Investing in Health | March 1, 2023

How private investment in the care economy can work for care workers as well

Rachna Saxena and Shruthi Jayaram

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Guest Author

Rachna Saxena

Guest Author

Shruthi Jayaram

The pandemic heightened awareness of the foundational role that caregiving plays in the US economy. Yet care infrastructure for childcare, eldercare, and other caregiving needs in the US today remains broken. 

Public investment is fundamental to propping up this system, but remains insufficient to support viable, sustainable infrastructure. Private investors are increasingly entering this space to meet consumer demand and capture the growing market. 

Last year, child-care startups brought in almost $108 million in venture capital funding, a 128% increase over 2019. Investments in homecare and eldercare also increased nearly threefold between 2017 and 2021. 

Driving this trend are the demographics of the U.S. such as the growth of the 65+ population will increase the need for care. The pandemic highlighted the impact of poor care infrastructure on the nation’s businesses. Recent analysis found that insufficient infant and toddler support alone is leading to lost earnings for workers, lower productivity for companies, and thus lower tax revenues for cities and states to the tune of $122 billion annually – nearly double the annual loss in 2018. Investors recognize the large market opportunity here that is not being filled through government investment. 

Investors are increasingly aware of the growing breadth of the care market. It is not just brick and mortar daycares and retirement homes, but rather a range of businesses from care planning apps to medical assistance devices that are ripe for investment, with a market valued at nearly $650 billion

And women still spend more time than men on unpaid care work in both absolute and relative terms. Paid care work is also still overwhelmingly undertaken by women – and disproportionately by women of color. As the number of investors taking a gender or racial equity lens to their investment strategies has grown, they cannot easily ignore the care sector.

Investor interest

Last year, our Justice, Equity, and Economic Mobility practice at Dalberg partnered with the National Domestic Workers Alliance Labs – the innovation arm of the largest domestic worker rights organization in the country – to map over 500 investors in this space and understand their strategies. 

These investors represent only a fraction of the market, but provide useful insights on the commercialization of care. Our analysis found that a concentrated set of players were historically driving investment – for instance, just 2% of investors accounted for nearly 10% of total dealflow over the past few years. 

The ecosystem of investors is rapidly expanding and becoming more diverse, ranging in return orientation from impact maximizing to profit maximizing. Eighty of the institutions we mapped were not traditional investors, but rather care companies that merged or acquired another business to maximize efficiencies and profits. A third were care-explicit investors, such Springbank Collective, that have a partial focus on care as a vertical (e.g., childcare or eldercare) or as a result of a specific investment strategy (e.g., gender lens investing). Over 80% of these investors focused on seed or early-stage investments and many were balancing both impact and returns. 

The remaining half of investors invested in care-focused companies as part of aligned verticals, such as Bain Capital Double Impact, which invested in HiMama through its education and workforce development strategy. At least 20% of this group focuses on growth-stage investments, such as the often controversial influx of commercial private equity investment into nursing homes. 

Care workers left behind

While this influx of capital can benefit struggling consumers, the same benefits have not materialized for care workers. 

Across the investments we analyzed, we found a stark lack of consideration for how to support and value the workers that provide many of these care services. The roots of this oversight run deep: the historic feminization and subsequent devaluation of care work in the US, the capitalist system built on “cheap” domestic labor, limited visibility of care workers to investors (despite their intrinsic value to the functioning of the care economy), and limited investor understanding of what workers need and want. 

Addressing this challenge is both a business and moral imperative. Unless the care economy provides high-quality, well-paying jobs, it will not be able to attract enough workers to provide adequate care to the millions in need. 

More critically, focusing on workers is essential for those that care about impact: care work is undervalued and dramatically undercompensated. For instance, childcare workers make an average wage of just $13/hour and more than 15% of childcare workers are below the poverty line in 41 statesBeyond low baseline wages, many workers labor long hours without overtime pay, do not receive paid sick or family leave, and lack health insurance.

Valuing care workers

A few key shifts can ensure that private investment benefits both consumers and workers: 

  • Enhancing the value proposition for workers in intermediary platforms. UrbanSitter, for example, connects workers and employers. We analyzed nearly 100 deals over the past decade in this category and found strong consumer demand driving at least 4x growth in investments, mostly seed and early-stage. In fact, the biggest constraint to scale is lack of sufficient labor given the mass exodus of workers to higher paying roles. Thus, investors have strong incentives in ensuring these platforms increase the value proposition for workers.

    Beyond increasing job visibility, these platforms can also provide infrastructure that enhances job quality, such as templates for worker contracts and services for payroll and taxes. Features such as employer ratings could also enhance workers’ voice and agency. While it is essential to be mindful of potential downsides of these businesses (e.g., locking out undocumented workers and wielding price-setting power that sets wages below a livable wage), there is also strong potential for a win-win for both investors and some segments of domestic workers. 
  • Growing the nascent market of companies that directly serve care workers. Good examples are Wonderschool and Care Academy. Most investments in this segment are seed and early stage. Still, there is significant promise here both in terms of potential returns for investors but also the potential to have an outsized impact on the training, benefits, and value for care workers. That is a benefit to workers and more broadly to an industry that is constrained across the board by worker shortages. 

    Investors often cite limited pipeline and lack of understanding of care workers as key barriers in this segment, but these could be mitigated via better information and partnerships with domestic worker organizations to help drive access, uptake, and scale. 
  • Supporting investors to incorporate a worker lens into their due diligence. More data is needed to highlight the economics of providing quality jobs for care workers through care businesses. In addition, tools that help investors ask the right questions can ensure beneficial versus extractive investor-worker relationships. 
  • Regulating commercially maximizing investments that reduce quality jobs and ultimately harm those that require care. Data shows that investments into companies that provide care services and employ workers – such as daycares or retirement homes – can have negative effects on workers even as consumers continue to pay high prices. The majority of the investments in this space are mature stage, driven by mergers and acquisitions among care companies and commercially focused private equity investments. 

    Private equity buyouts focused on elder care and disabled care have nearly doubled between 2017 to 2020. Competition in this segment is putting pressure on margins, leading to worker layoffs and driving down compensation and benefits. In fact, these investors are exacerbating labor shortages that ultimately constrain their own companies’ long-term prospects. The Biden administration is moving to oversee and regulate private-equity ownership in some businesses such as nursing homes, but more oversight is needed across business categories. 
  • Shifting the narrative on care. Care remains persistently undervalued in the US. Demonstrating that care is an investible sector can help shift this view. Even businesses that are tech-enabled (e.g., Cleo) or direct to consumer (e.g., Little Spoon) and bypass traditional care workers raise awareness on the size and fundamental nature of the care economy. Advocates should track this investment momentum, alongside a range of other narrative change efforts, to shift the value we place on care. 

Care infrastructure is broken in this country. Private investment can be a part of the solution – but it must work for both consumers and workers. As recent labor shortages have shown us, care workers are the backbone of this field and their work needs to be granted both the dignity and compensation it merits – from a standpoint of values, impact, equity as well as from a pure standpoint of investing in your most critical assets: caregivers. 

Rachna Saxena and Shruthi Jayaram are partners at Dalberg Advisors.