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The Backstory: On Care.com, Sittercity, Entrepreneurs, and Entrepreneurs-in-Residence

Posted by Scott Kirsner  November 23, 2009 09:35 AM

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I wanted to write a column about the rivalry between Care.com and Sittercity, two Web sites with Boston connections that aim to be to home-based care services what Match.com has been to dating, or Monster.com has been to jobs. All I knew was that Sittercity at one point had spoken with Matrix Partners, the Waltham venture capital firm that eventually funded Care.com. Care.com founder Sheila Marcelo had been an entrepreneur-in-residence at Matrix.

I thought this was mainly going to be a column about how the two sites are competing with one another to win the hearts of moms and dads looking for high-quality childcare.

Until, talking to Marcelo last Monday, she brought up out of the blue the discussion on TheFunded.com, in which several anonymous posters allege that Marcelo met with them while at Matrix, got an in-depth look at their businesses, chose not to invest, and then went off and started Care. Marcelo posts a lengthy rebuttal under her own name.

It seems like this 2006 dust-up, for whatever reason, is still very much on her mind. I wanted to write about it this week without using a single anonymous source, and using the story (told from three founders' points of view) to illustrate the sometimes knotty relationship between entrepreneurs, venture capitalists, and the entrepreneurs-in-residence who sometimes hang out at VC firms, drawing a salary, while working on their next idea or helping the firm find worthy start-ups to look at.

While most entrepreneurs know that good VCs look at a lot of the companies in a given sector before deciding where to put their money, I think there's less clarity around the role of the entrepreneur-in-residence: Are they an investor? Are they helping with due diligence? Are they about to launch something of their own? Are they incubating it right now, in the VC firm's offices?

Here's some of the e-mail correspondence behind the story, along with traffic data comparing Care.com, Sittercity, and Sitters.com (a Virginia based start-up that also spoke with Marcelo and Matrix about a deal.)

- From Mike Cravens, the founder of Sitters.com, a Virginia company:


    I met with Nick [Beim of Matrix Partners] and Sheila regularly, both over the phone, in person in DC, and in-person in Waltham, MA. I attached [to this e-mail] a letter from Nick in which he clearly states that our interactions were more than just a couple of meetings. They do their best to spin this as them just looking around at a few companies. But the reality is that they did a deep dive into my company and then used that information to jump-start Care.com. Nick did communicate that we shouldn't share information that we did not feel comfortable providing. He also always followed that up with saying that if Matrix was in the business of stealing from entrepreneurs that they wouldn't be in business.

- This is from an e-mail that Marcelo sent to Cravens (provided by Cravens, but confimed by Marcelo) in October 2006, in which she asks him to reconsider an acquisition of the site by Matrix that would make her CEO of the company. She mentions Upromise, a college savings program where she formerly worked, based in Boston:

    There are opportunities to partner with Disney, Viacom, Motherworks, Clubmom, Upromise...and so many other things... a mobile product version for the babysitters (been talking to some folks about this), etc, etc. There is also a team of people who I worked with at Upromise who are ready to go and love the mission as much as I do. I think that is the DNA that Upromise attracted. :) They are great people not only from skill level, but truly passionate people and life long friends.

    Mike please reconsider. My request is not from desperation and hope you understand it is truly because I'm passionate about doing something in business that helps people. And out of respect for what you have done and despite my passion for the broader "care" business, I would not entertain starting it on my own. I would love to work with you. The original proposal is still on the table and it has not changed.

- Marcelo explained her position in a lengthy e-mail to me last week, in which she wrote:

    Rather than abandon a vision that I am passionate about, I decided after careful deliberation to go forward and launch the business myself – despite the statement I had made to Michael Cravens. In hindsight, the lesson learned for me during this experience is that I should not have made the blanket statement that I would not launch this business on my own before I had completed the due diligence on [Cravens & Sitters.com].

