Kaszek leads an $18 million investment in SouSmile, of dental aligners

The startup expects to multiply revenues by four times by 2022 and will apply the round to accelerate growth in marketing and technology

Isabela Fleischmann

21.Oct.2021 07:00 BRT
UPDATED 07:02 BRT

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Portuguese Michael Ruah went to the United States at the age of 16 to attend college. Working at the office of Brazilian investment firm Tarpon, Ruah moved to São Paulo in 2013 with the company. After a year, he started working at the Brazilian food company BRF and in 2017 decided to found his first venture: SouSmile, a dental aligner startup that on Thursday announced an $18 million (BRL 100 million) Series B round.

The funding was led by the Kaszek fund, with participation from Chromo Invest, GFC, Atmos Capital Partners, Allievo, and Endeavor Scale-up Ventures.

Michael Ruah, CEO and co-founder at SouSmile. Photo: SouSmile/Courtesy

SouSmile’s first clinic opened in October 2018 in a São Paulo shopping mall. The startup developed its own software to manage the clinic and production of the aligners. With a Seed round from Canary in February 2019 and a Series A from Kaszek in August of the same year, the startup bet on a customer acquisition strategy through Instagram or Google. After this first contact, the consumer would schedule an appointment at the clinic and take tests. Thus, SouSmile would produce the aligner and would do all the follow-up of the customer in the company’s clinic.

But with the pandemic, the investment in new clinics stopped to hold the startup‘s cash, which lived in “survival mode” for 18 months. “We were looking for new ways to continue growing that were asset-light strategies,” explained Ruah, CEO of SouSmile, in an interview with LABS.

The idea then was to leverage the offices of partner dentists, who would provide office hours through SouSmile’s platform. “We still did a pre-assessment of the client online, but we started sending it to our partner dentist at the times made available by him or her. If the client opted to undergo treatment with us, we would produce the aligners internally and send them to the dentist who does the follow-up treatment,” he explains.

With this model of partner dentists, the startup expanded its presence from two to 30 cities in Brazil. With the Series B, the startup intends to speed up customer acquisition and grow its partner dentist base from 25 to 200 by the end of 2022.

Today, the startup‘s team consists of 160 professionals, of which 60 are dentists. “Everything connected to the operation should grow in proportion to the revenue. The number of dentists, staff working in the factory, in production, sales, technology, should grow in the same path.”

Another part of the round will be applied in technology to improve the user experience. SouSmile plans to launch an app in the first quarter of next year. “We will also increase the number of cases we treat, beyond simple cases of alignment and leveling, we will also treat another orthodontic cases.”

In February 2020, the company internalized all research and development and produced the aligners from a factory in São Paulo with a robot that does 3D manipulation of the products.

Producing the aligners “in-house” was key to the growth of the startup. “Today we have all the internal production verticalized and automated. We also have an advisory board that has helped us a lot, not only to navigate regulatory issues but also to think about the company’s growth.”

Brazil: an open door for the dental market

In the 10 years he spent in the US, Ruah was inspired by SmileDirectClub, a company that offers dental aligners directly to the consumer. When he looked at Brazil, the CEO said that he realized that the market was proportional to the U.S. market, with 2 million orthodontic cases initiated per year in the country, compared to 3 million in the United States.

On the other hand, in the United States, 40% of these cases were treated with aligners, compared with 4% in Brazil. This happens because of the high prices, according to Ruah.

“We leveraged technology to offer a much better experience for the client, with online scheduling and payment, monitoring of the journey through a website and at the same time verticalizing the entire chain, and with that offering a more attractive price,” he said.

“Brazil has many dentists and there is a great concern of Brazilians with beauty and oral health. The regulatory environment also makes it very difficult for foreign competitors to enter this market. These characteristics make Brazil an extremely attractive market for us.”

The startup does not disclose the number of customers but has 7,000 evaluations on its website. “Our goal is to multiply our revenue by four next year and this is proportional to the number of customers,” said the CEO.

Since 2018, the firm has grown revenue twice year on year. Now, the price of the company’s dilution with the new round comes with the intention to put its foot on the accelerator.

“When you go into a VC route, a lot of times you’re giving up equity in the company so you can accelerate your growth. When you accelerate growth a lot, you’re usually consuming more capital than you’re bringing in [capital] because of that incremental investment to be able to accelerate. So the company still depends on the capital markets,” Ruah recalled.

The startup‘s main challenge is to be able to reach breakeven, that is, the point at which the company can sustain itself without having a dependency on the capital market.

“Every round you do, you get bigger and that liquidity risk or insolvency risk goes down. The mortality rate of a Seed company is much higher than the mortality rate after Series A, and it gets even lower after Series B.”