KIDS’ RIDE-HAILING HITS SPEED BUMPS
The demand is there, but investors aren’t sure about profits
To parents, the idea seems liberating: Reclaim valuable time by paying someone trustworthy to shuttle around your busy kids.
To investors, the business model underpinning companies that offer kid ride-sharing services may require a major overhaul.
That’s especially true in a chilled fundraising climate that puts a renewed emphasis on profitability. Venture funding for ondemand companies plunged to to $1.3 billion in Q1 2016 from an all-time high of $7.3 billion in the third quarter of 2015, according to CB Insights.
“I’m a parent, and I feel the need for this type of service,” says Aileen Lee, a partner at Cowboy Ventures who passed on opportunities to invest in two kid ridehailing companies. “But in the end, these are operationally intense businesses.”
The demand indeed appears to be there. A recent Pew Research study revealed that 34% of ridehailing users say services such as Uber and Lyft are a good way to get kids to their destinations, despite the fact that, according to both companies’ terms of service, they cannot take passengers under 18.
That legal discrepancy opened the door to enterprises such as Shuddle, HopSkipDrive and Zum,
which give parents the chance to pre-book vetted drivers with child care chops to pick up kids from school or zip them off to activities.
Despite booking 65,000 rides, Bay Area start-up Shuddle shuttered last month after burning through $13 million in cash and a last-ditch change of CEOs. Shuddle representatives declined to comment for this story.
Looking to snap up Shuddle’s drivers and customers is Los Angeles-based HopSkipDrive, which entered the Bay Area market this month. Its three founders have raised $14 million and have established a foothold in the southern California market.
HopSkipDrive hopes to use its financial clout to outpace Northern California upstart Zum, which recently pulled in $1.5 million from seed investors, snagged 100 of Shuddle’s drivers and has logged 35,000 rides to date.
Both companies say they’re not Uber-for-kids, but rather nannies with cars. Both insist they can find a way to make money while providing parents with reliable and safe transportation for their tweener children.
“We do things differently,” HopSkipDrive co-founder Joanna McFarland says. “We view ourselves less as a ride service and more as caregivers on wheels.”
Zum founder Ritu Narayan says, “We can provide child care before, during and after the ride.”
That approach sounds winning in an age of working parents, expensive child care and hyperscheduled children. But as these tech-anchored start-ups race to riches, are they heading toward a cliff ?
Besides Shuddle, another kidfocused ride sharing venture, Boost, recently announced it would close at the end of June. The 3-year-old program was an experiment funded by MercedesBenz’s Silicon Valley-based research and development arm.
In a website post, officials said, “While the program is based on an innovative model, Boost is not sustainable as a stand-alone business in the long term.”
Conversations with a range of investors, analysts and company executives suggest the kid ridehailing business is potentially lucrative but fraught with potholes that can undermine a company’s ability to succeed. Those issues include thin per-ride margins, driver scheduling challenges, a limited passenger pool and, always looming, bad publicity stemming from rides gone bad.
“The basic business idea behind these companies is very
good, but it’s going to take a particular company to make the model work,” says Arun Sundararajan, a professor at New York University’s Stern School of Business and author of The Sharing Economy.
Sundararajan notes that Airbnb, the home-sharing giant valued at $25 billion, “didn’t invent the idea, but they created the best experience for consumers.” He says there’s probably room for one dominant ridesharing company aimed at kids, “and it’s probably a $1 billion business.” Uber is valued at $62 billion.
Venture capitalist Lee says she declined to invest in either Shuddle or HopSkipDrive when its founders pitched her.
“As both a parent and potential investor, I wondered about everything from the cost of each ride to anticipating how to handle matters if a child was not there when a driver showed up,” she says. “At their seed rounds, I felt the (founders) hadn’t thought through those scenarios.”
In particular, Lee questions the math for all but the wealthiest of families. When children often need rides to and from events multiple days a week and the rides themselves typically go for 15%-20% over Uber, weekly costs can easily top $150 a week.
HopSkipDrive’s McFarland counters that “with babysitters costing $15 to $25 an hour, we end up saving parents money.” She says parents use her service on average twice a week but some as much as six times a week.
Zum’s Narayan says the better comparison would be to the cost of having a full-time nanny, which can run many thousands of dollars a month. She says 90% of her customers use the service once a week, and 40% two or more times a week.