Care.com, the big business of babysitting
How CEO Sheila Lirio Marcelo persuaded Wall Street to bet $91 million on Care.com.
OVER LUNCH AT Naked Fish in Waltham one day in the fall of 2006, venture capitalist David Skok presented a budding tech entrepreneur with a clear choice: You can pursue the pleasure business or the pain business. It’s that simple, said the seasoned investor, a general partner at Matrix Partners. In the months that followed, his apprentice chose pain.
That may seem like an odd way to characterize Sheila Lirio Marcelo’s path these past eight years. After all, Marcelo, 43, is today the smiling face of Care.com Inc., the company she founded not long after that lunchtime meeting. Since then, the CEO has become a fixture of online ads, TV commercials, and morning television talk shows, including Good Morning America, plugging the company that has become something of an Amazon.com for caregivers, connecting parents with baby sitters and nannies, the elderly with home health care providers. So far, more than 6.4 million families worldwide have signed up to use the service — people looking, Marcelo explains, to ease their pain.
That meeting with Skok came during Marcelo’s half-year tenure at Matrix (now based in Kendall Square) as a so-called entrepreneur in residence. A job title that’s unique to the venture capital industry, it is a coveted temporary position, one from which would-be company founders can test out new ideas before jumping in all the way. In return for mentorship, space, and a salary, the host firm gets first crack at investing in any companies dreamed up in its offices. Matrix can afford to be generous to people it sees as promising. The firm has had a lot of wins over the years, including backing Apple in 1979 and, much more recently, Oculus VR, the virtual reality company that Facebook paid $2 billion to acquire in March.
As Skok recalls it, the partners loved Marcelo’s plan to build an online marketplace that would professionalize the informal economy populated with teenage sitters, part-time dog walkers, and freelance tutors — she just needed a nudge. The site could become a resource for solving all sorts of problems parents face, such as finding an au pair who meets a family’s particular needs — one who speaks Cantonese, say, or is trained to care for children with disabilities.
But Marcelo, who had graduate degrees in law and business from Harvard and had already helped run two Internet startups, was worried about perception. Too worried, she now says. If she went for Care.com (the pain route) instead of running, say, a mobile gaming company (pleasure), she would be pigeonholed. “I was worried about being perceived as a female entrepreneur settling on a female business,” Marcelo said recently at her office in Waltham. “I had friends saying, ‘After all these degrees, and your experience, you are going to run a baby-sitting company.’ ”
BUT WHAT A baby-sitting company. The “settling” question hasn’t really been relevant in years, and was definitively put aside when the company went public in January, becoming the first venture-backed Massachusetts tech firm to debut on Wall Street in more than 18 months. The initial offering raised $91 million, and the stock price jumped 43 percent on the first day of trading. Since then, the price has fallen significantly, and Care.com was hit with negligence and wrongful death lawsuits that will test the company’s strength.
In some ways, matching caregivers with people who need help is an obvious online business. Care.com is a middleman. It helps families find people in their areas who will watch their kids, walk their dogs, or take care of elderly family members. It does not employ any of the care providers. Paid membership gives families access to background-check options that look into criminal histories; it also provides access to references users can check before making a hire. Care.com counts as its potential customer base anyone looking for caregiving services of any kind — and, it turns out, that’s just about everyone at some point in their lives. In the United States alone, more than 32 million children are in some kind of child care while their parents work outside the home, according to the Census Bureau’s latest figures, from 2011. Families spend an average of $179 a week on child care for young children, according to the agency, and for many households, it’s the biggest single expense.
VC David Skok was an early believer in the idea’s potential. With child care, in particular, he says, “that’s the one where it’s really crystal clear that your customer really does have their hair on fire.” As of today, Care.com has attracted 5.4 million caregivers working in 16 countries, which, along with the families looking for help that the company has signed on, means a membership of 11.8 million. But it took a real force to turn that kind of potential into a business this big.
