I recently discussed in this column the vast size and potential of the “Longevity” economy. “Age-Tech” is emerging as the preferred way to describe the intersection of Longevity and Technology.
To understand more about the size and import of Age-Tech, I spoke to Dominic Endicott. Dominic is a venture capitalist operating between Boston, New York and London. As a partner at Nauta Capital, he led his firm’s investment in Great Call, a mobile wellness service oriented at the needs of older customers. Great Call was recently acquired by leading electronics retailer Best Buy for $800M, the largest ever acquisition by Best Buy.
Dominic’s firm was the first institutional investor in Great Call, back in 2007 when the company was a start-up. Great Call is seen today as one of the largest ever exits in the “Age-Tech” space. Building on this experience, Dominic is setting up a dedicated venture capital fund focused on Age-Tech, 4Gen Ventures. Dominic and his colleague John Sviokla published today a perspective on the sector in Strategy+Business.
I wanted to get his views on “Age-Tech”, 4Gen and what the venture capital industry could contribute to the Longevity economy.
Tina Woods: There is consensus that “aging” is a big and growing sector. Now we are starting to hear the term “Age-Tech”. What is “Age-Tech”?
Dominic Endicott. We are in the messy, murky phase of an exploding digital vertical. By analogy, back in 2007, digital innovation in the $14 Trillion global financial services industry was limited, and the term “Fin-Tech” was used by perhaps a hand-full of entrepreneurs and investors. Today, it is an established term, and fin-tech venture capital investment surpassed $27 Billion in 2017 . “Age-Tech” today is similarly in use by a sub-culture of investors, entrepreneurs, corporations and social-impact groups, and the state of digital innovation in the aging economy is comparable to that in financial services in 2007. I would suggest that “Age-Tech” is about digitally-enabling the Longevity economy. We can think of 4 categories of digital-enablement in Age-Tech: services purchased by older people; services purchased on behalf of older people; services traded between older and younger people; and services delivered to future older people.
Tina Woods: It seems to me you have managed to cover the whole economy with these four definitions. Is there nothing Age-Tech will not cover?
Dominic Endicott. I would encourage people to think of Age-Tech as a “lens”, a way of looking at the world through different “glasses” to the ones we are accustomed to.
Consider just the first category: services purchased by older people. A great example is what Great Call and Lyft are doing via a partnership called Great Call Rides. Older people, like everyone else, can benefit from accessing ride-sharing to get from A to B and back, but many are not comfortable with smart-phones and Apps. These two companies have combined to provide access to the Lyft car network for Great Call customers, without requiring them to master a smart-phone or an App. Another great example is Pill-Pack, a company recently acquired by Amazon for $1 Billion that assembles all your medications and delivers them in a package designed to avoid errors. But we can think much more broadly: one of the projects we are working on provides a digitally-enabled platform to enable employees departing corporate jobs to pursue a flexible work path. We are also evaluating the feasibility of digitizing every home in the UK through smart drones to diagnose which homes have high risks of accidental falls.
How about services paid by society on behalf of older people? Think about something like Meals-on-Wheels. Then think about online food delivery services, either cooked or pre-prepared. What if we could harness the digital infrastructure that already exists to deliver a more nutritionally balanced and interesting set of choices to our oldest citizens? Or home care, which is often still managed in a very old-fashioned way, but can be improved by remote sessions, use of home sensors and improved scheduling algorithms.
Services traded between older and younger people is also an exciting category. This could include mechanisms by which older citizens could transfer assets to younger citizens while providing them enough control and insurance against the future, and the right incentives to the younger citizens to reach certain milestones. Or ways in which different generations could barter and even bank services – for example, someone could “bank” care hours baby-sitting, to be “spent” for their spouse’s own care needs.
The last category, services for future older people reflects the reality that preparing for a healthy old age begins very early in life. As we prepare for a demographic wave that will easily run until mid-century, we know that issues such as child-hood obesity and activity levels will impact the aging reality far into the future.
Tina Woods: Why is Age-Tech emerging now, why not 5 years ago or 5 years from now?
