Square Uber. Zillow. Airbnb. These titans are not only some of the largest technology companies in the world, but what do they have in common? They operate in highly fragmented, localized, regulated, and entrenched industries. To disrupt their markets, they needed a large amount of venture capital investment upfront. These are some of the most valued companies in the world, and the investment paid off.
Some of the most successful companies have not been funded by venture capital. Elon Musk, one of the most successful entrepreneurs in tech today, was funded by large infusions from federal investment. He received $4.9 billion in subsidies for his companies including SpaceX (and Tesla). Additionally, consumers were able to purchase green transportation more affordably thanks to tax credits that the government provided for electric vehicle purchases.
One huge industry is still not able to benefit from the vast amounts of money both government and venture capital can provide: Childcare. The market for infant and child care in the United States is growing rapidly. This number rises to $212 billion if you add school-age care for all children below 18. The total addressable market (TAM) is enormous in investor terms.
For perspective, one company raised more funds in 2021 than all of the childcare industry.
Where is the investment? Biden's compromise on an infrastructure plan doesn't include much provision for childcare. Venture investment in this area is still in its infancy and inadequate. Only $171 million was spent in early childhood education and care in 2020. Although the funding situation has improved in 2021 with $516 million being invested in childcare, it still represents a small fraction of $288 billion in venture capital that was invested this year.
This is a good example of how the funding has been distributed. In 2021, one new company raised more funds than all of the childcare industry.
Emerging childcare technology funding may require significant upfront capital. First, safety is a top priority in the industry. It takes skill, training, and love to care for young children.
There are many aspects of the industry that are open to innovation. Sometimes it takes parents weeks to find the right childcare provider. There isn't enough supply in some markets (three children per licensed slot), to meet demand. It is difficult to assess quality, pricing, availability, and payment and business operations tools for the nation's 300,000+ daycares can be challenging.
This industry only needs long-term investors who are patient.
This is a great opportunity to diversify your investment portfolios and to support relatively recession-proof businesses that expand access to childcare. COVID is finally bringing this largely offline sector online. The trend is to make childcare decisions digitally for parents and providers are rapidly adopting new technologies online. These tailwinds create the ideal conditions for startups.
This problem can be solved and it will have a major impact on many other areas. Parents with young children who can't find childcare for their children are unable to work. This has been repeated many times since the outbreak of the pandemic. An average American family can spend as much as 25% of their income on childcare for children under five years old, while the average caregiver earns approximately $12 per hour.
Public and private investment are required to unlock innovation at scale. From the technological explosion that followed Kennedy's space race investment to the recent fundamental investments in solar, wind and electric vehicles, the government shapes and enables markets. NASA was able to catalyze a variety of new technologies during the 1960s due to its generous budget and flexibility in working with private sector contractors to solve specific problems.
A bold and motivating moonshot goal of providing free, universal childcare to all Americans would be a great way to revitalize the childcare sector.
We can collaborate with creativity and flexibility across the public and the private sectors to achieve a shared goal. Other democracies have fulfilled this basic goal by providing high-quality childcare for all citizens.
