It’s time for the VC community to stop overlooking the childcare industry
Square. Uber. Zillow. Airbnb. Besides being some of the biggest technology companies, what else do these titans have in common? They all operate in entrenched, highly fragmented, geographically localized and regulated industries. That means they required a lot of upfront venture capital investment to disrupt their respective markets. And the investment has paid off - these are now some of the most valuable companies in the world.
Venture capital alone hasn't funded some of the largest companies. One of today's most successful tech entrepreneurs was funded by massive infusions of investment from the federal government - Elon Musk received $4.9 billion in public subsidies for his companies, including SpaceX and Tesla. Moreover, government investment, via tax credits for electric vehicle purchases, made it more affordable for consumers to buy the green transportation they needed.
But one massive industry has not yet benefited from the large amounts of money that both venture capital and government can provide: Childcare. Families in the United States spend $136 billion on infant and child care every year, and the market is only growing. If you include school-age care and education for all children under 18, that number grows to $212 billion. In investor terms, the TAM (total addressable market) is huge.
To put things in perspective, one new company has raised more funding in 2021 than the entire childcare industry.
So where is the investment? Biden's current compromise on an infrastructure plan does not include many provisions for childcare. Venture investment in this space is nascent and insufficient. In 2020, only $171 million was invested in care and early childhood education. The funding situation has improved in 2021, with $516 million invested in childcare, but it's still just a tiny fraction of the $288 billion of venture capital invested so far this year.
To put that in perspective, a single new company has raised more funding in 2021 than the entire childcare industry.
Funding emerging childcare technology may require a lot of upfront capital. For starters, the industry is regulated and safety is and should remain a priority. Caring for and educating young children takes training, skill and love - it cannot be done by a computer.
But there are so many facets of the industry that are ripe for innovation. Parents sometimes take weeks to find a childcare provider that meets their needs. In some markets, there is not nearly enough supply (three children for every licensed slot) to meet the demand. Assessing quality, pricing and availability is challenging, and payments and business operations tools for the nation's 300,000+ daycares are still often pen, paper and Excel spreadsheet affairs.
This industry just needs patient investors with long-term perspectives.
This is a great time to diversify investment portfolios and support relatively recession-proof companies meaningfully expanding access to childcare. COVID has finally started to bring this largely offline industry online. Parents are now willing to go digital for childcare decisions and providers are adopting new online technologies at a record pace. These tailwinds provide the perfect conditions for startups.
Solving this problem is a huge business opportunity that affects so much else. When the millions of parents with young children can't find care, they can't work. We saw this over and over again since the start of the pandemic. The average American family can spend up to 25% of their income on early childhood care, while the average care worker makes approximately $12 an hour.
Unlocking innovation here at scale will require public and private investment. Government shapes and enables markets, from the explosion of technology that followed from Kennedy's investment in the space race to more recent fundamental investments in wind, solar and electric vehicles. NASA catalyzed dozens of new technologies in the 1960s because it had both a generous budget and the flexibility to work with the best private-sector contractors available to solve specific problems.
The revitalization of the childcare sector would benefit from an ambitious and galvanizing moonshot" goal, like providing universal, free childcare for all Americans.
By collaborating with flexibility and creativity across the public and private sectors, we can achieve a basic shared goal that other democracies have already fulfilled - the accessible provision of high-quality childcare for all members of society.
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