SmileDirectClub
It posted clear aligners to your door, fell 28 per cent on listing day and shut down four years later
- Founded
- 2014
- Closed
- 2023
- Lifespan
- 9 years
- Peak valuation
- $8.9 billion
- Became a unicorn
- 2018
- Country
- United States
- City
- Nashville
- Sector
- Health
- Founders
- Jordan Katzman, Alex Fenkell
- Investors
- Clayton, Dubilier & Rice, Kleiner Perkins, Spark Capital, Align Technology
- At its peak
- A valuation of USD 8.9 billion at its September 2019 IPO
- Cause of closure
- Business model failed
What did it do?
SmileDirectClub sold teeth straightening through remote monitoring and clear aligners sent by post, in place of orthodontist visits. Jordan Katzman and Alex Fenkell founded the Nashville company in 2014. It also ran physical shops for taking impressions. At closure it operated in the US, Canada, Australia, Ireland, Germany, Singapore and the UK.
Why did it shut down?
The company listed in September 2019 at USD 23 a share and a USD 8.9 billion valuation, and the stock closed about 28 per cent lower on day one. According to Fortune, revenue declined over time and the company never made a profit; it also cut sales and marketing sharply during pandemic shutdowns. In August 2023 a California court confirmed an order to pay Align Technology USD 63 million. On 29 September 2023 it filed for Chapter 11 in Texas with nearly USD 900 million of debt. The founders' offer of new capital failed to win support from key lender HPS and other creditors. Operations stopped on 8 December 2023 and the case moved to Chapter 7 liquidation in January 2024.
The story
SmileDirectClub wanted to take the orthodontist out of the picture. Take an impression, we post the aligners, and check-ups happen remotely. In October 2018 a USD 380 million round led by Clayton, Dubilier & Rice valued it at USD 3.2 billion, up from USD 275 million two years earlier.
In September 2019 it listed above its price range at USD 23 a share. The valuation was USD 8.9 billion and its young founders became billionaires. The stock fell 28 per cent on day one, the worst first day for an IPO selling more than USD 500 million of shares since at least 2000.
The company never reached profit. A fight with Align Technology, once a holder of about 17 per cent, ended in a USD 63 million payment order. A settlement with the Washington DC attorney general ended the non-disclosure agreements it had required of customers seeking refunds.
On 29 September 2023 the company filed for Chapter 11. The founders tried to rescue it with their own money, but an offer its lawyer called a Hail Mary found no creditor support. On 8 December 2023 it shut down abruptly. Customers in treatment were left stranded and the lifetime guarantee ended.
Lessons for founders
- If you sell healthcare directly to consumers, plan for the regulator as well as the middleman. A marketing budget will not protect you when customers, orthodontists and watchdogs turn on you at once.
- If your supplier is also your shareholder and rival, plan for the day that relationship breaks. The dispute with Align ended in a USD 63 million payment order in August 2023.
- A company built around growth rather than customers loses revenue the moment it cuts marketing. Without a channel that grows without paid acquisition, you do not have a solid business.
Sources
- SmileDirectClub to liquidate in bankruptcy (Fortune, 2023-12-08)
- SmileDirectClub shuts down (DrBicuspid, 2023-12-11)
- SmileDirectClub prices IPO at $23 per share, valuing the company at $8.9 billion (CNBC, 2019-09-11)
- Teeth-straightening startup gets $3 billion valuation (CNBC, 2018-10-10)
- SmileDirectClub Sets Record: Worst First Day for a Big IPO Since at Least 2000 (Yahoo Finance, 2019-09-12)
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