Having either outlasted or acquired most of its competition in the dental industry software space, Dental X Change Inc. is currently in the midst of raising what it hopes will be its final round of venture capital financing.
The Series C deal is being pitched with a target capitalization of between $12 million to $15 million, and is scheduled to close within the next 60 days. If the Irvine, Calif.-based issuer hits the latter figure, its overall venture capitalization will hit the $37.05 million mark.
Thus far, Dental X Change has secured $5 million from existing investors Bessemer Venture Partners and Whitney & Co. It is now hoping to bring on some more industry-specific money – like dental insurance providers or dental equipment manufacturers – and is currently in serious talks with at least two such players.
“All these conversations originally started as discussions about pure business partnerships, but they brought up the equity option, and we’re very open to it,” said Gautam Prakash, general partner with Bessemer and Dental X Change board member. “What we hope to eventually accomplish through this round is bringing in some big partners and enough capital to carry the company through profitability… in Q2 or Q3 of 2002.”
There is also the possibility that an additional VC firm could participate in the transaction, as company CEO Scott Brewer reported that he received significant investor interest following a public pitch at last week’s VentureOne Summit in San Francisco.
“People seemed very excited by the fact that we have both management teams in place and a real product out on the market, not just a speculative business plan,” he said.
Indeed, the company has expanded from its original b-to-b e-commerce model to become a leading provider of software solutions to both dental practices and dental equipment manufacturers. It has already released a suite of products dealing with such issues as general Web-based practice management, claims processing and payer connectivity.
“What has surprised me most [since we first invested] is that they’re beating their revenue plan four-fold,” said Jefferey Jay, managing director with Whitney & Co. “The market adoption has been greater than anyone anticipated.”
Part of the reason for that adoption, however, hasn’t been the fruits of internal R&D at Dental X Change as much as it was the result of strategic acquisitions. Last September, the company announced that it had acquired Dentisoft Inc., a dental services company that offered both Web-based and desktop practice management systems, including an online patient registration system.
The following month it scooped up eDentalStore Inc., an e-commerce outfit that expanded Dental X Change’s online catalog of dental supplies. The company also acquired DentalConnect.
As for why the dental industry needs a specialized and integrated solution of its own when there are scores of medical software products available on the market, Bessemer’s Prakash said there are significant differences between the needs of dental and medical practices. First, he said, the dental market is far more retail-oriented, with well over half of all payments being shelled out directly by the patient. Second, insurance companies are involved less frequently in dental procedures than in medical ones since the former are more often cosmetic in nature (i.e. teeth whitening, orthodontia, etc.). Finally, he said that there are a number of administrative differences when it comes to claim structure and scheduling issues.
Moreover, it does not appear that most medical software providers even want to get into the dental market due to its highly fragmented reputation. In fact, Prakash said one of Dental X Change’s greatest coups thus far has been cracking the code on how to sell into the small business market. Although he declined to divulge many specifics, he noted that partnerships with telesales and OEM companies are being employed, in part, to replace the costly process of a direct sales approach.
In related news, Bessemer Ventures recently closed a $100 million investment vehicle named BIP 2001 LP. The fund is a bit of a departure for the Wellesley Hills, Mass.-based firm in that it was primarily filled with commitments from Harvard University and MIT. Most of Bessemer’s other funds are of the evergreen variety thanks to a funding agreement with Bessemer Trust Co.
Dan Primack can be contacted at Story Feedback.