Introduction: The Entrepreneur's Guide to the Care Economy

Growth among care companies has made the care economy a $648B annual market.¹ While the opportunity in care is already formidable, we believe it is still just the beginning.

Consumers are increasingly more open to spending on care solutions, institutional payers are investing in making families lives easier for a number of compelling reasons, and the government is playing a bigger role in unlocking private sector opportunity. In other words, we’re at the tip of the iceberg in this market–early adopters are enjoying the time, space, and joy freed up from paying for products and services that make their lives easier, and the next wave of care consumers is poised to join them. Based on the findings from our recent survey, under the right conditions, up to 54M consumers could enter the care market or shift from occasional to routine use of paid care.²

And here’s one more exciting finding from our first-of-its-kind market research: the care consumer is not who you think it is. Yes, women are a key target consumer; mothers and daughters of aging parents continue to be pivotal in shaping the care market. But fathers are also ready to jump in like never before, as are families of a wide variety of demographic backgrounds. The breadth of the potential market is far bigger than previously imagined.

1 See our market sizing in the companion Investor’s Guide to the Care Economy.

2 This figure captures the difference between the number of caregivers who reported they are open/willing to pay for childcare and/or adult care and those who reported currently routinely paying for childcare and/or adult care. See the Survey Methodology page for more details.

The Entrepreneur’s Guide to the Care Economy is an ongoing insight and research initiative to help us understand the future of the care economy and enable the entrepreneurs building it to seize this growing and dynamic market. It builds on last year’s Investor’s Guide to the Care Economy.

To start this edition, we 1) identify the expanding care consumer base, what we call the “care cusp”; 2) share what works to help motivate the “care cusp” to pay for products and services; and 3) highlight best practices for working with multiple payers (from consumers, to employers, to insurers and government programs).

To better contextualize this opportunity, it’s important to restate that the care economy is still in its early days as a market and there are significant sociocultural forces giving lift to this market right now. As everyone knows, we live in a time of accelerated technological change across every dimension of our lives, where consumers of all ages are accustomed to adopting new technologies as they become available. This is hastening technology’s role in care. The last few years have also seen seismic cultural shifts in how we approach caring for our loved ones. The global pandemic, of course, heightened the visibility of care labor in unprecedented ways.

While gender equity in work and home may sometimes feel like a Sisyphean struggle, the last 10 years have been a time of rapid change. The paid leave movement has moved the needle significantly in the private sector, and continues to fight the good fight at the national and state levels. A national conversation around “the work that makes all other work possible”--paid caregiving–has taken off thanks to organizers like Ai-Jen Poo. And men are increasingly “coming out” as dedicated fathers and sons who want to care for those they love and/or generally see the benefits to everyone of families where the labor is distributed more equitably and joyfully. Quite simply, we’re finally starting to see progress when it comes to some of the most entrenched barriers in care.

We believe that these cultural shifts are poised to accelerate consumer interest and openness to new ways of getting the work of care done, which will in turn continue to unleash the full potential of the care market. In other words, it’s an exciting time to be both an investor and an entrepreneur working in care. As the market continues to expand and evolve, it’s time to look at the unmet needs of the wide variety of American families and get creative about inventing products and services, and marketing those innovations in ways attuned with today’s busy, caring families. The future in care is wide open.

Emerging Headwinds

Barriers to the Care Economy

Which is not to say a brighter care future is guaranteed. As we publish this in September of 2022, rising prices for basic products and services are being felt acutely across the country, and the world. As inflation rises stress for families compounds. However, the vast majority of caregivers asked to rank which of 13 spending categories they would be most likely to reduce spending in if their child care costs increased by 20% said they would not reduce child care spending first. When those with adult caregiving responsibilities were asked the same question regarding adult care costs increasing by 20%, 94.5% of respondents said they would not reduce adult care spending first.³
‍
In addition, when asked where they would reduce spending should care costs increase by 30%, people were even less willing to reduce spending on care than other categories. This demonstrates the potential resiliency of care, even in less than ideal market conditions.

Currently, many entrepreneurs are also experiencing a tightening venture capital investment market. Venture capital investment has continuously fallen in the first half of 2022 for early-, late-, and growth-stage VC investments. Seed investments, by contrast, are more resilient so far – as of May 2022, seed-stage investments are 11% above the 2021 monthly average.⁴

While the private sector is wavering, the public sector is stalling. Thwarted care policies at the federal level created some cautious optimism, followed by disappointment and additional headwinds for care entrepreneurs and seemingly unending challenges for American families. The Build Back Better Act proposed transformational care investments such as more affordable childcare and expanded paid leave, but the bill was unable to garner sufficient Congressional support; instead, the White House is pursuing select elements of the bill’s investments in care, such as the expanded child tax credit and universal Pre-K.

3 Spend categories were defined broadly and included non-care spend, including housing, healthcare and education spend.

4 Crunchbase, 2022

Strong & Enduring Tailwinds

Pushing the Care Economy Forward

There are good reasons to believe that tailwinds will continue for the care economy even in a challenging macroeconomic environment. Some of the promising dynamics at play:
‍

Care benefits, while nascent, have become more normalized for many large employers. Years of a tight labor market and pandemic-driven work-from-home realities – including pandemic-induced increases in care responsibilities – have led employers to offer more and expanded care benefits to their employees. This expands the payer base available to care companies.
Medicare Advantage Plans are increasingly partnering with and funding new care products and services that have the potential to produce better long-term outcomes and reduce long-term care costs.

