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Sunday, 06 July 2014 22:00

Entrepreneurs get boost from early-stage assistance

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By pledging $1 million in free legal services for Michigan startups, Varnum LLP has helped support what attorney Harvey Koning describes as the state’s entrepreneur-led economic revival.

The economic landscape was quite different when the Grand Rapids-based law firm launched its MiSpringboard program three years ago as Michigan was just beginning to emerge from its deep economic downturn. The changes since then have been partly driven by the emergence of a younger generation of entrepreneurs across the state, he said.

“There’s a lot of great activity going on out there and a lot of young, entrepreneurial, industrious people starting new companies right here in Michigan,” said Koning, a partner in Varnum’s Grand Rapids office who is one of several attorneys providing free legal services through the MiSpringboard program.

In particular, the level of technology startups participating in the program has been impressive, Koning said.

“There’s a lot of talent here,” he said. “The entrepreneurs today grew up in a technology-connected world and they just have visions for new things to do.”

In a partnership with the Michigan Economic Development Corp. and its Pure Michigan Business Connect initiative, Varnum set up MiSpringboard in 2011 to support startup companies through their formation and early stages. The law firm has so far provided free legal advice and services totaling more than $400,000 to about 100 startup companies, some 30 percent of which went on to become paying clients.

One of them is GeLo Inc. in Grand Rapids, founded by Chris Byrnes. The company develops precision location beacons for mobile apps and websites that enable users to locate, for example, specific exhibits in a museum or an art gallery.

GeLo — short for geo location — recently sold beacons to a company developing a mobile app for a zoo in the U.S.

Varnum did the legal work for GeLo to formally incorporate about a year ago, handled a private stock issuance and has provided assistance in finding investors, Byrnes said. He pegs the cost of the free legal services at $50,000.

That kind of help made a major difference in the company’s progress, Byrnes said. Without it, “we’d still be struggling along getting set up,” he said.

GeLo has attracted its first couple of investors and has begun discussions with prospective venture capital investors, Byrnes said.

“We’re in a position now to be taking our next step at this time and attempting to raise funding as a corporation,” he said. “We wouldn’t have been able to do that on our own.”

Another participant has been Lowell Energy AD, a waste-to-energy company established by Greg Northrup and Pam Landes of Sustainable Partners LLC. The company is setting up an anaerobic digester for the City of Lowell that creates biogas from animal and food waste to burn to generate electricity. Backed by $6.6 million from private investors, the 800-kilowatt generator will begin operating in September and ramp up to full capacity in early 2015.

Program participants come from a cross-section of the economy, including pharmaceuticals, renewable energy, information technology, online payment services and retail businesses.

Matt Bower, an attorney at Varnum’s Novi office who manages MiSpringboard in the Detroit area, describes the free legal services the firm provides as “anything that can be done to sort of help streamline that getting-started process.”

“It’s almost as if too much time and money can be spent on getting started,” Bower said. “It needs to be as easy as possible to get your entity set up so you can spend most of your time and your capital on growing the business and seeing that you are successful.”

In many instances, the startup companies coming forward and seeking legal assistance through MiSpringboard are started by college students or recent graduates, Bower said. He estimates that about one-third of MiSpringboard’s participants that he’s worked with are students or just out of college.

“That’s one of the more encouraging things we’ve seen,” said Bower, who believes that Michigan is “just scratching the surface” of a new entrepreneurial culture.

“I’ve been very surprised at how many MiSpringboard candidates are really good companies (started) by students who are fresh out of a university and starting their very first enterprise,” Bower said. “It’s one of those things that just kind of grows on itself. As they begin to see other students starting businesses, it seems feasible.

“It’s just a different mindset. (With) these students, their first thought isn’t ‘go get a job.’ Their first thought is ‘what kind of company can I build?’”

Many of the startup companies accepted into MiSpringboard typically need legal work to set up a business entity and incorporate, to craft partnership and employment agreements, to protect intellectual property, or to draw up customer or vendor contracts.

Participants receive a minimum of $2,500 of free legal services, enough to accomplish two or three items, and “for the right opportunities, we will make an exception” and provide more, Koning said.

“Once we commit to completing the task, we really try to complete that task even if we end up investing more time than we had anticipated. It’s very important to us that people feel they got something of value and they got it completed and we didn’t leave them halfway,” he said.

One common theme among participants is a need to establish expectations and responsibility among a company’s partners at the onset.

“You want good clarity on who owns the company and what their rights are,” Koning said. “Then when you go to the next stage to get financing or bring on additional investors, you have your ducks in a row and can avoid some of the confusion that sometimes happens if people don’t get good advice on the front end.”

He cites as an example where a startup with multiple owners may have one of its partners decide after a few months that he didn’t want to continue in the business. Upfront legal agreements need to spell out how his exit occurs and what kind of equity, if any, that partner retains in the business, Koning said.

“Do they keep all their equity or does some of that go back to the company? That’s some of the stuff we work out on the front end. How long do you have to stick with it to earn your ownership? That’s a big one,” he said. “It’s a lot about setting expectations on the front end and having an open discussion (about) who’s bringing what to the table here, who’s expected to do what, and how do we know a person is carrying their end of the bargain.”

Beyond the legal work, Varnum also can offer a participant the ability to tap a professional network across the state, from potential investors that can provide capital to prospective customers and vendors and suppliers.

“We love to make introductions,” Koning said.

Read 4525 times Last modified on Thursday, 03 July 2014 15:22

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