Pet ownership is surging in the US, with nearly 57 percent of all households across the country now owning a pet, according to the American Veterinary Medical Association.
Leading the pack are dog owners, who account for 38 percent of all households nationwide, the highest rate since the AVMA began measuring pet ownership in 1982.
Even more important, at least from an investment perspective, is that people are more willing to spend their hard-earned dollars on pet wellness to ensure that their furry friends live a long and healthy life.
Spending on veterinary care in the US was forecast to spike 4.8 percent in to
$19 billion, largely due to millennial pet owners who are waiting longer to get married and have kids, according to the American Pet Products Association.
“That’s the biggest generational change,” says Greg Bettinelli, a partner at Upfront Ventures. “Pets are being treated more like family members than ever before, and that is driving a higher frequency of veterinary visits with a higher level of transparency and experience expected.”
The problem, however, is that the veterinary space is largely stuck in the last century and is sorely lacking in technological and customer experience innovations. A quick visit to your local vet’s office will often reveal cramped, dingy offices with no modern technology in sight.
“So many things have gotten so much better from a consumer perspective, whether it’s shopping for shoes, procuring transportation or ordering a meal. But veterinary services haven’t kept up,” says Bettinelli. “If you were to create the vet experience from the ground up today, it would be much more technologically driven and efficient. Basically, what is needed is more modernization and consumerization of the entire category.”
That realization led him to spearhead Upfront’s investment in Modern Animal, a new tech-enabled veterinary practice that has raised $13.5 million to date. Modeled after next-generation human healthcare practices like One Medical, Modern Animal features mobile-powered solutions including 24/7 access to a veterinarian or technician through video chat, a more efficient appointment booking process and warm modern offices where owners are welcome to stay with their pets throughout the entire examination.
Modern Animal also offers unlimited visits for an annual membership fee, which appealed to Bettinelli.
“Veterinary services are one of the only pieces of healthcare today that is cash-based,” he says. “Some people do have pet insurance, but it’s nothing compared to human health services. So, the ability to get paid directly by the consumer, and not have to get the government or insurance companies involved in every transaction, is very attractive from an investment perspective.”
He also likes that the veterinary space is highly fragmented, with the leading player VCA, which operates about 800 animal hospitals, controlling just 6.5 percent of the market. Bettinelli says that the large, incumbent players do not offer a great user experiences or a high bar for care, which leaves the door wide open to disruptors.
Poised for disruption
This size of the veterinary market and the fact that it is growing much faster than overall GDP is another strong selling point for investors like Bettinelli.
“I’d also add that pets don’t live forever, they live about eight to 14 years, so there is a constant flow of new pets,” he says. “What’s more, unlike having a baby, you can be a new pet parent at almost any age, and it doesn’t matter how wealthy you are or how big your
home is.” Of course, there are some unique challenges when investing in a veterinary start-up.
For starters, it’s more of a retail business than a pure technology business. That means managing property and constructing new clinics to provide services, which is not exactly venture capital’s strong suit. Modern Animal, for its part, recently opened its first clinic in Los Angeles and has plans to grow nationally.
“Another challenge is that this business is not rocket science,” Bettinelli says. “That means it’s really all about the team and how well they are able to execute. We expect to see significant competition in the market, which makes execution even more important.”
Indeed, Small Door, another next-gen veterinary start-up with a tech-focused membership model, recently opened its first location in New York City after raising a $3.5 million seed round from Lerer Hippeau Ventures, Primary Venture Partners and Brand Foundry Ventures.
“The veterinary … market is largely fragmented, costly and often fails to deliver the customer (and pet) experiences today’s consumers have come to expect,” the partners at Lerer Hippeau recently wrote in a Medium blog post, explaining their investment in Small Door.
Blair Garrou, a managing director at Mercury Fund, is not interested in creating new veterinary practices from scratch. He says the real opportunity is in outfitting existing practices with cutting-edge tech tools that enable them to better connect with pet owners and provide a higher level of care.
“My wife is a vet,” he says. “I’ve seen what the digital transformation in the industry has looked like over the last 10 years, and frankly it’s been non-existent.”
That’s the main reason he led his firm’s $2 million seed investment in TeleVet, which provides an integrated mobile app that hooks into existing veterinarian practice software systems. The app facilitates video- or text-based communication between clients and veterinary staff, enabling such services as telemedicine, appointment scheduling and digital prescriptions. “We are big believers in telemedicine for pets because it can provide a much more streamlined experience,” Garrou says. “Just look at all the demands on people’s time, especially young families. It’s hard to upend your day and take your pet to the vet for something that might be as simple as a rash. So, putting a mobile platform in place can really enhance the client experience.”
FirstVet, a similar start-up based in Sweden, recently raised about $20 million in Series B funding led by OMERS Ventures for its service that enables on-demand video consultations with local, qualified veterinarians.
Garrou says his biggest fear was that vets would not adopt the TeleVet platform because they saw it as threat to how they work.
“What we found, however, is that a lot of practitioners have realized that these changes are being demanded by their customers and that they have to adapt,” he says. “TeleVet makes it easy by charging the practices just $59 a month to use the service. There is also a lot of added value because with telemedicine, vets can start to see a greater number of patients and expand the revenue opportunities for their practices.”
TeleVet also sees an opportunity to enable additional services over its platform and to take a cut of those transactions, such as the ordering of pet medicines through the system or the conducting of post-op visits via video consultation, rather than having to schedule an office visit.
“We are seeing more telemedicine platforms on the market, but no one has really achieved scale yet, so it is a real white space opportunity right now,” Garrou says. “The bottom line is that new business models are emerging that are threatening to disrupt traditional veterinary practices. The only way for existing practices to compete is by accepting modernization and adopting new technologies.”