Many new care companies are being founded, and care economy companies across the spectrum of childcare, adult care and home care have received meaningful investment. As the care economy becomes more visible and more widely known writ large, it will become easier for founders to find eager investors who understand the market and appreciate its scale.
With policies stalled, slowed, or not passed at the Federal level, states have taken up the baton. For example, using leftover federal stimulus dollars, states enacted far more care legislation in 2021 and the first half of 2022 than they have in recent years.⁵ In fact, at least 300 childcare bills were passed by state legislatures in that 18-month period.⁶ States have until 2024 to spend remaining American Rescue Plan Act (ARPA) funds, and many are getting creative with their solutions. New Mexico and Nebraska both increased income eligibility to 200% of the Federal poverty line, and Montana capped childcare costs for low income families at $10/month.⁷

5 New York Times, 2022

6 New York Times, 2022

7 .Center for American Progress, New York Times, 2022

The private market expansion of care is clearly not slowing down. Care economy companies continue to benefit from large venture capital investments. Over the five years from 2016 to 2020, more than 200 new, venture-backed care companies were founded. In 2021 alone, more than $3B was invested in care companies. In just that one year, at least 80 care companies closed one or more angel or seed-stage funding rounds. At least 45 care companies closed one or more early-stage funding rounds, and at least 55 care companies closed at least one late-stage funding round.
‍

No matter the macroeconomic fluctuations in the coming months and years, the need for care products and services will remain high. Care founders and care companies have challenging and meaningful work ahead. At Holding Co, we’re excited to work right alongside a wide variety of these innovative new companies. Together, we are building a care system for the 21st century.
‍

Building a care company in times of uncertainty

Interviews with care entrepreneurs have shed some light on the realities of building a company in a challenging macroeconomic environment. One seasoned care founder building in the employee benefit space shared a few recommendations for navigating the upcoming season of economic uncertainty:

Source: A national survey with n=2485 respondents to understand household willingness to pay for products and services that reduce the time spent on household management tasks. Conducted in April 2021 by McKinsey & Co.

Many early stage care companies should consider moving to B2B even more quickly, given the accelerated potential for scale within the employer market

Bring in advisors with expertise in building a business with $50M+ annual recurring revenue (ARR) - professionals who have done it before and can help accelerate your path there

Many employers are beginning to experience point solution fatigue, given the wide range of options. Actively look to partner with a larger player or care services platform to break through employer exhaustion

Examples of notable VC deals at the growth stage across three care segments through 2021 include:

Household management

Handy, an online platform designed to provide an easy and reliable way for people to hire cleaning and handyman services, has received $111M⁶in VC investment since its founding in 2012

Aging-at-home

Papa – an elderly care management platform that connects college students and senior citizens – has raised $241M⁷in VC investments since its founding in 2017

home-based care

In-home elder-care service provider Honor has received $625M⁸ in VC investment since its founding in 2014

8 Crunchbase

9 Crunchbase

10 Crunchbase

Venture Capitalists are dedicating funds to the care economy.

Over the last five years, several VC funds committed to investing in the care economy have launched, and pre-existing VC funds have simultaneously made a play in care.

Magnify Ventures and Springbank Collective are two new venture capital firms that have launched with specific intention to invest in care economy companies. Magnify Ventures raised a $50M fund in May of 2022,¹¹ with an investment thesis grounded in early-stage tech start-ups focused on parenting and family life, aging innovation, household optimization, and reimagined work-life. To date, Magnify Ventures has made eight investments¹² in care companies with a focus on elder care and maternal/child health.
‍
Springbank Collective takes a unique perspective on the care economy as a critical part of the often overlooked infrastructure needed to advance gender equity. Since 2019, Springbank has made over 25 investments in this infrastructure, often taking an expansive view of care to include categories like financial caregiving, care navigation, mental health, and employee benefits.^13
‍
Likewise, long-established venture capital firms are also beginning to focus on the care economy. For example, Andreessen Horowitz and SoftBank were both lead investors on at least three care deals in 2021, further underscoring the growing formalization and broad recognition of this market.

11Forbes, 2022

12 Magnify Ventures

13 Springbank Collective

Lessons learned about working with Venture Capital investors:

Venture-backed care entrepreneurs shared with us a range of lessons for successfully working with VCs and attracting VC investment.

Care-specific lessons learned:

Many VCs are still on the early side of their care-learning journeys. As such, don’t skimp on educating them on the care market. Articulate the scale of the total addressable market, as well as your potential to reshape that market landscape. This necessitates real story telling. One entrepreneur shared that, “You have to put in the time and work to educate your investors when it comes to care. Paint the picture of exactly who will benefit from your services and what their day-to-day looks like – maybe your end user struggles to put food on the table; maybe they have three kids at home and two aging parents.” This entrepreneur emphasized telling the story of your customers in as much detail as possible, and to hammer home the scale of that problem – “That’s how you catalyze the necessary mindset shift in investors, who may not be familiar with the customer base or their care needs.”

Look for venture capitalists and investors who already have conviction about the care economy and market opportunity, particularly those on the list at the end of this chapter who have already led an investment in care. One entrepreneur shared, “Our funding success has been with investors who have first-hand experience with the care economy or who have already done enough research to have their own conviction about the market potential and are looking for the right set of companies to fund.” In this same vein, another entrepreneur observed, “The majority of our investors are either mothers themselves or have firsthand experience with care challenges.”