated, families become more conscious of the need for accountable/quality care, and we see immense shifts in supply/demand dynamics. The jury is still out on whether these implications will be temporary or long-standing, but our team is closely tracking the trends and eager to meet innovators addressing the new paradigm.
What We’re Interested In
Our primary focus in this segment has been on companies that enable access, accountability, and affordability of care in both segments. We’re especially interested in companies that can reduce the cost burden on caregivers, with innovative models to get help from employers and insurers.
While much of the care industry has seemingly been asset-based, the largest cost center for care (by a wide margin) is labor. This is hard to rationalize as labor wages in each of these industries are incredibly low, leading us to believe that labor utilization is the primary source of value erosion in the industry. This has often led to a race-to-the-bottom on costs as the lowest-performing centers (especially in the senior living segment) attempt to crowd their facilities to drive higher utilization. Unfortunately, COVID has demonstrated the catastrophic impacts of this behavior, creating a new call to action for models that better align families to the centers they are entrusting for their loved ones.
Families are near and dear to everyone and, unfortunately, each of these industries has been susceptible to predatory players looking to capitalize on the immense anxiety that families have around care decisions. We are firm believers that services that instill trust and transparency to generate better outcomes for families will outperform. These services may indeed make less per customer, but will ultimately have significantly better margins given better labor/asset utilization, higher customer retention and lower customer acquisition expense.
