OnsiteKids In the News: Clutch of Child-Care Startups Win Over VCs Despite Funding Drought
A handful of technology businesses in the child-care sector have overcome a funding drought and raised capital recently to tackle one of the biggest challenges in the American economy: expensive and inaccessible child care.
These companies see growing demand as both corporations and local governments are becoming more willing to finance child care for families.
Los Angeles-based Upwards is now valued at over $100 million after it raised a $21 million Series B led by venture firm Alpha Edison—one of the largest venture financings in the child-care space since 2019. M13 and Fika Ventures also participated. Upwards administers government subsidy programs, runs corporate benefit programs, operates a marketplace for families and caregivers, and provides software tools to daycare providers to manage their operations.
New York-based Mirza, whose software helps low-wage workers access public child-care dollars, completed a $3.3 million seed round late last year led by Firework Ventures. Mirza markets its technology to corporations and Medicaid insurance plans for use by their workers and recipients.
New York-based OnsiteKids, which is proposing to build and operate modular child-care centers in the parking lots of hospitals and factories, just raised about $210,000 in a friends-and-family round to prepare for its launch.
These companies are the exception, not the rule, since capital has largely dried up in this category after a spurt of funding activity during the Covid pandemic.
Venture investors put less than $20 million into U.S. child-care startups last year, a drop in the bucket of venture deals overall, according to data from research firm PitchBook Data. Venture funding in the space has declined since the peak of $372 million raised by child-care startups in 2021, per the data.
“Child care is not AI. Before that, it wasn’t cryptocurrencies or NFTs,” said Jessica Chang, co-founder and chief executive of Upwards, formerly known as WeeCare, about the fact that her sector is often not the top priority of venture investors.
Yet the child-care market is large and there are ways for private technology companies to grow in it, she said.
Upwards said it generated between $15 million and $20 million in revenue last year. Its customers include companies such as
and Chobani, as well as the U.S. Army Reserve. More than 1,000 military families have received child care support during drill training since September through the Army pilot program, according to Upwards.
Upwards is also administering subsidy programs funded by the California Department of Social Services and others. The company has awarded $1.7 million in subsidy payments to families in California so far, for example.
Companies are hoping to increase worker retention and reduce absenteeism. American employers lose $23 billion annually in productivity due to child-care challenges, according to a study published this month by the Council for a Strong America, a bipartisan nonprofit organization. Another incentive for corporate interest recently is that the federal government required companies seeking to qualify for the Chips Act to provide child-care benefits to workers. The Chips Act provides subsidies for domestic semiconductor manufacturing.
Local governments, meanwhile, have long been running subsidy programs and are experimenting with new approaches, especially in light of an expiration of a pandemic-era federal program for care providers.
“There is already a huge amount of public funding for child care that’s untapped,” said Kate Ballinger, principal at Firework Ventures, which invested in Mirza. “It’s a no-brainer to try to bring technology into play,” she said.
Mirza has started running a corporate pilot program, according to Siran Cao, the company’s co-founder and CEO. The company’s technology allows workers to find out if they are eligible for subsidies. Cao said the landscape of government benefits is changing quickly and many families don’t know that they qualify.
“We need affordable child care to be able to work. At least in this country the best way we can go about it right now is reaching folks through employers,” Cao said.
However, plenty of obstacles stand in the way of startups trying to grow in the child-care sector.
Selling new benefits programs to corporations, for example, requires overcoming inertia and getting buy-in from various departments. “It’s just complicated for startups that have a short runway to really crack that,” said Ilnort Rueda Saldivar, co-founder of Arvorie, a child-care benefits startup that has stopped operations.
More generally, the role of technology in solving the labor issues in child care is likely limited.
“To pay a human to care for another human is going to cost a lot of money,” said Courtney Leimkuhler, co-founder and partner at venture firm Springbank, who says she has struggled to find venture plays in child care that are scalable and not too capital-intensive.
Another problem for venture investors: “We just don’t have a lot of examples of large exits in the space,” Leimkuhler said.
Startups say that technology does have a role in making child care more affordable and accessible.
The vision for OnsiteKids, for example, is to use modular construction technology for its centers that would keep costs for corporate sponsors manageable and utilization rates high, said Carmi Medoff, the company’s founder and CEO. Should a care center get filled up, the company could quickly increase its footprint, she said.
Medoff said that with increased state and federal incentives, and growing corporate interest in offering child-care benefits, this is a good time to build a business in child care in the U.S. “We are all marching in the same direction,” she said.