Dominic Endicott: There are several factors that are coming together. In the past few years there have been several studies to size the Aging economy. For example, in the US the Aging Economy was sized at $7.6 Trillion a year by AARP and Oxford Economics (this is roughly 40% of US GDP). The European Aging Economy was sized at $4 Trillion, by Oxford Economics on behalf of the European Union, roughly 20% of European GDP. Regardless of what ratio we pick, there is growing awareness of the sheer magnitude of the “gray dollar” and the fact that with today’s demographic trends it will be growing faster than the overall economy. Several books have also captured the magnitude of the opportunity, notably The 100-Year Life: Living and Working in an Age of Longevity(2016, Bloomsbury) by Lynda Gratton and Andrew Scott and The Longevity Economy (2017, Public Affairs) by Joe Coughlin. Governments have also increased their interest – with Japan, for example, creating the Council for the 100-Year Life, and the UK the Ageing Society Industrial Strategy Grand Challenge. We have also seen several meaningful exits such as the Great Call and Pill Pack cases I mentioned earlier – they are interesting based on the size of the exit ($800M and $1 Billion) but also in the buyers, Best Buy and Amazon, two mainstream digital economy companies. We have also witnessed the explosion of other verticals. I mentioned fin-tech earlier but “prop-tech” (digitization of real-estate) is equally interesting – having grown from $100M in VC in 2010 to $12 Billion by 2017 – more than 100-fold. So, the hunt is on to find the next large and laggard sector of the economy. They do not come much larger or more laggard than Aging.
Tina Woods: What is the size of the Age-Tech economy and how fast is it growing?
Dominic Endicott: Global GDP in 2018 is estimated at $87 Trillion. If we take the most conservative estimate of the Aging economy of 20% of GDP, this implies that the global Aging Economy is $17 Trillion. Based on IMF data, the global digital economy is around 8% of global GDP. Digitization lags with older customers, as they are slower to adopt platforms such as smart-phones, wearables or apps. If we assume older people’ level of digitization is one-half the average level (or 4% of the Aging Economy), this would imply that global Age-Tech spend is in the order of $700 B per year. If we assume the US is about 20% of this, it would imply around $140 Billion. My estimate is that the top 5 digital US companies (Microsoft, Amazon, Apple, Alphabet and Facebook) have a combined US Age-Tech revenue of $70 B or about 50% of the US number, so the top-down and the bottom up are in the same ball-park.
Age-Tech spending is poised to grow fast. Older people are the fastest growing demographic group (with around 2.5% annual populations growth vs. 0.7% for all population); digitization is growing across all sectors (to around 16% by 2025); and digitization in aging is converging towards the global average. I project the global Aging Economy will reach $27 Trillion in 2025, with digitization at 10%, for an Age-Tech potential of $2.7 Trillion by 2025. This would imply 21% annual growth in the global Age-Tech market. This estimate is, moreover, primarily focused on the first category of the four Age-Tech elements I mentioned earlier. If we were to include the other three it would increase the size. In any case the point is that Age-Tech is big and growing very fast.
Tina Woods: What will make consumers buy Age-Tech products?
Dominic Endicott: Several key principles are critical: foremost is to design services valued by all age groups and not viewed as “products for old people”. Think about Apple, whose US Age-Tech revenue likely exceeds $15B. Its innovations in the iWatch, face-based authentication and iPad line of products are particularly appropriate for older users, but it is not perceived as a company for older people. Amazon’s US Age-Tech revenue likely exceeds $30B, and its acquisitions of Ring and Pill Pack, both billion-dollar purchases, allow it to deepen its position in the home and health spending wallet, which skew to older customers, but again it is viewed as age-agnostic. A second key element of Age-Tech is to combine a highly intuitive user experience with often complex behind-the-scenes sophistication. For example, Great Call provides intuitive communications and wellness services designed to be used by people well into their 80s and 90s, and yet takes advantage of the latest advances in software and hardware developments. A third element I would highlight is personalization: as we age, the differences in health, income and wealth tend to increase, which means that it will be increasingly important to adapt services to the specific needs of each group.
Tina Woods: What segments of Age-Tech are investors interested in right now?
Dominic Endicott: Age-Tech solutions cut across all areas of the economy. They include on-site and remote senior care via blended models combining human and machine interaction; low-friction platforms for older people to transfer wealth to their younger relatives tax-efficiently, with controls and performance-based incentives; a new form of insurance that periodically adjusts to user changes in risk profile; a social network focused on enabling those displaced by automation to pursue future paths with a high sense of purpose; a digital bank adapted to the preferences of older users.