Entrepreneurship was baked into Marcelo at an early age. She grew up in the Philippines, where her family operated a mix of businesses — coconut production, a rice mill, a trucking company, chicken farms. In 1977, when Marcelo was 6, her parents came to the United States in search of new opportunities and moved to Houston, a center of the Filipino community that immigrated to the States in the 1960s and ’70s. Soon after, Marcelo became a part of the restaurant her parents opened, answering the phone because her English was so much better than theirs.
But it wasn’t business that Marcelo’s mother had in mind for her daughter, the second youngest of six children. It was law. She was going to be the lawyer in the family. Another child would be a dentist, one a doctor, and another an accountant. So, after she graduated from Mount Holyoke College with an economics degree in 1993, Marcelo applied to law school at Harvard. Instead of going that next year, though, she started working. She soon got a taste for the tech economy of the 1990s. It was a time of great growth and potential, and she was hooked. In 1995, Marcelo did go to Harvard to pursue her law degree, adding, in a dual-degree program, a master of business administration.
Marcelo pursued another track in her 20s that would also come to define her career path: motherhood. She and her husband, Ron Marcelo, married young. They met as undergrads when Sheila visited Yale for a conference of Filipino student organizations. It was a brief romance, and soon they married. She was 20, and he was 21. By her sophomore year, Sheila was pregnant with their first child.
Two decades later, that story would figure prominently in the lead-up to Care.com’s initial public offering when Marcelo, her cofounders, and the bankers underwriting the deal pitched the company to potential investors, analysts, and financial advisers. Marcelo’s early adult life, her struggle to balance motherhood with college and those first busy career years, became a part of the narrative behind the company’s evolution.
“As immigrants without family nearby, my husband and I struggled to find care for our infant son, Ryan,” Marcelo said in the speech she gave dozens of times to analysts and potential investors. “We had to scramble for care throughout our college and grad school years, and then during our careers.”
When Marcelo was testing out her pitch with Morgan Stanley’s bankers, “you could hear a pin drop,” says Michael Grimes, the company’s head of technology banking and its lead banker for the Care.com IPO. Grimes has been behind some of the highest-profile tech IPOs in the country over the past decade, including Facebook, Google, and LinkedIn. Marcelo mentioned “pregnancy,” he says, and “that’s just a word that pauses a business meeting when you don’t know where it’s going.” But for Marcelo, pitching Care.com, it worked. “It was a lead-in to an incredibly personal story that highlighted the value” the company offered investors, says Grimes.
WHILE PEOPLE LOOKING FOR day care, a nanny, an au pair, or a weekend baby sitter once relied on recommendations from friends and other families, the Internet gave rise to listservs, blogs, and chat rooms that offered advice and then early baby sitter-finding services such as Sittercity.com, which was founded in Boston in 2001.
When Care.com launched five years later, it sought to fill a void between free online classified ad services such as Craigslist — still its biggest competitor on the Web, according to Care.com cofounder Dave Krupinski — and high-end nanny placement companies. It would offer many of the same screenings, background checks, and a la carte expert-finder options as premium services, but charge much less because it spread out the cost of those services to a larger network of users. Its subscriptions today range from $37 to $147, depending on the duration of the membership (one month to 12 months). “It felt like to me that there was a nice big gaping hole there,” says Patricia Nakache, an early backer and general partner at the Menlo Park, California, venture capital firm Trinity Ventures, “between the free experience and the really expensive experience.”
Trinity ended up investing $20 million in the company to help it capture that massive middle of the market. Nakache assumed an active role in helping shape Care.com and took a board seat, making regular trips to Waltham. Nakache had a particular interest and expertise in Internet companies that target women, who have quickly become the biggest spenders on the Web. She has invested in online retailers thredUp, a seller of used clothing for women and children, and Weddington Way, for brides-to-be.
