With increasing frequency, companies are considering a change in their form of entity.  The reasons for the change vary considerably: sometimes companies are underwhelmed by the tax benefits of being a limited liability company and are overwhelmed by its complexities (international tax withholding issues, multi-state K-1’s, profits interests management, phantom income, and employee education regarding equity-based incentives), while other times companies are frustrated by the restrictions on S corporations and desire the flexibility that limited liability companies afford.  In other cases still, institutional investors may require a certain form of entity (e.g., a C corporation), while other investors (e.g., active angel investors) are looking to take advantage of pass through losses. 

Today, most states make it fairly easy to change the type of entity or even to change the state of organization of the entity.  It is important to keep in mind though that while the mechanics of converting to a new entity from a legal perspective are not typically too complex, the related tax issues can be incredibly intricate, especially for an organization with a long operating history and a complex capitalization structure.  While in many situations converting to a different type of entity will be tax-free, that will not always be the case.  Your tax advisor and accountants should be consulted early in the process when considering a change in entity form.  Assuming a change in structure is justified and the tax issues are manageable, this article focuses on the mechanics of converting from one type of entity to another.  

While there are variations among the states, there are generally two ways to change your type of entity from a legal perspective: merging with and into another entity of a different type and effectuating a conversion.  The method selected, as well as some of the finer details associated with the particular method selected, is often driven by tax considerations.

Change of Entity Form Through Merger

The more traditional way to change the form of an organization is through a merger.  Sometimes people refer to this as a cross-species merger.  A merger enables two or more entities to combine into a single entity.  The surviving entity can be recently created just to effectuate the change in entity form or it can have an operating history. The surviving entity typically files with the applicable state a plan of merger and a statement that the plan was approved in accordance with applicable law.  In most states, the plan of merger identifies the parties to the merger, the surviving entity, and the manner and basis of converting equity interests in each entity into interests in the surviving entity.  The plan of merger also includes any applicable amendments to governing documents (e.g., articles) for the surviving entity.  

After the merger, only the surviving entity continues to exist and it is responsible for all liabilities of each business entity that is a party to the merger.  Subject to certain exceptions and filing requirements, title to assets automatically vests with the surviving business entity.

Change of Entity Form Through Conversion

Within the last decade, most states have adopted statutes that allow organizations to convert their form of entity by just filing the applicable conversion documentation.  For example, in Wisconsin, a business that desires to convert to another type of legal entity must submit to the Department of Financial Institutions a certificate of conversion with a plan of conversion and a statement that the plan was approved in accordance with the laws applicable to the pre-converted entity. 

Similar to a plan of merger, most states require that a plan of conversion include the name, form of business entity and jurisdiction governing the entity both before and after the conversion.  In addition, the post-conversion articles of incorporation or other charter document is an attachment to the plan of conversion.  Some states however require a separate filing for the charter document.  Like with a plan of merger, the plan of conversion must also include the terms and conditions of the conversion and the manner and basis of converting the ownership interests in the old entity to the ownership interests in the new entity. 

Upon conversion, the new entity continues to be subject to the liabilities incurred prior to the conversion.  If a business owner had any personal liability by reason of the owner’s position in the entity (such as the general partner of a limited partnership), such liability will continue, but only to the extent accrued prior to the conversion.  The new entity continues to be vested with title to all its properties, subject to modest exceptions and certain filing requirements.  Any legal proceeding pending against the old entity will be continued against the new entity.  

Conducting Due Diligence When Changing Your Form of Entity

Despite the fact that the legal filing requirements for cross-species mergers and conversions are rather straight forward and mechanical, there are a number of due diligence issues that should be considered prior to making the change in entity form.  For example, in contracts, a merger is sometimes treated as an assignment of a contract from one entity to another and many contracts prohibit such assignments without prior consent.  Businesses should review all their material contracts and consider seeking consent for assignment where necessary.  Trademark and patent filings in the U.S. Patent and Trademark Office (USPTO) will need to be updated to reflect new company names in a conversion.  Mergers are treated as an assignment that also needs to be recorded with the USPTO.  Likewise, regulatory approvals, permits and licenses may need to be updated.  Because a conversion, rather than a merger, involves only a single entity, many consider that general contract anti-assignment provisions do not apply to conversions unless conversions are specifically addressed and prohibited.  In either case, however, there is frequently a company name change that may need to be reflected on a variety of documents. 

