Morningside PlayCare is raising a Crowd SAFE at a $2.25 million valuation with 20% discount. This is a very low valuation. Investors at this early stage will receive a larger-than-normal portion of equity options, particularly given the 20% discount. It’s worth acknowledging that a $2.25 million valuation represents roughly a nine times multiple from Morningside’s 2020 revenues of approximately $247,000. That’s not a strong multiple for a business with little competitive moat. All in all, this is a very young company with a limited history, but investors can own a large slice of the pie. That makes Morningside’s price rating strong.

At the moment, it’s worth assuming that Morningside’s obtainable market is limited to children in New York City. The Census Bureau estimates that there are roughly 542,000 children under five years old in New York City. Averaging the prices across ages five and under, New York City families pay about $1,174 per month — or $14,088 per year — for day care. That means that Morningside’s theoretical maximum market size in NYC is about $7.6 billion, which is very high for such a limited geographical area. 

However, there are important caveats to consider. Morningside PlayCare will not own 100% of the day care market in New York City. There are already thousands of well-established child care providers, and other entrepreneurs will continue to introduce new options to the market. Plus, many NYC families hire nannies or seek alternative child care arrangements. Lastly, Morningside has already secured a contract to become a New York City Department of Education provider, meaning that families with four year-olds (at any income level) will be able to enroll tuition-free. This contract is a stable revenue source for Morningside — but likely diminishes the company’s opportunity to earn market rates on each individual child. 

For all of these reasons, Morningside’s market opportunity is smaller than initially meets the eye. While there are many children in New York in need of child care, Morningside will only ever serve a small portion of them and thus will have limited opportunity for explosive scale. Hence, Morningside PlayCare’s market rating is low.

Morningside PlayCare was founded by Dr. Gail Foster, who holds an Ed.D. in educational administration from the Teachers College of Columbia University. Foster has been a “social entrepreneur and educational research scholar” for more than 30 years. Her first main venture, the Toussaint Institute Fund, was a scholarship fund, research center, and advocacy program for children of color. The program operated for 13 years and received 24 professional and civic service awards. 

Beyond Dr. Foster, the Morningside team includes four other entrepreneurs and educators. Sheree Palmer and Claudia Stedge are the founders of other educational centers in the New York area. Tuesday Brooks and Todd Ruffins are more business-oriented leaders with expertise in accounting and operations for startups. 

The Morningside PlayCare team is experienced in the field of education and is undoubtedly qualified to craft high-quality educational programming for children. Four out of five key team members have also led their own businesses or social enterprises, three of which were in the education space. It’s worth noting that none of Morningside’s key team members have experience building large-scale startups, which could hamper Morningside’s growth. Balancing these factors together, Morningside’s team rating is above average.

Morningside PlayCare is certainly offering a new approach to early childhood education. Immersing young children in Spanish and Mandarin languages is a clear departure from a typical American day care. Additionally, the Morningside team has the research and educational credentials to back their philosophy. 

However, Morningside is not the first multilingual child care center. In fact, there are many other bilingual and multilingual programs in the city. Morningside isn’t very well-differentiated from those other programs. There’s no clear evidence yet that Morningside’s program yields better outcomes for families. Plus, there are a host of other child care programs in New York City and nationwide, many with their own distinct philosophies, that also compete with Morningside. 

All in all, while Morningside’s educational approach is distinct from the majority of child care programs, it doesn’t stand fully apart from a very competitive landscape of child care options. Moreover, defensibility is very low. Many other educators would be qualified to launch their own centers that could siphon business from Morningside. As a result, Morningside’s differentiation rating is relatively low.

Financially, Morningside PlayCare has performed efficiently in its short history. In 2019, the company generated just under $170,000 in revenue and nearly achieved profitability with a net loss of just $33,321. Then, in 2020, the COVID-19 pandemic came along. Months of suspended programming killed off many child care centers, but Morningside was able to survive and even thrive. The company generated $237,161 last year and even turned a profit, with a net income of $17,636.

However, it’s important to keep in mind that Morningside PlayCare is an extremely early-stage business that has barely proven its concept. On NextSeed, Morningside isn’t particularly clear about how many children are enrolled in its current child care center, but its website indicates that only 14 kids attend. There are positive signals for the future of Morningside, including its contract with the NYC Department of Education and its new Upper West Side lease. However, it’s still too soon to confidently say that Morningside is a high-performing business. The company’s performance rating is relatively high but investors should keep its unproven record in mind.

The largest source of risk for Morningside PlayCare is funding. The company hasn’t raised significant capital in the past (it received some PPP loans and other small awards last year), and the current raise is set at a $100,000 minimum. Morningside will likely need significant capital to build out its new Upper West Side location and increase marketing to enroll more families. It’s uncertain if this amount of funding will be enough to achieve those goals. Other sources of risk, including investment terms and financials, are similarly tied to the fact that Morningside is a young company with little operating history. Beyond those areas, it’s worth noting the mild risk that the Morningside team doesn’t have enough business experience to scale a company. 

Morningside PlayCare’s educational philosophy is likely compelling for many families hoping to raise culturally-aware, globally-minded children. However, the company is still very small and might remain that way for a long time due to the slow-scaling nature of the child care business. Without a proprietary educational framework or technology solution for educating multilingual children, Morningside doesn’t have a particularly scalable approach. It’s also relatively unlikely that Morningside will experience a lucrative exit event. This seems like a small business destined to grow at a mild pace over time, which doesn’t correlate with great returns for investors.

Morningside PlayCare is still very small, but there are some positive signals that the company has competitive advantages over other child care centers. The company was profitable last year despite the hardships of the COVID-19 pandemic. It’s also led by deeply experienced educators, several of whom have previously run child care centers or other educational enterprises. This depth of experience is proven by Morningside’s notable NYC Department of Education contract, which will likely stabilize revenue and ensure growth for years to come. 

There’s  a decent chance that Morningside will ultimately develop a more scalable approach that can be implemented nationwide and drive more explosive revenue growth. If Morningside is treated more like a lab for multilingual education, with the potential to spin out frameworks and even software tools from that research, Morningside has greater potential to generate returns for investors.

Morningside PlayCare is a child care center in New York City focused on educating children from six months old to six years old through a Spanish and Mandarin immersion program. The company’s educational philosophy is clear and somewhat distinctive, and the business seems to be experiencing exciting growth milestones. A contract with NYC’s Department of Education and a new lease on an Upper West Side child care center could make 2021 a banner year for Morningside. 

On the other hand, the business is still very small, with less than $250,000 in revenue last year. There’s no evidence that Morningside has a deep competitive moat separating it from countless child care competitors in NYC. The company might struggle to scale without a more proprietary or technological solution to multilingual education. Therefore, Morningside PlayCare has been rated a Neutral Deal. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.