WALL STREET KNOWS there’s money to be made from female consumers on the Web, says Nakache, which was another selling point for Care.com as it sought backing. Analysts and investors who had never hired a nanny or sitter themselves bought into the idea that Care.com was tapping into a quickly growing market. “I know she would come out of some investor meetings and say that people just didn’t get it,” says Nakache. But others did. All you have to do is look at the success of Zulily, the Seattle-based online seller of kids’ and moms’ wear that went public in 2012, to know that investors of either sex see dollar signs in Web startups marketing to women. Care.com, says Nakache, represents “the perfect storm of purchasing power of moms and women.”
Soon after Care.com launched in 2006, some competitors accused Marcelo on an online message board for investors of unfairly using her position at Matrix to research her competition, having met with some of them while working there. Marcelo quickly denied doing anything inappropriate and asked whether “every online dating site that came after Match.com” behaved unethically. And these days, for every conceivable online marketplace for any kind of service under the sun — from hiring a car to using your smartphone to getting groceries or beer delivered to your door — there are plenty of upstart companies vying for consumer attention.
Altogether, Care.com raised $111 million before its initial public offering this year, and it used much of that cash to fuel an aggressive path of growth. In 2012 and 2013, it acquired four companies, including German care matching service Besser Betreut, the business that gave Care.com a foothold in the European market. In its first acquisition since becoming a public company, Care.com announced in July it was buying Citrus Lane, an online subscription service that sells packages of kids’ toys and baby products. It spent $31 million on that deal and may pay an extra $17.6 million if Citrus Lane hits certain milestones. While the deal puts Care.com in the trendy business of gift box subscription, it also gives the company access to more than 400,000 Citrus Lane members, 45,000 of them with enough disposable income to spend $19 or more per month on baby stuff.
And Care.com needs more paying customers. While its membership numbers in the second quarter of 2014 grew 44 percent over the same period last year, it is far from reaching profitability. In fact, its losses climbed 62 percent to $9.9 million in the same time period. Wall Street appears wary of new Internet stocks, and over the summer started dumping even big-name companies, including Pandora and Twitter. And that same phenomenon could be taking a toll on Care.com’s stock price. It has plummeted since its impressive debut on the market earlier this year and has been trading well below its opening price of $17 — in early August, below $9 a share.
A stock price slump can be hard on a newly public company. Employees, many of whom have equity, become overly focused on share price. And executives, who typically have even more equity, are overly worried about achieving short-term market gains instead of long-term business goals.
But the company’s acquisition announcement could spark growth and turn that around. Analysts at JP Morgan praised the deal in a report, saying Citrus Lane could give Care.com new marketing opportunities and the chance to win over new customers.
According to Matrix’s Skok: “What happens in a startup is that you get tons of setbacks, and you need people who are absolutely driven.” In particular, it takes resilience and focus to look beyond market fluctuations. “Many people aren’t cut out to be entrepreneurs. They don’t have the gene.” But Marcelo is not one of those, says Skok: “She’s got this great natural leadership quality.”
The bigger threat to Care.com’s continued success involves trust and whether it can maintain the confidence of families using its services to find caregivers for young children or elderly adults. That relationship is being tested by a wrongful death lawsuit filed in late July by a Wisconsin family that used Care.com to hire the nanny now facing charges of killing their 3-month-old baby. According to reports about the lawsuit, the family used Care.com’s background check, but the sitter hired through the site had a “history of alcohol and violence,” including several driving-under-the-influence citations, that wasn’t discovered in the check. The infant died in July 2012 from blunt force while in the sitter’s care; she was allegedly drunk.
That lawsuit and the stock free fall could be a one-two punch for Care.com. It will take resilience and focus for the young company to endure these blows. Care.com’s comment on the case is: “This was tragic and our thoughts and prayers are with the family.” In a Globe interview that occurred before the case was filed, cofounder Krupinski said Care.com invests heavily in safety, that it is paramount at the company. “There is zero tolerance for anything that goes wrong in the care industry,” he said. “So we want to make sure that we are investing there and educating families about the level of due diligence that it’s their responsibility to do before they hire a caregiver.”
