Deal To Watch: Want to Invest in Healthier Employees? Try the CARROT, Not the Stick

Key Stats:

Problem

It is hardly a secret that the United States healthcare system is characterized by equal parts high (and rising) costs and stagnant quality of care. Not tasty cocktail in my opinion. Increasing healthcare costs put pressure on companies of all size to offer competitive coverage benefits to their staff without breaking the bank.

Underlying this trend, is the unfortunate reality of the battle-tested 80-20 rule: 80% of the cost is created by 20% of the workforce. Ok, those aren’t exact figures, but the point remains that the bulk of health care costs is attributable to the unhealthy minority that disproportionally utilize medical benefits. It is a frustrating dynamic for all involved and despite rapid inflow of corporate investment into health and wellness initiatives, little has changed.

Solution

The team at CARROT believes that the key to successful health and wellness initiatives is, at its core, engagement. Without a high percentage of employee engagement, corporate dollars aimed at health initiatives merely stimulate the already-active (and relatively healthy) employee cohort to drive a small up-tick in activity. This is great, but it is also low-hanging fruit. Most corporate wellness programs don’t sufficiently incentivize that higher-hanging fruit: the minority of employees who drive the proverbial 80% of health care cost need a greater incentive to get up, get going, and improve their health.

CARROT has created a solution that seeks to stimulate even the most sedentary of staff members to lead more active lives by ‘gamifying’ the incentive scheme through P2P gaming and other challenge-based games. CARROT rewards activity with digital currency that can be later redeemed for real-money gift-card programs integrated right into the application. With CARROT, employees can earn tangible monetary rewards that create compelling incentives when compared to alternatives in the marketplace.

Why We Like it

1. Solving a real need: Based on the information provided, CARROT appears to have had early success with its initial clients. This, to me, is probably the second most important factor in considering an investment in an early stage company like CARROT: simply put, ‘do they solve a real problem for their clients?’ I believe CARROT has the potential to do just that. Early results indicate a strong uplift in participation and employee engagement for an affordable price tag. Particularly when contextualized by the amount companies spent annually on employee healthcare coverage, CARROT’s price point is unlikely to cause heartburn. Put yourself in the shoes of a business owner with, say, 50 employees. You pay $2,500 up-front an $500 per year thereafter. At $3,000 of total spend for the first year, the potential cost savings front a healthier workforce greatly outweigh the downside (ostensibly just the $3,000 lost in exchange for a status-quo healthcare spend).
2. Thoughtful exit approach: When evaluating early-stage opportunities, a common theme is the lack of a developed thesis around liquidity – said another way, young companies often struggle to articulate an answer to the “what do we want to be when we grow up?” question. CARROT appears to understand that early investors seek a combination of (i) supporting the growth of a product or service they believe in and (ii) and opportunity to realize an investment return commensurate with the risk they incur giving their hard-earned dollars to a start-up. CARROT dedicating attention to this topic in their investment pitch deck shows an earnest appreciation for the pluralistic goals of their potential investor base. This is, in my eyes, promising as understanding that “what do we want to be when we grow up?” question can be instrumental in guiding management through strategic and resource prioritization challenge as the business scales.

Uses of Capital

CARROT plans to use the first $8,000 of capital raised to paydown outstanding debt, the remainder of which will be allocated to working capital to provide support to sales and marketing activities needed to reach revenue goals.

The target uses include: hiring a sales lead and onboard incremental sales and account support staff. That stated goal, as according to their offering statement, suggests to me that the team is excited by their level of success to-date and are eager to accelerate their sales efforts with this capital (as opposed to needing capital to further develop the product, for instance).

I take that to be a positive signal for the state of the affairs at CARROT that the primary uses of capital are commercially oriented.

The Leadership

Michael Antaran – Founder & CEO: Antaran brings to CARROT 15 years of design, programming, and leadership experience at two major automotive manufacturers and a depth prior start-up experience. In 2008, Antaran founded Marvel Apps, LLC – a holding company through which he has created more than 20 applications. Antaran holds a BS in Mechanical Engineering from Wayne State University and an MSME from Oakland University.

Michael Murray – VP of Marketing and Communications: Murray brings a diverse background in media and communications experience across 6+ companies in academia, professional sports, and healthcare. Murray holds a bachelor’s degree from the University of Michigan.