The American Association of Orthodontists (AAO) Innovation and Transformation Fund recently announced investments in two orthodontic startups: Synapse Dental and Bright Referral. This round of investment is part of the AAO’s strategic goals to invest in promising startups that are aligned with the association’s mission, value, and clinical practice guidelines. The Fund’s work is aimed at driving non-dues revenue for the association, while also having a positive impact on patient care and improving the orthodontic practice as a business. 

AAO President-Elect and Chair of the Business Development Task Force, John Callahan, DDS, MS, joins Orthodontic Products podcast host Alison Werner, to talk about the AAO Innovation and Transformation Fund and what it means for these companies, for members, and for the AAO. 

While the AAO is a non-profit, Callahan says it still needs to look at its finances through a “for-profit business lens.” Since standing up the Fund in 2019, the AAO has seen 120% increase in non-dues revenue, according to Callahan. The increase he says, allows the AAO to maintain dues at the same level, despite the fact that inflation has actually increased operational costs. 

When it comes to eligibility for investment, the Business Development Task Force has set out guidelines. These guidelines include a company’s capability to advance member success, be supportive of the AAO’s vision that all orthodontic care be provided by qualified specialists, and provide products or services that help members thrive by addressing critical needs. Moreover, the company must be aligned with the AAO’s values. The Fund’s investments are aimed at early stage companies with a proven concept or in an expansion phase that estimates its first liquidity event in 3 to 5 years from the time of the AAO’s investment. 

In terms of vetting, each opportunity is evaluated by a venture capital consultant who is part of the Business Development Task Force, as well as other members of the task force and outside consultants with specific expertise as needed. Callahan explains that the task force’s vetting process “follows established business models.” 

In this episode, Callahan talks about why Synapse Dental and Bright Referral stood out and how their products can make a difference for the orthodontic practice and the patient experience. In addition, he talks about how the AAO Ortho Innovator Award and Ortho Tank initiatives fit in to the work of the AAO Innovation and Transformation Fund. To close out the episode, he breaks down how entrepreneurial orthodontists can apply for Fund support. OP

Dr John Callahan
Podcast Transcript

Alison Werner 0:10
Hello and welcome to the orthodontic products podcast. I’m your host Alison Werner. In this episode we take a look at the American Association of Orthodontists Innovation and Transformation fund. Now the fund made news recently when it announced its investment in two orthodontic startups synapse dental and bright referral. To learn more about the fund how it fits into the AAO strategic plan and how this investment not only helps these orthodontist like companies grow, but also AAO members. I talked to Dr. John Callahan, president elect and chair of the business development task force, which oversees the AAO Innovation and Transformation fund. Here’s our conversation. Dr. Callahan. Before we dive into the AAO Innovation and Transformation fund, how did you come to your role as the chair of the business development task force?

Dr John Callahan 0:52
Well, Alison, the business development task force came into being as a result of the innovation and transformation fund. In 2019, the house approved $3 million taken from reserves to establish the fund. The Board of Trustees established the business development task force to govern the fund and I have been chair for the last several years.

Alison Werner 1:13
How does the fund fit into the larger strategic goals for the organization?

Dr John Callahan 1:18
Well, the AAO has three strategic goals. The first is to promote and defend our specialty. And we do this through our advocacy efforts and the consumer awareness program, which is to educate the public about the benefits of orthodontics by an orthodontist. Our second is to engage and delight our members and third, and driver for this conversation is to drive transformation and innovation. The Innovation and Transformation Fund helps us accomplish goals to drive this transformation and innovation. And we have done this through new programs, endorsements and support of industry entrepreneurs. Two examples our members have experienced include the Wharton-AAO mastering the business of orthodontics program, which through the partnership with Wharton elevates the leadership and business skills of orthodontists and their office managers, and tech select that helps orthodontists evaluate new tech and digital solutions for their practice. Finally, the fund enables the AAO to support innovation by investing in promising startups aligned with the AAO strategic plan.

Alison Werner 2:27
Okay, so what are some of the objectives of the fund? I know one of them is to drive non dues revenue for the association. So what inspired the AAO to take on this initiative? And what would it mean for AAO members?

Dr John Callahan 2:41
Well, Alison I think it is important to our members to understand why the fund was needed. You know, in our CEO Lynn Thomas Gordon first came to the AAO, she took the time to assess the association’s long term financial landscape, she was the driver for the board to reassess the way we do business. And we all know that inflation and other factors have increased our office overhead in the last several years. The same is true for running the association costs keep going up. The Board of Trustees acknowledged that long term dues revenue would not cover our operations without either a regular increase in dues, a decrease in member programs and services, or a move to increase our non dues revenue. We may be a not for profit association, but we needed to look at our finances through a for profit business lens. And as our members know, the stock market had a very good decade through 2019. And we were blessed with solid reserves. The House of Delegates approved the Innovation and Transformation fund in 2019. And the goals of the fund are to create member benefit programs and to generate non dues revenue. And as my dad always counseled me, you need money to make money. And if we were to be innovative and progressive, we needed this fund. And our vision for our members is to see really cool programs and added services and no increase in dues.

