Wes Selke was keen to invest in childcare startup MyVillage based on his experience backing an earlier venture from one of the company’s co-founders, Erica Mackey. But it was a visit to the home of a MyVillage provider in Aurora, Colorado, that sealed the deal. The provider had room to care for 12 children but a wait list of 90.
“When you have that kind of supply and demand imbalance, it just demonstrates how big of an opportunity it is,” said Selke, managing director of Better Ventures in Oakland, California. His firm ended up leading a $1.2 million funding round for MyVillage in early 2018.
Millions of families struggle to find high-quality daycare, even though they’re willing to pay high prices: on average, more than $9,500 a year, according to a 2016 report. It’s an opportunity entrepreneurs and venture capitalists have lately picked up on, with the media paying plenty of attention.
But disrupting the daycare system has turned out to be harder than it looked, with several of the startups hitting a basic problem: the platform model that is one of Silicon Valley’s go-to solutions may not work as well in daycare. “This is not your typical tech company where you can kind of fake it and make it,” Selke said. “You’re talking about childcare. You can’t throw out a crappy minimally viable product and hope it works.”
Most companies have focused on setting up platforms to connect parents and qualified providers, at the same time the companies offer a selection of back-end business services to providers. Yet, the “uber-of” formula does not seem to be working as well for daycare. Wonderschool, which raised more than $24 million from investors, including Andressen Horowitz, cut about 25% of its staff in late 2019, as it restructured for growth, said founder Chris Bennett in an interview.
He noted that the company rolled out a quality and safety promise in September 2019, but he declined to share the company’s growth targets. “This is a very competitive market and there’s not a lot of information we want to share publicly,” Bennett said.
Care.com, another company in the space, came under fire in early 2019 for not fully vetting the providers it was listing online for parents.
Other companies in the space include Pittsburgh-based Flexable and Los Angeles-based WeeCare, as well as Chicago-based Pie for Providers and Dublin, California-based Daycare Owl.
MyVillage is taking a slower-growth, higher-control approach: franchising. The company, which raised another $5.95 million in 2019, was founded by Mackey and a partner, Elizabeth Szymanski. The two first met about 10 years ago as business-school students at Oxford University and then went on to work at startups in Africa. Both women started families about four years ago and returned to the U.S., Szymanski to Boulder, Colorado, and Mackey to Bozeman, Montana.
The two women focused on in-home care because the overhead is lower than for larger daycare centers and it’s more affordable than hiring nannies. “There is a much better opportunity to scale that side of the market,” Szymanski said.
Selke previously worked at a firm that backed Mackey in a solar energy startup in Africa called Zola Electric, formerly Off Grid Electric, which remains in business. When he heard what Mackey and Szymanski were up to with MyVillage, he decided to take a look.
“If you can find quality affordable childcare, you’re solving lots of problems for working parents,” Selke said. “And then on the flip side, you have the opportunity to create jobs.”
Mackey and Szymanski initially focused on building a platform to support providers on the business side of in-home care, such as marketing and billing. But they also wanted to ensure high-quality care, which led them to a franchise model, Szymanski said. They took inspiration, in part, from the example of Great Harvest Bread Co., a bakery chain that sets basic standards but gives franchisees a measure of freedom.
“We sort of call ourselves the unfranchise,” Szymanski said. “This is not a cookie-cutter McDonald’s.”
Other companies in the field co-brand with providers and handle back-office operations, like accounting, marketing and recruitment. But they typically do not exert the same level of control that a franchise does.
Wonderschool, for example, suggests curriculum to providers but they are not required to use it, Bennett said. The company works with providers on quality, but the Wonderschool website says: “We know that a high-quality childcare program allows for flexibility in schedule, environment, materials, activities, and positive and caring relationships with caregivers.”
Flexable, meanwhile, has adopted a business-to-business approach. The startup offers a kind of pop-up childcare at events or at businesses that have a one-time need, such as when children are out of school for a snow day or holiday but parents are still at work.
Health care companies represent another market for Flexable, said Priya Amin, co-CEO of the company. Flexable could partner with a clinic to schedule blocks of time when parents can come in for appointments and bring their children, avoiding the problem of no-shows.
The franchise model has slowed growth for MyVillage, Szymanski acknowledged. But, she added, “It really actually weeds people out who are not really dedicated and serious about the business.”
A Brazilian entrepreneur founds Mopi
And it has sparked overseas interest. Elisa Mansur, a Brazilian entrepreneur, co-founded a company called mopi that is expanding access to home-based care starting in Sao Paulo. Mansur said she was drawn to MyVillage’s flexible approach and its focus on areas considered childcare deserts, where care options are limited or non-existent. It is not officially a franchise, Mansur said. But Like MyVillage, mopi is proceeding slowly.
“We are being very cautious about how we grow,” Mansur said.
There is no upfront cost for MyVillage, but the company collects 10% of an in-home provider’s revenue. Some observers might question the 10% cut. But, said Szymanski, the goal is for providers to earn more with MyVillage than they would on their own. The average franchisee charges about $1,000 per month per child and cares for about six children, though many aspire to reach 12.
The company now has slightly more than 100 franchisees, with 70% in Colorado and the remainder in Montana. They hope eventually to expand nationally, Szymanski said
Szymanski said she and Mackey expected half of their franchisees to come from existing providers. But the MyVillage model has appealed primarily to new providers, who make up 95% of franchisees, Szymanski said. They often need more training and other help to get started.
Investors may get antsy, but the trade-off is worth it, said Selke. “If you grow for the sake of growing, then you end up with low-quality programs.”