An Industry for Infancy: BabyTech Benchmarks & Outlook 2022

Culture Trends in Raising Children & Current Startup Conditions / Industry Advice from Seasoned Babytech Operators

Cultural Parenting Trends

Over the past few generations of child-rearing, humans have chosen quality over quantity, spending more time and money on 2 children than our great-great-grandparents spent on 12. It’s a story of economic insecurity (graduating with debt) and greater gender equality (mothers building careers), but also of lifestyle improvement. Information and technology have advanced on every activity in our modern lives. Access to education and the resultant class mobility have allowed us to dream up the best possible lives for ourselves and our young ones. We’re no longer satisfied with having little versions of ourselves, we want ivy league, bilingual, black-belt-karate, first-violin versions of ourselves. So we’re having fewer children in order to guarantee them (and ourselves) the best possible lives.

Here enters tech. Of the dollars poured into R&D annually, the ‘New Mum Economy’ was not left behind. BabyTech has become a fundamental category for any parent who wants to spend more time sleeping (i.e. all parents). To the extent that it is relatively new, the space has already been crowded with innovations for the Millennial parent. Characterized as digital-first and convenience-seeking, this generation’s parenting style has been observably shaped by their setting. But given that only half of Millennials have had children, we are only now experiencing the first onset births in a new environment.

How will trends change as the same generation responds to the post-pandemic recessionary climate?

#1: Data-Driven Demographic

With more access to information than any parenting group before them, Millennials want metrics to compare to for everything. The pandemic first invited a microculture of personal health-wellness monitoring, then spurred a stark post-quarantine separation from infants, together exacerbating the need for obsessive parental tracking. Startup innovations reveal this in the form of baby monitoring (Owlet, Miku) or pattern and behavior recording (Cubtale).

#2: Focus on Feeding

As the recession tightens purse-strings, families will identify cost centers and cut luxuries. Millennials worry more than ever about what goes in their baby. Clean food, formula, nutrients in certified organic and BPA-free packaging will remain a significant line item, despite budgets. Good news for the cohort of startups that have built businesses on that thesis: Mamamade, Once Upon a Farm (organic, balanced meals), Little Spoon, Yumi (organic baby food delivery). Those that unlock efficiencies and drive down costs will succeed over others. On the flip, expenses that go around the baby (luxury toys, designer strollers, sleek cots) will be forgone.

#3: Purchasing Power Parity

Under income and inflation pressure, Millennials will find workarounds to maintain the standards they have accustomed to. This will popularize startups that hack journeys to low-cost but high-means lifestyles. For babies and families think: crowdfunding for child expenses (Villie), premium clothing for rent (Stylette), buying off-price (Savr), FinTech for juniors (BusyKid). Households will still want the best, but want deals, discovery, credit, reusability and help to get there.

#4: Working Mum’s World

The generation of the working woman has eclipsed. 1-in-4 mothers is single and 40% of 2-parent households have a female breadwinner. Women have less time on their hands for traditional “motherly” duties and startups have made it such that professional compromise isn’t needed. Snoo (a smart, robotic bassinet) allows parents to wake up fresh for work, Milkstork (a breastmilk shipping service) lets mum travel for her board meeting, Zum (reliable school district transportation) saves busy families time, 123BabyBox (an age-determined subscription box) returns hours of product research to Outlook calendars.

The Startup Founder’s Guide to BabyTech in 2022

We surveyed a cross-section of early-stage BabyTech startup founders to form insights into what business metrics look like within the industry in this environment.

For these respondents, we polled founders on Annual Revenues and GP Valuations, and compared the two to come up with an average Revenue Multiple range.

While founders are reporting astronomical ~50x revenue multiple valuations, as illustrated on the graph above, what we’re seeing on the VC side are multiples significantly lower than our founder respondents. Baseline valuations for a $1M raise are closer to $4M. Smaller from a revenue multiple perspective but higher from a founder dilution basis.

For more mature companies in the ~$1M+ annual revenue range, reported multiples fall back into favor and in-line with other DTC multiples: 3–8x for early stage. Generally as startups develop, valuation multiples face heavy deflation. See below to compare with examples of later-stage startup multiples, exit multiples, and public multiples:

With this type of pressure on the table, advice for BabyTech founders from prior BabyTech founders should be highly sought after. For this reason, I spoke with community leaders at Owlet and 123BabyBox to distill lessons on how to be a successful, venture-backed, baby and family startup.

Case Study: Owlet

Owlet Baby Care is a baby monitoring service with a flagship product that takes the form of three, connected IoT pieces: a wearable baby sock, a motion-detecting camera, and a mobile app that tracks and stores the resulting data. Owlet provides parents with real time and historical access to their sleeping infant’s data, including heart rate, oxygen level, wakefulness, sleep sounds, movements and more.

