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- The founder and former CEO of Virtudent, a Boston teledentistry startup, has sued his former company as well as its some of its directors, officers, and investors, saying that he was unjustly ousted for pushing back on the directors’ grow-at-all-costs strategy.
- Hitesh Tolani launched Virtudent in 2014 as one of the first commercial teledentistry firms; its hygenists conduct exams in corporate offices or other places and then consult with its dentists over the internet.
- Tolani sought venture funding in 2018 to expand from its first two states to two additional cities, but Virtudent’s investors wanted him to take the company into at least six other states using the same funding, according to his suit.
- After Tolani pushed back, expressing concern that such rapid expansion would jeopardize patient health and the company’s ability to maintain regulatory compliance, he was fired as CEO and blocked from attending board meetings, according to the suit.
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Hitesh Tolani founded teledentistry startup Virtudent to make it easier for people to get high-quality dental care.
But his concern for quality — and regulatory compliance — put Tolani at odds with Virtudent’s primary investors, according to a lawsuit he filed in late July. After he objected to their pressure to prioritize rapid growth over quality of care or even regulatory compliance, they ousted him as CEO and held board meetings without him or his board nominee, despite the fact that he remained director and one of the company’s primary shareholders, according to his complaint, which has been previously unreported.
Now he’s fighting to get his job and company back.
“Dr. Hitesh Tolani brings these claims … in connection with a series of unfair, deceptive, and tortious acts committed by certain investors in Virtudent and by their chosen agents,” Tolani said in the complaint, filed in Suffolk County Superior Court in Massachusetts. “These acts,” he continued, “jeopardized patient safety, Dr. Tolani’s dental license, and the best interests of the company, and result in Dr. Tolani’s unjustified termination as CEO and his inability to fully exercise his rights as a director.”
Tolani declined to comment on the case to Business Insider as did his attorney, Safraz Ishmael of DLA Piper.
Virtudent and the investors, directors, and officers named in the suit haven’t yet filed a response, but they’re expected to do so within the next month. John Voith, whom the Boston company named as CEO in June and is one of the individual defendants in the case, declined to discuss the complaint in detail. But he denied Tolani’s charges.
“While the company does not typically comment on pending litigation matters, we believe this complaint is completely meritless, and the company, the directors, and the officers intend to defend the case vigorously,” he told Business Insider.
Voith said later he was speaking on behalf of all the defendants in the suit, including Liam Donohue, a managing partner at Virtudent investor .406 Ventures; Servjeet Bhachu, a managing director at Sparta Group, another investor in the company; and Scott Odell, Virtudent’s chief dental officer.
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The dispute highlights the conflicts that can arise when venture firms invest in startups operating in regulated industries. The business model of venture firms is typically focused on fast-growing companies that have the potential to rapidly swell into major enterprises. But the need to comply with regulations can slow growth, particularly in industries such as healthcare, where individual states have their own licensing boards and can set their own rules.
Tolani’s suit also comes as telehealth services have seen a surge in usage amid the coronavirus crisis. In an effort to protect patients and medical staff, medical providers have encouraged patients to rely on video or other online visits instead of in-person ones. But the increasing reliance comes as states and the federal government are still trying to set standards and put in place regulations to govern the practice.
An immigrant to the US, Tolani faced deportation as a teenager after his father died, according to numerous news reports from the time. He and his family were able to fend off deportation and eventually get permanent residency, thanks in part to the efforts of his teachers and fellow students and a massive letter-writing campaign on the family’s behalf by everyday people, according to an essay he wrote in 2015.
Tolani founded Virtudent in 2014 as a way to repay some of that generosity, according to the suit and the essay. Recognizing that a large segment of the US population doesn’t get regular dental care, Tolani wanted to make it easier for people to get their teeth examined.
When Tolani launched Virtudent, it was the first commercial teledentistry service in operation, according to the suit. The company has a kind of hybrid model combining a remote and virtual dentistry practice.
