DSOPro: How did you both get involved in dentistry?
Thomas Sharpe: I come from a little town in Oklahoma. My childhood dentist, Dr. Tom Kennedy, practiced in a nearby town and was good friends with my father. Dr. Kennedy had entered into a “dentures in a day” practice similar to a model being offered on the East Coast. A group located on I-95 provided this fast service to the snowbirds driving from the northeast down to Florida and back.
Dr. Kennedy didn’t have the business and administrative backing that would be needed to scale up. The timing was such that I was able to jump in and lend a hand to help build the DSO. I have degrees in both business and law. There were a handful of offices when I came onboard in 2000. We optimized a model over time and started opening de novo offices with our growth pointing towards the East Coast from Oklahoma into Arkansas, Louisiana, Missouri, Texas, and later Kentucky, Mississippi, and Tennessee.
Because of our growth and the success of our model, we got on Affordable Care’s radar. At 52 offices in 2019, we were one of their largest competitors. Over the years, they asked us if we would join forces with them as they found our model and performance appealing.
In 2019, Affordable Care’s backers were Berkshire Partners. They made an offer in the later part of 2018, and we completed the sale of the DSO group to them in March 2019. When DDS was acquired by Affordable Care, they had 270 offices, and the network has since grown to over 450 practices in 42 states.
Doug was on the board of Affordable Care, which I joined as well. We performed governance tasks of course, but we were doing executive things, too. I helped with our digital dentures initiative. We were trying to figure out how to 3D print dentures in a better way and at scale. We were also bringing the DDS operating model into the Affordable Care group so they had two different operating models they could choose from based on circumstances.
We further began looking at premium offerings and how that might be adopted into the Affordable Care network. These are the types of things I was working on, in addition to integration, which is a difficult thing. Anytime a group with a kind of fierce culture and spirit joins another group and is trying to adapt to their ways yet keep what made them great and special, it’s tough. There is a process that just takes time and humility.
Broadly, I think that we were successful with the integration and navigating the pandemic. In August 2021, the Affordable Care DSO was sold to a group called Harvest Partners. They refreshed the board, so it was a perfect time to go try some other things. The Dental Innovation Alliance (DIA) was about to be formed.
Doug Brown: I grew up in Dayton, Ohio. I attended Duke University, loved North Carolina and decided to stay. When I graduated, I worked in public accounting for a “Big 8,” Arthur Young & Company in Charlotte, North Carolina, for 3 years and earned my CPA certificate. Ultimately, I decided accounting wasn’t where I wanted to be, so I worked in multi-unit retail operations and administration. I did that for 5 years while I earned my MBA back at Duke University and the Fuqua School of Business. Next, I started consulting for small to mid-size businesses in the turnaround and crisis management area. I did that for several years and then became the CEO of a consumer electronics multi-store retailer in the southeast. So, I did my first gig of running a company in my early 30s.
In 1995, I decided to move into dentistry. A friend from Duke had started a small group of practices and I came on board to help him grow, which led to me being promoted to CEO. When we merged with a much larger DSO in Cleveland, I became the CEO of that company. We went from a few practices to more than 100. Then we merged with another large DSO in Texas. So, through consolidation, acquisition of practices, and de novos we became a top 10 DSO between 1995 and 2011.
For 13 of those years, I was commuting from North Carolina to Cleveland. In 2011 I was offered the CEO position at Affordable Care (Affordable Dentures and Implants), based in my hometown, which was wonderful. It was also wonderful because it is a beautiful business with a lot of success and history. I was CEO for 7 years, during which time we went through two successful private equity sales.
When Berkshire sold the company in 2021, the new owner, Harvest Partners, reset the board and Thomas and I stepped out of our positions as co-vice chairmen. I am still on the board of a subsidiary of Affordable Care, their GPO called Sevāredent.
As I transitioned out of the CEO role, I got on the boards of several other DSOs. They had different models from Affordable, and I am still on several of those boards. I also invest in, advise, and am a director on the boards of some of the early-stage technology companies that are the type that DIA is investing in. I am on 10 boards all together—some of them are nonprofit, most of them are for-profit, and all but one are in dental.
I also started a non-profit enterprise in Durham, North Carolina, called Local Start Dental. It’s a dental practice for the underserved but it’s also a learning center for UNC Adams School of Dentistry students and offers advanced clinical training for dentists who come in from around the country. It has state-of-the-art technology that was all donated. I am still executive chairman of that operation and continue to nurture that along.
Both Tom and I have the resources through our exits to make these investments and the time to devote to helping the company founders. We like to joke that we parlayed our denture capital into venture capital!