In addition to third party contracts and government filings and licenses, there are a number of organizational documents that may need to be created as a result of the merger or conversion.  For example, if an entity changes from a limited liability company to a corporation, many of the provisions from the organization’s operating agreement prior to the cross-species merger or conversion will be incorporated into a combination of the new corporation’s bylaws and perhaps a separate shareholders agreement, investor rights agreement or voting agreement.  Some of these organizational-related documents can be adopted wholesale with no or modest changes.  Others, however, will need considerable changes or even termination because of statutory requirements, efficiency, or custom.  

Conclusion

While it would be convenient to have all the facts up front prior to choosing an entity’s form when creating it, even the most diligent and seasoned entrepreneurs experience change in facts or laws that necessitate changing the organization’s form of entity.  With proper planning and involvement of your attorney and accountant, the process of converting your form of entity is usually manageable.  In the end, like with most things, the decision often becomes a cost-benefit analysis.

Several companies we are working with are currently preparing for investor presentations.  This post covers a number of best practices for presenting to investors, whether they be angel, venture capital, or strategic investors.

Identify your Objectives for the Investor Presentation

Many companies try to accomplish too much with their initial investor presentation.  Rarely do term sheets get prepared after the first presentation, let alone checks, unless it is a modest sum of money from an angel investor who is already inclined to invest.  So what is a good objective for an initial investor presentation?  In most cases, a good objective is merely to get to the next stage of the investor’s evaluation process. In some situations, the next stage could be a second presentation to a broader audience or a different group within a strategic investor’s organization.  In other cases, it could be to start a formal due diligence process.  Try to identify the prospective investor’s evaluation process prior to the initial meeting to help shape your objective for the presentation.

Know your Investor Audience

As is true for most presentations, your investor presentation should be tailored to your audience.  Prior to the meeting, try to identify who from the investor’s organization will be present during the meeting.  If it is going to be primarily business/finance people (as opposed to technical/scientific), you can expect the questions and discussions to center around their areas of focus and expertise.  Also, see if you can identify who in the room is the ultimate decision maker, gate keeper, or influencer who can enable you to get to the next stage in the evaluation process.  Adjust your presentation accordingly.

Adhere to the Investor’s Rules and Be Respectful of your Audience’s Time

Sometimes, investor groups or forums have particular rules about presentations.  They can limit companies, for example, to a certain number of slides, certain types of slides, or a specified presentation duration.  Adhere to their rules.  If you have a one-hour meeting with a VC or strategic investor, don’t bring a 50-minute slide deck to the meeting (more on this in a bit).  Unless going over the agreed upon time slot is driven by investor questions or two-way discussions, don’t be guilty of holding the investor audience hostage by continuing on with a presentation that seems to never end; a long presentation won’t make your case for investment more compelling. 

Presentation Format and Investor Slide Deck Composition

Assuming you have identified your objectives for the presentation, you know your audience and the restrictions you are under for the presentation, what should the presentation look like?  Usually, the presentation is given by one or two members of the management team (e.g., the CEO and CSO/CTO or CFO).  The appropriate number of slides of an initial one-hour meeting is somewhere between 15 and 25 and should take no longer than fifteen to twenty minutes to present, without interruption. And yes, I know it’s not easy to do and I know it can be a time consuming process to get the presentation that short and succinct.  If the investor is interested, you will have no problem taking the entire hour.  If the investor is not interested, well, everyone can spend the balance of the hour answering emails.

The breakdown of the slides typically works something like this:

• Speaker introduction and the investment that you are looking for  (1 Slide)
• Company introduction and “elevator pitch” (1-2 Slide)
• Identify market(s) and current market problems/opportunities (2-3 Slides)
• Company solutions and product(s) to address market opportunities (2-6 Slides)
• Current development status of solution/product line (1-2 Slides)
• Competition (1-3 Slides)
• Marketing and distribution/regulatory approval process (1-3 Slides)
• Revenue model(s) and financial history and projections (1-3 Slides)
• Use of funds (1 Slide)
• Management team (1-2 Slides)
• Anticipated Exit and Timing (1 Slide)
• Recap the 2-3 main points and state the investor “call to action” (1 Slide)

Of course, there can be variations to this format.  For example, a presentation to a potential strategic investor technical team should include less on market opportunities and more on product and technology.

