Top Deal: Solving Dental Industry Disconnects with a SaaS Solution

3.5M

Key Stats: Windchime Health on SeedInvest

Valuation Cap

3.5M

Amount Raised

$0

Number of Investors

Not Known

Minimum Raise

$20,000

Maximum Raise

$1,070,000

Likelihood of Max Unlikely
Start Date

07/13/2018

Stop Date

09/07/2018

Days Remaining

Closed

Security Type

Debt

Investment Minimum

$1,000

Deal Analytics

Click Here

Summary

As of August 10th, Windchime Health has raised $234K

Windchime Health has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our deal diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com

The Shifting Market

Across the healthcare industry doctors and dentist alike are facing mounting pressures from insurance providers to cut cost. Though you may feel you pay a significant amount for healthcare, the reality is most small dentist offices and doctor offices alike struggle to turn a profit at all.

 

In the US alone, the dental industry is worth $134B today and is estimated  to grow to $150bn by 2020 with over 114,000 dental practices in the US alone. With such a large market opportunity that is still very inefficient, it is likely we will see significant consolidation of the industry in the coming years.

 

In fact, single office dentist are falling out of favor and are increasingly being replaced by Dental Support Organizations (DSOs), similar to Managed Care Organizations (MCOs) for traditional doctors. These larger entities benefit from economies of scale and from cutting cost on administrative support functions of the business.

 

With more sophistication and focus on revenue / cost optimization entering the dental market with the rise of the DSO, customer experience is playing an increasingly important role.

The Problem

There are two interesting dynamics at play in the world of dental care that create a real opportunity for a company like Windchime.

 

On the patient side, patients rarely actually want to go to a dentist if they are not in a state of pain, which leads to many cancellations and no-shows across the industry. At the same time, when patients are in pain the desire for care and attention is immediate, though a dentist may not be able to accomodate.

 

This creates a challenge for dental offices where capacity and demand rarely align. However, despite not being able to service patients in particular emergency situations, they are also unable to fill seats. Each cancellation or no-show is revenue lost (in the range of $300 to $3,000) that cannot be recovered.

 

Dentist are continuously being squeezed by insurance companies and with limited coverage on dental procedures for most Americans the need for affordable care on the patient end, and high utilization on the dentist end are paramount. To date this problem has not been solved.

The Solution

Windchime is an app which enables users to connect with dentists in the US, compare prices, and make bookings. The easiest way to describe it is as “Trivago for dentists.”

 

By better aligning supply and demand with more transparent pricing Windchime creates both an improved customer experience and helps dentist to manage their bottom line.

Windchime enables users to identify slack in the local dental ecosystem and get the help they need at the price they need, when they need it. This is one of those products where it is easy to say that the user experience is 10X what it is today.

 

This is absolutely the kind of product that can be adopted by DSOs and single offices alike that are looking to fill more seats and remove excess capacity in the system to improve the performance of the business.

Top Line Growth Estimates

Windchime launched seven months ago in January. To date, the team has shown early market traction signals with 23 dental practice customers, and 10 mores in process of implementation.

 

This suggest a signup rate of 3 to 5 offices per month with limited marketing spend ($7K in spend) and nearly no track record. With referrals, ad ditional marketing spend and an optimized acquisition strategy including pursuing larger DSOs it is reasonable to assume a 5 to 10X growth in monthly dental office acquisitions over the next 2 years.

At this rate the team would be closing 15 to 50 offices per month in 2019 or 180 to 700 annually. At this rate projections for 2019 are in line with our estimates.

For the next 12 months, management intends to focus exclusively on San Francisco to build upon the success it has already had. If you are in tune to our past TOP DEALs, this is a similar approach to NowRX who has focused on and had tremendous success in SF before pursuing other similar cities for growth.

 

Projections for number of dental office customers in 2020 and beyond seem overly-optimistic. However, assuming the team can grow to and hold at a rate of 50 office sign ups per month it positions top line revenues to meet or surpass revenues of $3.5M within 3 to 5 years.

 

A SaaS business like this can definitely command a revenue multiple of 5 to 10X top-line. This would present a robust upside for early investors that are investing on a $3.5M valuation cap with a 20% discount.

Founder Experience

The co-founders are well experienced, particularly CEO Joseph Storm, who has over 30 years of start-up experience. Joseph alone has Co-Founded three other successful ventures including Fusion Research, Witt BioMedical (acquired, $165M), and ComView Corporation (acquired).

 

The board of advisors is also well seasoned, particularly retired Santa Cruz Nutritionals CEO Mike Westhusing, and owner of multiple dental practices Marc China.

The Rating

The Recommendation: Top Deal

 

Windchime presents an opportunity to invest in a very early stage SaaS venture with signals of product market fit, an attractive valuation cap entry point, and a large nascent market with few competitors.

 

Additionally, it benefits from several market trends in its favor including consolidation in the dental market, more emphasis being put on customer experience and optimization of utilization playing a more important measure of success for DSOs.

 

With exit opportunities existing amongst large DSOs, insurance companies like Delta Dental, and large dental software providers we think there will be a plethora of opportunities to be acquired in the next 5 to 7 years. Also, as a successful SaaS-based business, Windchime would attract any number of private equity buyout firms.

 

The experienced management team compounds the above factors making this a highly attractive investment opportunity. As a SaaS disruptor in an industry where there is a wide open field of opportunity, we rate Windchime Health a TOP DEAL for KingsCrowder’s, reserved for the top 10% of all deals we analyze.

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