Tom and I initially had no intention of doing more than investing ourselves and taking minority stakes in these companies until we had the idea that with almost 30 years of contacts in the industry, and me being the founder, former president, and still an active part of the governance of the ADSO, to use the connections that I have to solicit additional investors into the DIA organization. We have grown to almost 40 members, so we decided to build a staff of 8 very knowledgeable professionals. We have deep operating experience, but we don’t have deep investment experience. So, we brought on several people who do from banking, early-stage capital, and fund administration.
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DSOPro: Tell us about the concept of Dental Innovation Alliance.
We started talking to different innovators and entrepreneurs and found some things that were interesting for us to invest in. We thought it would be better, and more fun, to bring together others like us to join in this endeavor. We wanted to grow the group to be able to provide more investment capital and more mentorship and sales connections for the innovators and entrepreneurs.
That’s the genesis of DIA. We found this way to foster dental and health innovation that we can scale. Many of our group of industry investors have DSO backgrounds going back decades. Some are the industry leaders. They are all involved in dental at some high level.
Our group brings a certain kind of expertise and mentorship, plus our networks, to the table. Putting in capital is only part of it. As an innovator, you can get capital from a lot of places. What you cannot always get is the opening of doors and the networking that comes from a group like DIA. Our group represents about 8,000 North American dental offices. There’s that kind of power when we invest in an innovator or entrepreneur. We have four official DIA portfolio companies now, soon to be five. Part of the process when we are doing the due diligence is identifying how we can build value for this portfolio company.
A huge portion of that value is asking people who are affiliated with the different DSOs “Would this technology make sense at the DSOs you’re affiliated with?” When one says yes, that’s part of that due diligence calculus. We ask a DSO if it wants to do a pilot with the company we are looking at. So, while there is capital coming into the innovator, they also know that while they don’t get any sales guarantees, they do get a guarantee of eyeballs on their innovation. They know, “If I get eyes on me, I have a chance for sales.” Sales are oxygen to these innovators and entrepreneurs. They need this as any business does, but it’s that much more vital for survival at early stages.
The third leg of our value proposition stool beyond capital and sales connections is mentorship. There are a lot of people in this DIA group who want to give back. They want to mentor, coach, etc. A lot of them are at the stage in their lives where they have a lot of wisdom to share, and they want to do so. Some of the industry investors will be assigned as board members, board observers, or advisors/liaisons. We have a lot of connectivity with the innovator or entrepreneur, which they value greatly.
We presently have four companies in what we call our SPV or special purpose vehicle structure. We make the final investment decision, but there is a review process that involves a very discerning subset of the industry investors. In our current structure, when we get to the point of investing in Company X, we form an LLC (the SPV). The LLC gathers the money from the investors who are going to participate. Then the LLC pours that money into the portfolio company, and we support the innovator/entrepreneur.
We plan to evolve this structure to be more impactful beginning next year. To this end, we are adding more investors into the industry investor mix now. Many of these are institutions. As with the individual investors, all are highly curated by DIA. Thus, we are adding to our strategic edge of capital, sales connections, and mentorship. Institutions are potential acquirers of the portfolio companies we invest in, as well. We are seeking to bolster the DIA endeavor of pursuing venture capital like returns with growth equity like risk by wielding our strategic edge. More details will be shared at the appropriate time, so please watch for updates as we are able to provide them.
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DSOPro: Why do industry investors like to be a part of DIA?
There is an opportunity, not a guarantee of course, that there will be a financial return. What investors also love about DIA is the camaraderie and the collaboration. We’re bringing these people together on Zoom calls for updates on a sector or a company we’re looking at. We get together in person at different meetings like ADSO or Chicago Midwinter.
There are a lot of different investment structures out there. Sometimes investors just put money in and don’t really hear from the investment group. We are much more than that at DIA. The idea is to build a community. People desire that kind of connectivity. You have influential people coming together and being able to talk. That is beneficial, and participants enjoy it.
The CEOs of large DSOs love the idea that we’re looking at dental innovation in such a robust way. For example, there are over 500 companies in our CRM system, which is a database of the total universe of dental innovators we have found thus far. We divided that into 35+ tranches or vectors of dental innovation. These are subgroups we’ve broken down to make sense of the whole dental innovation universe. We will drill down even further when we find a vector that we want to look at more in depth, and then we find one company that is the ultimate we want to invest in based on our criteria for investment.
Our diligence into companies is deep. We also look at the competitive landscape. There’s intelligence value that comes from that. People like knowing what innovations we are seeing and our members get access to that information. So, imagine being the CEO of a DSO—part of your job is to know what’s going on in dental innovation and to make more informed decisions. This is another line of intel for them.
We have worked arduously to curate this group. There are certain limitations by law, and by rules of accredited and qualified investors. They must have a certain amount of understanding and financial wherewithal, but beyond that, we find people who have the same kind of collaborative and collegial personality, because they also have impact in the industry. There is a harmony within the group that is important and worth continuing.