Consider the intersection of Fin-Tech and Age-Tech. Fin-Tech products tend to target Millennials, yet the bulk of assets are owned by the older population. We are excited at repurposing leading edge fin-tech innovation, for example new bank models such as Monzo, into the Aging market. We need to adapt user experience, distribution channels and customer support to the preferences of older adults. Similarly, there are opportunities to rethink insurance to better adapt to the risk profile of older customers.
Work is another massive area of opportunity. In the US there are 60M people over 50 not working, a potential $2 Trillion in economic potential. Digital work-flows and new business models could help to harness this potential.
Tina Woods: What are some of the interesting businesses emerging in Age-Tech? How can they take on the Tech giants?
Dominic Endicott: We are seeing lots of exciting companies across a range of verticals. TrueLink, LiveWell and PensionBee are examples at the intersection of Fin-Tech and Age-Tech, offering retirement and other financial services products oriented around the needs of older adults. Several insurance companies are emerging, such as Ladder and Tomorrow. BrainHQ offers online mental exercises to promote memory and brain health. In robotics associated with aging we have Intuition Robotics and Ageless Innovations. A number of companies are tackling the future of care, such as Honor and Sense.ly. Tackling the future of work are companies such as Juro and Imployable.
Most Age-Tech companies that succeed will likely be acquired. Those who seek to take on the Tech giants, will need to Blitzscale. To this end, they will need to identify a large and poorly served segment of the market, gain a foot-hold by conquering an initial entry point, then pursue a sequence of logarithmic expansions in capitalization and scale. Some practical thoughts on approach include the following: attack a problem that falls across existing silos or practices; develop a narrow launch product, with plans to later expand; design a capital-efficient business model; build a strong team and exciting vision to enable you to attract sufficient capital at each stage. I would steer away from competing too closely with the Tech giants and would be careful to avoid getting bogged down in highly regulated spaces such as health-care.
In designing Age-Tech companies, several key principles should be kept in mind. Older people don’t want to buy products that are explicitly targeted at older people – it is necessary to design universal or age-less products and services that are appealing to all people but that will likely skew older. Services need to be smartly fine-tuned to the widely differing needs of different segments – someone with hearing, sight or mobility issues has fundamentally different wants to an “active older person”. Two people with the same chronological age could be 10-15 years apart biologically.
Older adults can be reached through many of the channels and media that have been on the losing side of the digital economy; they still read newspapers daily, watch linear television, go to the post-office and shop in the high street. This is a huge benefit for start-ups: it means that by targeting an older population the cost of acquiring and serving customers can be substantially lower than the younger consumers that the bulk of start-ups are seeking to reach.
Platforms such as voice technology, artificial intelligence, cloud technology and automation can augment these traditional channels in delivering disruptive services to older adults. Voice-automation can “smarten” a home phone or feature phone, enabling users to complete highly complex tasks with a simple voice command. Artificial intelligence can be used to drive personalization – enabling companies to adapt their offerings to each segment. Self-driving cars can build on the benefits of car-sharing, to bring low-cost transportation solutions to older individuals.
Tina Woods: Where are the Age-Tech hubs emerging globally and why?
Dominic Endicott: Japan is an early mover, as befits its rapidly aging society, and strong technological infrastructure. The Netherlands and Scandinavia are well attuned to the aging opportunity, and we should expect to see substantial innovations from both.
The UK is amazingly well placed to become a global hub for Age-Tech: it sits at the intersection of the $20 Trillion European economy and the $25 Trillion “Anglo-Sphere”; there is strong interest in this area across corporations, social impact groups, and the government; it punches above its weight class in fin-tech, digital health, bio-tech and insure-tech, areas where we expect lots of overlap with Age-Tech. In a sense, I would argue that placing some aggressive bets on becoming an Age-Tech epicenter would be a great positive strategy at a time when the UK is paralyzed by Brexit.
Overall, I would argue that Europe overall is well positioned to harness this wave. Ultimately, the nature of European homes and cities is a critical element of a successful strategy vis-à-vis aging. Europe’s great cities – from metropolis such as London, Madrid or Paris to wonderful mid-size cities such as Newcastle, Valencia or Lyon, have the right level of medium density living for optimal solutions.
In the US, the Bay Area will naturally be important, although my sense is that in such a youth-oriented culture, “aging” is not intuitive to many VCs or entrepreneurs. I think Boston will do very well – and in fact the governor of Massachusetts, who has experience as an executive and VC, aims for his state to become the “Silicon valley” for Age-Tech.