SHEILA MARCELO HAS BEEN DESCRIBED as “tireless,” “charismatic,” and a “force of nature.” Diane Hessan, the chairman of Communispace, a Boston-based market research firm, ranks Marcelo among the Boston area’s top business leaders overall. “She is also a great woman entrepreneur,’’ says Hessan. “But it’s not the first adjective that I would use to describe her as an entrepreneur.”
Still, Marcelo is a mother of two and a wife. After having her first son, Ryan, as an undergraduate, she had son Adam while earning her two postgraduate degrees. She and her husband had to struggle with many of the choices working families confront as careers get in the way of parenthood and family. Hessan recalls running into Marcelo, on her way to New York for an appearance on Today, at Logan Airport. At the time, Marcelo was feeling upset about being away too much. “By the end of the conversation, we both decided that work-life balance was impossible and probably too difficult to measure, anyway,” says Hessan.
Few women make it to the chief executive’s office. In 2013, just 3 percent of new CEOs were women, according to PricewaterhouseCoopers. And less than 5 percent of current Fortune 500 companies have female chief executives. In Massachusetts, women hold just 10 percent of the executive titles at the state’s 100 largest public companies, as tracked by The Boston Club, an organization for female executives. Facebook’s chief operating officer, Sheryl Sandberg, gave the commencement speech at Barnard College in 2011, telling graduates that “the most important career decision you’re going to make is whether or not you have a life partner and who that partner is. If you pick someone who’s willing to share the burdens and the joys of your personal life, you’re going to go further.”
Marcelo is open about the fact that she’s relied on her husband during her rise. Most of the time he’s been the parent who dropped the kids off at school, coached the teams, went to the games, helped with their homework, he says. “She’s definitely not spent as much time with the kids as I have,” says Ron Marcelo, who works part time at Care.com as a director of marketing and business development. He’s not the spouse with the strong career ambitions, either, and has earned less than Sheila almost every year since they left college. When he graduated from Yale, Ron went to work for City Year, the Boston-based education nonprofit; she went that same year to become an analyst at Putnam, Hayes & Bartlett, a management consulting firm. When it became clear that Sheila was bound for Harvard Business, where she graduated with honors, Ron attended, too, only at her urging. He’s not the business school type. But Sheila has incredible powers of persuasion.
As they each fell into careers, it became clear Ron would take on more of a hands-on role with their children. She was being promoted quickly at Upromise, an education startup in Newton getting a lot of buzz, and became vice president of product management and marketing. She later became vice president and general manager at The Ladders, a job-hunting website for positions that paid more than $100,000 a year. That company was based in New York City, and Marcelo and her family lived in the Boston area. She eventually decided the commute was too taxing on the family and went to Matrix, a firm she got to know when it invested in The Ladders, to figure out her next move.
Even in the early days of Care.com, Marcelo wanted to build a company that was on a “mission” not only to help families with their needs at home but also to help keep more women in their careers. “At the micro level, we are helping empower women and families, then we are helping at the employer level to ensure that we can keep women in the workplace,” says Marcelo. “And we are helping at the macro level, because if you want countries around the world to increase GDP, you must have female participation in the workplace. You can’t do that unless you have great child-care and senior-care infrastructure.”
Marcelo wouldn’t talk about plans for expansion of Care.com. In its initial filings to go public, the company said it plans to grow its overseas business. In the meantime, Marcelo is hustling to further expand in this country. This summer, she participated in a White House panel on working families, she met with President Obama, and she’s even inked a deal with Uber to ensure that families using the popular car service in New York City can get car seats for their kids.
As husband Ron puts it: “She doesn’t have an off button.”
- 1/25: Care.com soars in first day of trading
Michael B. Farrell is an editor at The Christian Science Monitor. Send comments to firstname.lastname@example.org.