Alison Werner 4:13
I’m wondering if you can speak to how successful this effort to drive non dues revenue has been since the fund has now been in existence since 2019.

Dr John Callahan 4:22
The fund in my opinion has been quite successful. Since then, Innovation and Transformation Fund was established. AAO has increased non dues revenue from fund initiatives 120% which is more than double. Now this increase has allowed us over the last couple of years to maintain dues at the same level. In spite of the fact inflation has increased our operations. To me this has been a great success.

Alison Werner 4:52
So the Fund recently announced investments into orthodontic startups and this investment is part of this fund initiative. Those two companies are synapse dental and bright referral. Before we talk about each of those companies individually, how are the companies vetted for investment from the fund?

Dr John Callahan 5:10
So this is a very good and important question Alison, our members need to know that each company we consider is very carefully looked at. Before we even consider our first possible candidate. The Business Development taskforce needed to develop a system for evaluating and vetting and we created eligibility guidelines, which are extensive. Some of these guidelines would include their capability to advance our member success, they need to be supportive of AAO’s vision that all orthodontic care is provided by qualified specialists who successfully address patient needs. It also needs to provide products or services that help members thrive by addressing our critical needs, and it needs to be aligned with our values. It also needs to be an early stage company who is new with a proven concept or an expansion phase who estimates its first liquidity event in three to five years from time of our investment. And as far as the vetting process, while each investment opportunity will be evaluated by a venture capital consultant who is part of our business development Taskforce. It will also involve the AAO growth and transformation staff and any other outside consultants with specific expertise as appropriate. The scope of the evaluation will include the company’s business model, business plan, financial projections, management, leadership, team and risk management, AAO growth and transformation staff will develop the recommendation based upon their evaluation and submit it to the business development task force. The business development task force we will then review the recommendation and supporting documentation and make a recommendation. Once it’s approved the AAO growth and transformation staff manages to contracting with support from a a legal and AAO, the AAO CFO and contracts are executed by the AAO CEO. My point is is that our vetting process follows established business models and our guidelines ensure that the candidates candidate is supportive of the AAO’s vision and is aligned with the AAO’s values.

Alison Werner 7:23
Great. Well, can you tell us about some of the past recipients of the investment from the fund?

Dr John Callahan 7:29
sure that the fund seeks in the long term to invest in 10 companies initially and we currently have seven and these include PhotoDynamic KLOwen Braces, Grin, Azone which is the parent company of OrthoZone, Lightforce, Synapse Dental and Bright Referral.

Alison Werner 7:49
I noticed there’s some overlap between winners of the AAO ortho Innovator Award and the recipients of investment from the fund for example, KLOwen and Grin and now synapse dental and both initiatives are under the same AAO strategical transformation innovation. How do the fund and the ortho Innovator Award programs align?

Dr John Callahan 8:07
Well, Alison, we needed a pipeline for sourcing of possible investments. You know, there are two primary sources for possible investments that we knew one was initially and still the AAO reviews companies opportunistically as they are submitted and discovered through our own AAO networking more strategically, we needed programs that drew interest and attention to our investment opportunities. So we created the AAO innovation events, which include ortho innovator and ortho tank startup pitch events. You know, these allow us the opportunity to review a large number of companies in a concentrated period of time. Now, you’re though the first let me just say that the ortho Innovator Award is part of an ongoing effort to support innovation among orthodontists and industry suppliers. You know, businesses considered eligible to enter the competition are companies offering new products and services for orthodontic treatment or orthodontic practice management. The second which is the ortho tech startup pitch oven is inspired by the popular Shark Tank television show. And it provides a venue for selected startups to pitch to the panel of judges for possible funding support. So both synapse and bright referral were participants in the 2023 ortho tank startup pitch event at the annual session in Chicago.

Alison Werner 9:33
So when a company receives an investment from the fund, what does that look like in practice for the company and for the AAO?

Dr John Callahan 9:40
You know, our AAO brand is one of our greatest assets. It is what members trust. A company that receives an investment can promote our relationship. It is a win win for the company and for the AAO and another benefit is having an AAO representative as an observer on their boards. this observer provides guidance on AAO positions such as Teledentistry. And it’s critical that the AAO be assured that companies are operating in alignment with AAO’s mission values and guidelines. I mean, we want good oversight of our investments.

