What’s Happening in the Market
Lirvana Labs just raised $5.3M, led by Chingona Ventures (which invested in Brightwheel). Lirvana’s Yeti Confetti App is a learning app aimed at early elementary and Pre-K students with a learning platform that adapts as students progress through a series of games.
Byju’s was just blocked from selling shares by a Singapore-based arbitrator, as the company breaches the terms of a loan from Indian billionaire Ranjan Pai. Once valued at $22Bn, the company has spiraled down to a $250M private valuation by some of its investors.
What We’re Talking About
Visa denials for international students from African countries are far higher than elsewhere in the world, which is leading to some advocates and congress people questioning why. Visa applicants from European countries have about a 90% acceptance rate, versus about 22-25% for Ethiopia, Kenya, and Nigeria.
Earlier in March, Massachusetts Senate unanimously passed a child care bill that expands state investment: It expands subsidies for low-income families and devotes about $1.5B in early childcare funding.
One Big Idea: Who Really Benefits from Childcare Funding
More than 14.4 million (or 68%) of children and their families in the US lack access to affordable child care. After the expiration of nearly $52 billion in COVID relief funds for the child care industry, states are now rushing to plug in the funding gap.
Minnesota has increased funding for the Early Learning Scholarships program by more than $250 million. New York has increased its early child care subsidy fund by about $450 million. Many of these investments are aimed at increasing subsidies and waiving copays. You can see a pretty comprehensive list at American Progress.
One would hope that these benefits would primarily accrue to low income families and children. But with all of this funding pouring into early childhood education, private equity and investment firms are also set to earn a windfall.
About one in ten childcare centers in the country are now owned or managed by private equity firms (source: a report by Capita) and they’re gobbling up centers across the country, at a growth rate of about 10%. Four of the five largest childcare chains (KinderCare, Learning Care, Primrose, and Goddard) are owned by private equity firms, and the fifth largest–Bright Horizons–is publicly traded and previously owned by Bain.
In 2022, “the 50 largest for-profit child care chains opened or aqcquired 537 new centers, an 8 percent increase from the previous year.”
- The New York Times, Can Child Care Be a Big Business?
With the increased funding are often unclear mandates around how to use that funding, such as in Vermont, where childcare centers have few guardrails on spending. Often, as we’ve written about before with student vouchers, privately run institutions increase tuition: “Customers have more money? Let’s gobble it up.” Many states have no cap on tuition hikes, so as subsidies increase, so too does tuition.
The majority of investor-backed chains serve wealthier families. Capita studied the zip codes for many of these centers and found that none of Goddard’s 95 childcare sites served a census tract with 20% or more of the population participating in SNAP. They also concentrate in states with subsidies (such NYC and Pre-K For All) and areas with high income earners and low wage employees (such as Arizona and Florida). That’s been by design, as these firms profit-maximize. They keep costs high and staff salaries low. In Seattle, Bright Horizons charges about $44,000 per year per Pre-K slot, but pay their employees about $23 per hour, according to job postings.
With all this new state funding pouring in, and as subsidies are increased and eligibility caps expanded, that means that these investment run chains will look a bit further downstream. But that means it’ll be harder for the smaller mom-and-pop run chains to operate long term, with well-capitalized, scalable childcare chains looking to eat up more of the middle-income market share.
It’s good that the US is investing more in early childcare, since we lag behind other OECD countries (spending about 0.4% of our GDP on early education and childcare, vs. 0.8% of OECD countries [and Iceland sits at the top with 1.7%]). But we need more stipulations on how this money can be spent, and more caps on how much money investment-backed chains can access (Massachusetts slipped rules into their funding bill that limit how much money can be tapped by these chains).
I’m just skeptical. PE firms aren’t necessarily known for making decisions that benefit the public good, and early childcare is very much a public benefit.