DSOPro: Are any members dentists or former dentists?
There are several dentists within our investor ranks. Not everyone is in a DSO. Some are or have run DSOs at the CEO level. Some are board members. So, they still have connectivity, power, and influence in the industry. One is a chief clinical officer of one of the large DSOs, and a great member of DIA.
There are also members from the operational business side. There is a push to involve the technical side, people who have a technical understanding of product or software development within dentistry. Many of us come from a DSO background, but as we’ve broadened our reach, we’ve brought people in who are operating larger businesses on the technical side of dentistry.
DSOPro: What types of innovations are you looking at?
We invested in several SaaS companies early on. The second biggest category is devices. The remainder are technologies like therapeutic treatment modalities and then consumer goods and services like staffing. This remainder category will be a tertiary focus for us behind SaaS and devices. Our investment focus mirrors the pipeline of prospective portfolio companies that we have in our CRM system.
We have invested in and are currently working with UptimeHealth, Relu, Dentognostics, and Cloud Dentistry. These will be discussed in more detail in Part 2 of this interview in the January 2024 Technology edition of DSOPro.
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DSOPro: Tell us what differentiates your fund from others.
We would not invest in competitors in a vector unless there were unique circumstances, and utmost transparency to both groups. When DIA invests in a group, we want that to be seen as a very special thing. There’s been a process, a very thorough review of the company and the competitive landscape.
When you become a DIA portfolio company, we want that to mean a lot. We simply could not do that if we invested in 50 portfolio companies very rapidly. We don’t have the staff to work at that scale, nor the ability to give the kind of white glove service we endeavor to provide to our portfolio companies.
There are other groups that invest in dental innovation in different ways, but most are not structured in a true investment group way like we are now. Most are doing it from within a DSO, or from within private equity, or something like that.
I hope we’re showing other parts of the investment world, as well as the dental industry, that we have a great way of approaching this. The ultimate indicator will be the financial outcome of course, but also how these companies progress once they leave the DIA portfolio. Where do they exit? What does that look like in terms of financial indicators? Are they thriving at the next level? Has this been a quality kind of representation for this company, and the management and leadership of it? Was it successful on that basis? Was this a great fit for us? Was it a great outcome for all stakeholders? We sincerely hope to achieve that.
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Doug Brown led and grew two national DSOs for over 22 years, most recently as CEO and Vice Chairman of Affordable Care LLC (ACI, d/b/a Affordable Dentures & Implants which now affiliates with over 450 practices in 42 states). In the late 1990s, Brown invited dental industry leaders into a group practice group that eventually led to the formation of the Association of Dental Support Organizations (ADSO). He has continually held leadership positions within ADSO, including previously serving as President and Chair of the Government Affairs Committee. He currently serves on ADSO’s Executive Committee and other key committees. Brown previously worked for Arthur Young & Company as a CPA, several large retail companies, and a management consulting firm that he co-founded.
Brown holds a BS and an MBA degree from Duke University and the Fuqua School of Business and serves on ten boards, both for-profit and not-for-profit, most of which are in the dental industry. He is the Founder and Executive Chairman of Local Start Dental, an innovative non-profit dental clinic and learning center in Durham, NC. Local Start exists as a collaboration between the UNC Adams School of Dentistry and several businesses serving the dental industry. In 2022, he co-founded Dental Innovation Alliance, a dental technology venture firm. Brown is on the Advisory Board for the Dean of the UNC Adams School of Dentistry.
Thomas Sharpe entered the dental industry in 2000 after graduating from law school. He led DDS, a DSO based in Oklahoma, from a start-up to 52 units at the time of its sale in 2019 to Affordable Care (ACI)/Berkshire Partners for a then record-high DSO sale multiple. Upon the sale, Sharpe joined the board of directors of ACI as a Vice Chairman. In August 2021, ACI sold a majority interest to Harvest Partners at another record-high DSO sale multiple. This led to Sharpe’s exit from ACI in December 2021 and the subsequent co-founding of Dental Innovation Alliance (DIA) with Doug Brown.
Sharpe holds degrees from Vanderbilt University (BA/MBA) and a Juris Doctor from the University of Oklahoma College of Law. He serves on the advisory boards of four dental SaaS companies. In addition, Sharpe is on the board of Holland Hall School. He is on various committees at Vanderbilt University including the Innovation Investment Committee. Across his career and life, innovative, people-first focuses are hallmarks of his efforts.
Dental Innovation Alliance (DIA)
Dental Innovation Alliance (DIA) is a venture capital firm that funds, advises, and propels the success of early-stage companies building the future of dentistry and health through technology. Its investor base includes executives and experts from some of the largest and most innovative dental support organizations and other dental businesses. DIA has offices in Raleigh-Durham, Nashville, and New York.