Alison Werner 10:16
Now let’s dive into this year’s recipients and start with synapse dental we had orthodontic products interviewed the head of the company earlier this summer for the magazine about the company’s product, the dental pain eraser, and the receipt of the 2023 AAO orthodontic Innovator Award. Now the AAO is taking its interest in the product step further with this investment. Can you tell our listeners a little more about the dental pain eraser and why it’s the right product for the AAO to invest in jeweler

Dr John Callahan 10:41
you know synapse describes the dental pain eraser as a handheld solution that uses patented pulse wave technology to prevent and relieve oral pain within seconds without needles, drugs and. Pulsewave technology which is a type of neuromodulation interrupts the oral pain cascade and histamine response by using priority sub sensory electrical stimulus. Okay, so what does all that mean? Well, it goes right to what our patients biggest concerns are about treatment, relieving discomfort. And from the AAO investment perspective, synapse provide some really critical criteria. Their product has multiple multiple patents so that it’s protected and the technology has broader usage outside of orthodontics, you know, just think about all the potential applications throughout dentistry and medicine. It has the potential for unlimited growth and thus a great investment product enhances orthodontic patient care and as application, you know, other dental specialties, so it fills all the checks off all the boxes as far as a good investment is concerned.

Alison Werner 11:52
Now, bright referral is the second company to receive investment here and the company software as I understand it digitizes and tracks the referral process. Can you tell our listeners a little more about what bright referral has developed and why this technology is right for the right product for the AAO to invest in.

Dr John Callahan 12:10
So according to bright referral, the company has developed SaaS based technology to digitize and track the referral process, which adds transparency and increases appointments from referral patients, which should result in more starts. So what does that mean? Well, I’d like to give you a quick story. You know, I recently had lunch with one of my referring dentists. I prepped by referring the most recent referrals in our database. And during the lunch, she asked me about several others she had referred, I had no idea they had never reached out to our office. And this is one of my biggest problem areas. How do we make it easier to connect the referral the patient and us and collect real time referral data, this new technology is the best. You give the dentist this credit card type card which they simply tap to a referring patient phone, it provides the patient with all your information, but also provides you with the information they are being referred. Now we can follow up ourselves. I mean, this is simpler, cooler referral process. And the orthodontist getting the referral can track the referrals by source to monitor and perform outreach to our doctors and referring patients who have not booked appointments. It also is encrypted just so you know and his HIPAA compliant.

Alison Werner 13:33
Both of these companies are founded by AAO member orthodontist, which is one of the criteria for for investment. You did talk a little bit about this before, but I wonder if you could dive a little deeper. Why is it important to support orthodontist-led product innovation?

Dr John Callahan 13:47
You know many orthodontists are tinkerers. We love playing with stuff. And we’re always looking for ways to better treat our patients. Okay, so where are they going to go if they have a great idea that they’d love to share? Well, we can now provide the opportunity for them to promote and share their their ideas with the profession.

Alison Werner 14:07
So for orthodontists who are hard at work on their own innovations, what is your message to them about how the AAO can support their work?

Dr John Callahan 14:15
Well, first of all, you want to use our established pipeline. You know, the AAO is supporting entrepreneurs through the ortho Innovator Award, which by the way, the entries for 2024 just opened this this week. And the second would be the ortho tank startup pitch event. But if I were them, I would also check out the new product showcase and word competition that our annual sessions are all orthodontists and residents in attendance select all the winners.

Alison Werner 14:43
How do companies begin the process to be considered for the invest for investment from the fund?

Dr John Callahan 14:48
Well, as I mentioned earlier, there are two primary sources for possible investments including the AAO, we’ll review company operating companies opportunistically and as they’re submitted and also the AAO innovation events including ortho innovator in the Ortho tank startup pitch events.

Alison Werner 15:07
What can AAO members expect in the coming years for the fund?

Dr John Callahan 15:12
Well, more good stuff. The Business Development taskforce currently is exploring new programs to help with our members success. We want to build on the tech select and the AAO Wharton MBA examples, and we want to see more investments, all with the goal of providing our members with resources to help them with their practices, and enhance our non dues revenue stream to our members. My message is value up and dues down. How good is that?

Alison Werner 15:43
I love that. Well, Dr. Callahan, thank you for taking the time to talk to me today about the investment fund. I really appreciate it.

Dr John Callahan 15:49
You’re very welcome, Allison and thank you for inviting me.

Alison Werner 15:53
As always, thank you for joining us. Be sure to subscribe to the orthodontic products podcast to keep up with the latest episodes. And be sure to check out orthodontic products to keep up with the latest industry news. Until next time, take care.