Virtudent created a kind of portable kit for dental hygienists. The kit allows them to go to corporate offices, warehouses, community centers, and the like and conduct oral examinations and do cleanings. It also allows them to communicate with a remote dentist, who is able to review photographs and X-rays taken on site.
Coronavirus stock Tolani soon found himself in conflict with his new investor
The company, which partners with big enterprises and health insurance companies to offer its on-site dental service as a benefit to corporate employees, has raised $10 million in venture funding, according to Pitchbook. Some $8 million of that came in July 2018 in a Series A round. Donohue’s .406 Ventures led that round, with Sparta Group participating. After the round, Donohue became a Virtudent director, joining Bhachu and Tolani on its board.
Following the financing, Tolani owned 95% of Virtudent’s common stock, giving him 42% control over the company, according to the suit. He also had the right to nominate a fourth board member.
Soon after the funding, Tolani found himself in conflict with his other directors, primarily over the pace of Virtudent’s expansion. At the time, Virtudent offered its service in Massachusetts and New Hampshire, and Tolani had sought the venture funding to expand to two additional cities — New York and Philadelphia, according to the suit. Instead, Donohue and Bhachu pressured Tolani to expand Virtudent’s service so that it was available in nine states in a matter of months, Tolani said in the complaint.
Tolani repeatedly pushed back against this pressure, telling Donohue and Bhachu that such a breakneck expansion would hinder the company’s ability ensure compliance with various state regulations and would harm quality of care it offered, endangering patients, according to the suit. Because Virtudent was offering dental services under the auspices of his dental license, Tolani also expressed concern that he could lose that license as a result of Virtudent not following regulations, he said in the complaint.
Those weren’t idle concerns, according to the suit. In early January 2019, the president of the New Hampshire Board of Dentistry essentially warned that Virtudent might not be in compliance with the state’s regulations, Tolani said in the suit. Meanwhile, due to inadequate training of hygienists, some patients in a Virtudent tooth-whitening program suffered acid burns on their lips, according to the suit.
Donohue and Bhachu ignored Tolani’s concerns and worked with other officials at Virtudent to expand the company despite his objections, according to the suit. The company opened operations in 10 new states, without additional funding.
The defendants, including the directors, “directly controlled the company and steered it onto an aggressive and unsafe growth strategy,” according to the suit. “When faced with safety and regulatory concerns,” the complaint continued, “the stated approach adopted by the Directors and Officers was to follow Uber’s growth model and push boundaries without regard for regulatory push-back.”
Coronavirus stock Tolani pushed back against the rapid growth demands
The matter came to a head last fall, after Tolani told Donohue that in order to maintain safety and regulatory compliance while growing rapidly, Virtudent was going to need a “significant” amount of additional funding, according to the suit. Donohue balked and started cursing at Tolani, according to the complaint.
Donohue then started taking steps to replace him, according to the suit.
Donohue and Bhachu fired Tolani in October last year, according to the suit. They subsequently blocked his access to the company’s hygienists, even though Virtudent continued to offer its services under his license until December, Tolani said in the complaint. Although he remains Virtudent’s largest shareholder, officially remains on the company’s board, and has nominated someone for a longstanding open board seat, Virtudent has blocked him and his nominee from attending board meetings or having any say over its direction, according to the suit.
Despite that, Virtudent’s website continued to show Tolani as CEO in late December, and the company didn’t publicly acknowledge his departure until January.
The company, according to the suit, hasn’t fared particularly well since his departure. Virtudent laid off 70 employees in May in response to the COVID pandemic, according to the Boston Business Journal. That constituted the “vast majority” of its employees, according to the suit.
Through the suit, Tolani is seeking to be reinstated as Virtudent’s CEO, to have his nominee officially recognized as a board member, and to have all actions of Virtudent’s board since December be nullified. He’s also seeking monetary damages for himself and the company.
“Dr. Tolani brings this lawsuit for injunctive, declaratory, and other relief against the Company’s Directors, Officers, and Investors, to hold them accountable for their improper conduct and to compensate him and the Company for damages suffered as a result of that conduct,” he said in the complaint.
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