Susan Leger Ferraro Built a $7.2 Million Day Care Business

Now she wants to expand--and cash out.

The Pitch: I started Little Sprouts when I was 17 years old. We're very focused on diversity; we take an equal portion of kids from affluent, middle-income, and low-income families, so our students learn to interact with diverse groups. Our model has helped us win $8 million in government and private grants, some to create innovative early-reading programs and some for serving at-risk communities. Now I want to sell part of my 87 percent stake and take financial risk off the table. I also want to expand nationally, starting with states like Florida and California, which have generous funding for children's education.

Company: Little Sprouts Child Enrichment Centers

Founder & CEO: Susan Leger Ferraro

Employees: 187

Year Founded: 1982

Location: Headquarters in Lawrence, Massachusetts; branches in six other Massachusetts towns

Clients: Parents with young children

2006 Revenue: $5.7 million

2007 Projected Revenue: $7.2 million

Raised So Far: $1.3 million from personal savings and debt financing; $8 million from government and private grants

Needed Now: $3 million to $5 million to expand nationally and hire more executives

Recent Buzz: Received Department of Education Early Reading First awards in 2003 and 2006

The Investors React

More complex than coffee

My first thought was, This should be the Starbucks of day care. But child care is more complicated than coffee, and I'm not sure how you would scale this nationally. This is a highly competitive market, and a lot of mom-and-pop centers can afford to charge low rates, because the owners see it as a lifestyle business. I don't see this as a high-growth business, so I'm not sure it's a candidate for venture funding. My advice would be to start regionally. I'd suggest that she raise whatever she needs to open two or three more centers in New England and then look for the next round once she's proved herself outside Massachusetts.

Kylie Sachs
Partner
Ascend Venture Group
New York City

Don't cash out

It's impressive that she's managed to raise $8 million in grants. State and local governments are under terrible budgetary constraints, and raising that kind of money is an art. Also, the fact that the company has survived 25 years says a lot about Leger Ferraro's management skills and determination. But I don't like that she wants to take money off the table. Will she pay less attention to the business? My advice would be for her to start talking to venture capitalists. This might end up being an angel round, but VCs will help her hone her pitch. She might have to prove herself with three centers in Florida before she can secure the full amount.

Win Churchill
Managing general partner
SCP Partners
Wayne, Pennsylvania

What's the edge?

She has the right sort of experience. It seems logical to want to go national, and a number of chains, including Bright Horizons, have done that successfully. Plus, there are some economies of scale that would help Little Sprouts offer better service. A small center can't afford to hire the kind of high-level professionals who would help set really high educational standards. But this is a highly competitive field. Before I would invest in this company, it would need to prove its competitive advantage against more established chains. I'd advise Leger Ferraro to look at Bright Horizons and learn some lessons there. You have to have an edge; it can't just be "me, too."

Philippe Villers
Angel investor
Investors' Circle
Brookline, Massachusetts

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