Ousted from his own start-up, entrepreneur turns setback into lessons for others

Entrepreneur Thompson Aderinkomi is best known for co-founding and then getting fired as CEO of a high-profile start-up company, RetraceHealth. Not that getting canned has done his reputation any harm.

"I couldn't say enough good things about him," said serial entrepreneur Abir Sen, CEO of Minneapolis-based health benefits provider Gravie and an early investor in RetraceHealth. "In fact I don't think it was a good thing overall that he was let go by the new investors" in RetraceHealth.

He added that angel investing is a bet on the jockey, not the horse, and Aderinkomi is a jockey he would bet on again.

Aderinkomi has a new venture already, but it's the way Aderinkomi has turned his big RetraceHealth setback into lessons for other entrepreneurs that the Twin Cities start-up community is now talking about. He appears to be exactly what was needed for a healthier attitude here toward start-up disappointments.

In the technology cluster of Silicon Valley, failure has become so celebrated that running a company into the ground leads to bragging at the bar. A cavalier attitude about losing investor money and wasting the time of employees is obviously unhealthy, but so is the Minnesota way, to disappear quietly after a bad outcome. All that does is remind other Midwestern founders how much they risk by even starting a company in the first place.

"Thompson is a jackpot for our start-up ecosystem," said entrepreneur and investor Casey Allen, the founder of a technology conference called Enterprise Rising that just featured Aderinkomi as a speaker. "Nobody blends candor and takeaways like him. All founders need to hear what he shares."

Aderinkomi did not respond to e-mails, reportedly because he's agreed with RetraceHealth not to talk to the media about his situation. Yet he does speak at conferences. A video of his conversation with a moderator at Enterprise Rising in Minneapolis has been online at the technology news blog Tech.MN for more than a week. It's well worth watching.

Aderinkomi, a product of the University Minnesota up through an MBA from the Carlson School of Management, cofounded RetraceHealth more than four years ago with Steven Bayer. From the beginning, they envisioned using technology to help deliver health care, not creating some sort of "app."

Aderinkomi had observed that most patients experience basic health care as a time-consuming visit to a big health system's facility, meeting with nurses and physicians the patient maybe never sees again, and all of it mysteriously priced. He once described RetraceHealth as providing health care in a person's home and making the experience as pleasant as possible. RetraceHealth found its best early success when it stopped selling to consumers after signing an employer as a customer.

As a health care delivery company with medical personnel to pay, RetraceHealth needed outside capital as its service was rolled out. As Aderinkomi described at the conference, the earliest money from investors came from the health care industry, like an investment from HealthEast Care System.

The next money to be raised was planned as a $1.5 million "bridge" financing in 2015, hopefully leading to a much larger venture capital round. Mishandling that financing was one of the mistakes Aderinkomi has acknowledged making. He held out for a higher price, ultimately raising only about $1 million. At the rate the company was burning cash as it grew, that $500,000 shortfall would cost roughly six months of additional financial runway.

He also now sees that he could have run his company leaner. Employees would have had to agree to some sacrifices, but it should have been possible to stretch the smaller bridge round until they felt fully ready for a full venture round. His lesson: Be very rigorous in exploring all the options.

As the company progressed toward seeking venture capital, he learned another of his lessons, that halfway through an initial revenue ramp isn't the best time to be to be soliciting institutional investors.

"We had good data," he said at the conference, "and we didn't have enough good data for a Series A [venture round]."

Health care delivery is a narrow niche, so his list of potential investors was a short one. Ultimately what closed last summer was a $7 million financing led by Lemhi Ventures of Wayzata. The negotiations over valuation turned out fine, Aderinkomi told the audience, but he said the terms he agreed to were "onerous."

One problem was the structure of the board, five people with two independent members chosen by the other three, including a seat held by Lemhi.

Aderinkomi said he didn't fully grasp at the time agreements were signed that this board structure basically made his a three-person board, not five. The right two board members coming to agreement about anything could effectively do whatever they wished.

Last fall, just months after the venture capital deal had closed, Aderinkomi was ousted. "My relationship with the board was very good until I got fired," he told the audience.

He didn't describe what had transpired and Lemhi did not respond to a request to talk, but it does seem that the brand that got sullied out of this episode was Lemhi's, not his.

Aderinkomi did get another lesson for founders out of the way his experience at RetraceHealth came to an end, and it isn't that founders need to avoid venture capitalists.

He now sees that his venture financing should only have taken place when RetraceHealth had progressed more on its business plan. He went ahead because he felt anxious about having only 90 days of cash left. He quoted the biblical book of Proverbs to make his point — "to the hungry soul every bitter thing is sweet."

So this is how he put this bitter lesson for founders: "There are worse things than running out of money."

That's an important truth company founders ought to know. Don't be like Thompson Aderinkomi, and only find it out the hard way.

lee.schafer@startribune.com 612-673-4302