Marcelo continues:

    I did not steal a business idea or business model since these are known business ideas and known business models. Did every online dating site that came after Match.com steal Match.com’s idea? Or do businesses all the time attempt to compete and improve upon similar business models that have been launched by others? My vision and business model were significantly broader than anything we had seen. Babysitting is just one subvertical of one of the many verticals we are targeting. The presence of many players in this niche validates that they do not represent novel concepts. I did not take advantage of confidential information, because little information was shared, and the information that was shared could be roughly estimated on the basis of publicly available traffic and pricing data for those familiar with subscription-based businesses. While I believe that we have built unique and differentiating features into the Care.com service, this is not the type of business that contains trade secrets or significant intellectual property. It’s all about building a service that works well for consumers and assembling a team of people with a shared passion who can execute well. The idea that “trade secrets” gleaned from anyone else’s business helped Care.com or hurt anyone else’s business is, frankly, false.

    Finally, I’d like to address the topic of Matrix Partners’ involvement in this. You have probably spoken with many entrepreneurs that have dealt with Matrix, and they have an exemplary reputation, which is why many entrepreneurs go back to them over and over for subsequent start-ups. If the allegations of their unethical behavior had any merit, then Matrix would not be the success it is today. I do hope that you consider talking to other entrepreneurs who have dealt with Matrix and Nick other than me regarding such claims against the firm since I do not think their reputation should be affected by these one-sided allegations from people who clearly are disappointed that a significant competitor has entered their industry.

- Anne Raimondi, a spokesperson for Matrix, e-mailed this statement:

    The history of the situation has been on the public record for some time. We can appreciate that the companies in question do not like competition, but we do not believe that their claims of unfair treatment are at all merited because both Sheila and we said from the earliest discussions with these companies that we were considering competitive options and not to share any information with us that they were not comfortable sharing. We care deeply about our relationships with entrepreneurs and believe in being straightforward, respectful and interacting with the highest level of integrity.

Cravens' site, Sitters.com, launched in 2000; Sittercity launched in 2001 in Boston, and later moved with Thiers to Chicago; Care.com launched in 2006. Of the three, Care.com has received the most money from investors: north of $16 million, from Matrix, Trinity Ventures, and individuals like LinkedIn founder Reid Hoffman and TripAdvisor founder Steve Kaufer.

Here's a graph comparing the traffic of Care.com, Sittercity.com, and Sitters.com over the last year, from Boston-based Compete.com:

And here's a 2007 column I wrote looking at a similar issue: "Ex-colleagues, chilly competition."

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9 comments so far...
  1. Marcelo implies that she decided to start the company after performing "due diligence" on Cravens and Sitters.com. However, her email to Cravens is asking him to reconsider. If he never reconsidered, which it appears is the case, why would she continue any sort of due diligence?

    And how does Matrix Partners get around one simple fact. They claim that they were upfront (actually, Marcelo says that they were "pretty upfront") in saying that they might start a company on their own. If you remove all of their spin, there is no getting around Marcelo saying to Cravens that she wouldn't start a company on her own and then doing that very thing during the same month.

    There are so many VCs out there, why would any entrepreneur risk going with Matrix Partners?

    Posted by Max Jones November 23, 09 09:46 AM
  1. Ideas are a dime a dozen and most EIRs don't have novel, unique ideas. Rather they leverage the flow that VCs have access to, to come up with their own ideas. Marcelo and Beim did what's fairly typical for their roles - pump and dump others to see if a business is good and then starting one of their own if they couldn't get the particulars to fit. This really isn't too much of a surprise. The EIR is either going to join a portfolio company or start something new. If the EIR doesn't have any ideas of his/her own, then they come up with a new one based on what they observe.

    Cravens was naive. Matrix was just doing what's normal course of business.

    Posted by Josh Engel November 23, 09 11:06 AM
  1. Thx for the information. This further shows how VC is not for everyone.

    I don't know any of the people mentioned in this article, but wanna point out a logic flaw in both Matrix's and Marcelo's arguments.

    Let's assume a VC V helped an entrepreneur E1 by "getting" the insider info of another entrepreneur E2, just because V thinks E1 has a better chance to make it. E1 then went on and build the next Google. Yes, E1 and V are both very successful. Yes, "many entrepreneurs go back to them over and over for subsequent start-ups" just like E1 would do for sure. Yes, V's decision makes perfect biz sense. But for entrepreneurs not in his loop, watch out!

    Being successful doesn't necessarily mean being ethical.

    Posted by Kevin November 23, 09 02:34 PM
  1. It is almost impossible for a good idea to appear in a vacuum, with no other ideas in the space similar to it. Calculus was discovered by Newton and Leibnitz at the same time, the telephone, the theory of evolution, etc. all had multiple inventors, independently yet simultaneously.

