SUNNYVALE, Calif. – Nobody likes to wear braces – everyone made fun of some kid for having a metal mouth. As adults, though, most of us wish we had done some thing to our teeth. No one wants to flash their pearly whites and have them look like Austin Power’s infamous choppers. If Zia Chishti and Kelsey Wirth, the founders of Align Technology Inc., have their way, adults everywhere will be smiling broadly and confidently some time soon. Venture capitalists are grinning to the tune of more than $100 million in Series D financing for the company.
Founded in March 1997, Align Technology has developed what it calls the Invisalign System, an aesthetic alternative to braces specifically designed for adults who want better teeth, but do not want to put up with the embarrassment caused by wearing braces, explained Wirth, the company’s president. Patients wear a series of clear plastic aligners in sequence for two weeks at a time in a process to straightens their teeth without drawing any unnecessary attention to their mouth. “The aligners are almost invisible, you can only tell someone is wearing them if you look very closely,” Wirth said.
A patient who wants to use aligners first goes to an orthodontist, who takes an impression of the patient’s teeth and fills out a treatment form. The orthodontist then sends the form to Align, which scans the tooth impression into a computer and manipulates the teeth on screen in 3-D from starting point to gorgeous smile. “We call this part of the process virtual treatment,” Wirth said.
Align notifies the orthodontist when the virtual treatment is complete. The orthodontist then logs onto the company’s Web site and views a movie of the virtual treatment. At this point, the orthodontist can tweak the treatment process or give Align the go ahead to manufacture the aligners, which are similar to a retainer, for each stage of movement. The average patient needs 25 aligners, one for the top of the mouth and one for the bottom are usually worn simultaneously. Patients wear aligners all day, taking them out only to eat and brush their teeth. The treatment lasts for approximately one year, Wirth noted.
The aligners, which Wirth said have the potential to revolutionize orthodontia, attracted a staggering amount of interest from VCs. In June, the company secured $84 million from institutional investors in its fourth round of venture capital co-led by Oak Hill Capital Management Inc. and The Carlyle Group, each investing $28 million. ABS Ventures also participated in the deal, investing $9 million. Kleiner Perkins Caufield & Byers, Domain Associates, Gund Investment Corp. and QuestMark Partners LP also invested in the round, though Wirth declined to say how much these firms invested. Align has also received an additional $16 million in commitments from individual investors for the most recent round of funding, Wirth said, adding, when the round closes early this month it should reach a total of $105 million.
Kleiner Perkins led Align’s $2.2 million, first round of venture funding in August 1997, with a $1.75 million investment. Individuals made up the balance of that round. The company raised just over $10 million in its second round of financing, which closed in July 1998. Domain Associates led that round with a $5 million investment, while Gund Investment Corp. took $2 million of that round. Kleiner Perkins also participated in the second round with a $2.2 million investment, with individual investors once again providing the remaining funds. Align closed its $20.5 million third round of funding in October 1999. QuestMark led the third round with a $8 million investment. Kleiner Perkins invested $4 million at that time, while Vector Fund Management put up $2.5 million and Domain Associates invested $2 million. Individual investors again accounted for the rest of capital.
The company plans to use the capital raised in its most recent round to launch a $32 million advertising campaign in the fall, Wirth said. “We believe this is a consumer product. We think adults will see our commercials and then go to an orthodontist and ask for our product,” she added. The rest of the proceeds will be used to build up Align’s manufacturing capacity and to hire additional staff members. The company currently employees 300 people in California, along with 600 in Pakistan and 100 contract workers in Mexico. Wirth anticipates hiring an additional 200 workers, mostly in manufacturing, to beef up the Align’s California operations.
Wirth said an initial public offering is Align’s most likely exit strategy. “Whatever we do, it will be the option that maximizes shareholders value,” she added. The company is currently considering going public, she said, adding Align has no time frame in place for an offering date. “We just raised a ton of money, anyway,” she added.
Align currently has trained about half of the country’s 8,000 orthodontists in how to use its product. 3,500 patients are currently using aligners, Wirth said. She declined to discuss the company’s revenues, but said that on average Align charges orthodontists a $1,200 fee on average for its treatment. “We charge the orthodontists and then he sets the price he charges his patients,” she explained. According to Wirth the revenue opportunity for Align, based on the potential size of the market of adults who want to fix their teeth, is $60 billion in the U.S.
Bob Dahl, a managing director at Carlyle, said his firm invested in Align because of the opportunity it presents to make an investment in a business that has the potential to revolutionize its industry. “This is something that has not happened often in this field,” he added. Steven Gruber, a managing partner at Oak Hill, agreed with Dahl. “We think Align has real category killer potential,” he added.