Founded in 2012, the startup enjoyed robust growth for being the only solution of its kind. Given that it plays to the data-capture theme and gives parents the time and security to focus on their careers, I was curious what the company considered to be their key learnings, and reached out to one of the early employees who wore many hats — including Customer Success, Tech, and Ops — to find out more.

What made Owlet a story of success?

#1: Parental perspective

• Most of the employees at Owlet were recent parents themselves. A big factor in success was being able to relate to the customer: understanding where the parents are coming from and what their needs are
• In Owlet’s case this was guaranteed safety, strong R&D, and uniqueness in solution through patents.
• Advice: While it isn’t necessary for Babytech startups to be operated by parents, it is important for teams to understand parental motivators and childcare pain points. This applies not only in product build, but in the way it is marketed, advertised, priced, bundled, and sold
• New parents are starting a family with commitments to new brands. They want to feel the affinity and support of those brands through their family’s life cycle. Discounts on additional products or bundles for second and third children all go far in this environment.

#2: Data Insights

• Parents love the data gathering feature and ability to see metrics from any point in time. Owlet produces analytics dashboards that can record whether a baby is sleeping on its front or its back just based on blood oxygen flow. Parents can set oxygen notification benchmarks to go in and flip their babies. Parents also reported bringing data sets to their doctors to ask for a diagnosis on what was happening in their baby’s sleep.
• Parents are buying second monitors 1–1.5 years after initial purchase for their second children, meaning that their first monitor was still in use. This demonstrates a stickiness in behavior: concern with baby’s sleep safety continued past their first birthday and the product is still being leveraged for data beyond that point.
• Startups that have any access to data will do well to route it back to customers. Dashboards and insights can easily be produced from sales data. For example, reassuring your customers that their “baby went through X amount of formula in August, which constitutes 108% of their calcium need”, is incredibly validating to parents.

#3: Content Creation

• Owlet has a small content creation arm that drives blog posts and a parenthood FAQ on the website. The segment is very successful in attracting parents, and the team saw strong impressions and readership as the blogs were designed as helpful sources of information.
• Each week / month, the Owlet app also delivers fun facts such as learning techniques and color sensitivity for the baby’s particular developmental age. Parents love this portion and it inserts a dimension to Owlet outside sleep safety, encouraging a more holistic trust of the brand.
• Content also elevated the start-up from a one-time purchase business to a community. Keeping customers engaged beyond an initial transaction makes them likely candidates for a second purchase or gift.
• Content is incredibly powerful from an SEO standpoint as it allows a brand name to pop up on Google and researching parents / grandparents to be routed to the website.

#4: Trust Establishment

• Owlet switched customers’ Smart Sock 1 for Smart Sock 2 after reports of the battery overheating. This trade-in program used up a lot of time and resources, but the team wanted to ensure that children were safe from any burn risks.
• Most bundle purchases are done by first time parents-to-be. The transaction is a form of security against fear of the unknown. Parents are worried and planning ahead, so betraying that trust would have huge implications
• Advice: Although it is encouraged in other tech domains, Babytech startups should not release a beta product that is not tried and true. The customer is too sensitive and any malfunction could cause permanent damage to the company reputation.
• In an industry of hand-me-downs and one-time needs, acquiring a customer needs to guarantee solid lifetime value. Product teams should constantly check on their customers’ satisfaction as word of mouth will play a key role in lowering CAC.

Case Study: 123 Baby Box

123 Baby Box is a subscription service that delivers products based on a baby’s age and developmental stage. Zarina Bahadur was shopping for groceries when she noticed an exhausted mother carrying a crying baby in one arm, a toddler in the other, and pushing a cart full of baby products. Despite being a full-time college student, she empathized to envision a service she believed every mother would want: a box of baby products that arrives right at their doors.

Founded in March 2021, 123 Baby Box has surpassed their 6-figure revenue milestone and continued to grow beyond. I met with Zarina to learn more about what she has learned from a year devoted to the baby industry.

What does the baby industry landscape look like today?

“I believe the landscape has rapidly evolved in that parents are obsessed with learning about their baby and how to better care for them. They’re looking for resources and products that measure their baby’s health in real time. This starts with taking a closer look at the foods, toys, and even clothes they’re putting on their baby.”

How can a founder be successful in this climate?

“To be successful in this landscape I suggest founders take a deeper look at not just saving parents time but helping them better care for their baby.”

—

Are you building something in this space? I work with early-stage Retail and Consumer startups and would love to hear from you! My DMs are open on Linkedin or Twitter @aylajeiroudi