    If you are investing in a particular space, you will likely see a dozen takes on any particular approach to solving "the current problem", whatever that may be at the moment.

    This is the challenge of talking to investors who have the river flowing to their door- you have to be the very best possible horse for them to bet on, or they will go elsewhere. Your idea is only part of it- your team, your model, your board, your connections into the market, your discussions with real customers, had all better be the best way to execute or at least very good, or the investor will find a group that is.

    Posted by Drew Hession-Kunz November 23, 09 09:22 PM
  1. I personally know the Founders of Sittercity and how Gen Theirs walked the campuses of Boston hand delivering 10,000 babysitter flyers pre-funding. As the saying goes,she "made money the old-fashioned way: she earned it!".

    Many B players sit on the sidelines waiting for visionaries to show them the way. The best way to defend against their behavior, beyond exposing them until they fail on their own, is for SIttercity & team to overdeliver to what their customers want which is exactly what they are doing.

    Posted by Jackie Bassett November 24, 09 08:38 AM
  1. Please don't compare invoators such as Newton and Leibnizt with uninovative entrepreneurs such as the babysitting crew or for that matter, most of the VC internet investments over the last 10 years. A significant portion of the VC internet investments over the last 10 years were already being done in full form by entrepreneurs in the 1980s (via bulletin boards and proprietary sights like Prodigy, AOL, Compuserve, etc). If you don't beleive this, go read PC magazine issues from 1982-1989. Yes, you can make good money, but there aint no innovation going on in the internet space. Go to biotech for that.

    Posted by the slingster November 24, 09 05:40 PM
  1. Speaking as the CEO of a Startup who is about to seek VC funding this story is rather unsettling. Matrix was high on our list as we had a strong positive referral directly to a partner there (not Beim). I can tell you that after over 2 years of 7 days a week 12-14 hour days of partners laying the groundwork getting our company to the current point taking no salaries to seek investment to say the least there is no way that we could possibly trust Matrix and they will not be in consideration for our enterprise. Not only does this reflect badly on this particular firm, it also will cause us to think twice about the other VC's we would work with.

    By the way, the commenter above made a statement that ideas are a dime a dozen. Try telling that to a founder in person who has fought sweat and bled to move their projects forward and eke out a competitive advantage, however small only to have that advantage blatantly poached. For that matter, try starting a company in this environment, period.

    Posted by SocialEntrepreneur November 24, 09 05:51 PM
  1. Scott, interesting angle and maybe you'll take on Facebook and Kayak history too. I use all three, Facebook, Kayak and Care.com despite the hurt feelings of inventors and predecessors who have been left in the dust. However, I can see why Matrix and Marcelo would choose to put money behind this industry. I don't know if you have kids, but have you ever tried Craigslist? I have tried CL and the early versions of online child care -- none are immune from scam and potential abuse. These are your kids and elderly parents you're talking about, not some geek out widget. If their due diligence said that they could do it better, so be it, I and millions of women would give them a pass. It is an embarrassment to the VC industry that only $25 MM has been put behind these companies. Remember the millions that chased trivial video or social network me-toos. While gossipy stories are interesting, I think the bigger one is why the male dominated VC investor and journalist crowd ignores women businesses. Or mocks them as your she-said, she-said basically amounts to.

    Posted by Kathy P November 25, 09 10:34 AM
  1. Hi Kathy -

    I don't think I'm mocking them at all. Women entrepreneurs have disputes sometimes, and that happens to be the story here.

    Here's a piece I wrote about the early days of Sidestep and Kayak that gets at some of the same issues, but the cast of characters (as is unfortunately too often the case) is all-male:

    http://www.boston.com/business/technology/articles/2005/03/14/for_entrepreneursparanoia_might_be_wise/

    Agree with you totally that women-run companies are too often ignored by investors and journalists and I have been trying to buck that trend:

    http://www.boston.com/business/articles/2009/10/11/building_support_for_new_englands_female_entrepreneurs/

    http://www.boston.com/business/technology/innoeco/2009/10/women_networking_groups_entrep.html

    Scott

    Posted by Scott Kirsner November 25, 09 11:29 AM
 

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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