Many times, the initial presentation is the first opportunity that an investor has to evaluate you, which for most early stage angel and VC investors is more important than your product or technology. Presumably, if a prospective investor has read your executive summary/business plan and wants a presentation, you’ve passed the initial screen and the investor is already at least somewhat interested in your company.  So, it’s important to remember that you are not only selling them your product/technology, but also you and your management team.

Backup Slides for Investor Questions and Areas of Focus

It is generally a good idea to prepare backup slides to address the key questions that you anticipate or areas that you are likely to be asked to elaborate on if the investor is interested.  This goes back to knowing your audience.  You may also want to develop a system to figure out how to access particular backup slides so that you are not fumbling through the PowerPoint while the investor has to wait.

Miscellaneous Best Practices for Investor Presentations

Finally, here are some miscellaneous nuggets to consider, based on the investor presentations I’ve seen over the years:

• Coordinate in advance the audiovisual requirements (who is going to have/bring what)
• Have a backup plan (e.g., hard copy of slides)
• Use the PowerPoint slides as a guide to the discussion, not as cue cards
• Maintain eye contact with your audience, not the screen
• Let your passion and excitement about your business show through
• Do not say that your company does not have competition or any other naive faux pas
• Walk the fine line between exuding confidence, but not appearing overconfident
• Address any 800 pound guerillas positively in the presentation rather than waiting for the inevitable questions and what could be construed as defensive responses
• Avoid eye charts (e.g., detailed spreadsheets, elaborate process or flowchart diagrams); more text does not yield a more compelling case for investment
• Similarly, convey no more than 2-3 points per slide, with font no smaller than 24 pt
• If possible, use a good mix of images and text
• And lastly, rehearse, rehearse, rehearse

Whether looking for an investor, a joint venture or joint development partner, or your next CEO, a warm introduction is almost always better than a cold one.  But the quality and effectiveness of warm introductions vary considerably.  In fact, setting up the right type of introduction from the right type of person can be a test of your entrepreneurial skills. 

Elements of a Good Introduction

In essence, there are at least two elements to a good introduction: (1) the introducer is someone who the prospective investor, joint venture or joint development partner, or CEO listens to; and (2) the introducer has something persuasively positive to say about you or your company.

Types of Introducers

Using an unscientific approach, here are my tiered groupings of people from whom to make your warm introductions:

Top Tier Introducers

1. The introducer successfully concluded a recent close business relationship in which the prospective investor, joint venture or joint development partner, CEO, etc., did very well. 
2. The introducer has an on-going regular business relationship with the prospective investor, joint venture or joint development partner, CEO, etc., that is going well.
3. The introducer is someone well known to the prospective investor, joint venture or joint development partner, CEO, etc., and he, she or it wants to do business with the introducer.
4. The introducer and the prospective investor, joint venture or joint development partner top execs, CEO, etc., are close socially (e.g., families going on vacations together)

 

Middle Tier Introducers

5. The introducer currently works with or has worked with the prospective investor, joint venture or joint development partner, CEO, etc., but not closely.
6. The introducer has a good close working relationship with an affiliate or existing partner of the prospective investor, joint venture or joint development partner, CEO, etc.
7. The introducer is an acknowledged scientific expert or significant player in the industry and is known to the prospective investor, joint venture or joint development partner, CEO, etc., by reputation

 

Bottom Tier Introducers

8. The introducer and the prospective investor, joint venture or joint development partner, CEO, etc., has an on-going regular or previous business relationship that is not going well (or did not go well) through no fault of the introducer.
9. The introducer knows the prospective investor, joint venture or joint development partner top execs, CEO, etc., only through casual social situations (e.g., reception, conference, party, mutual friends)

Of course, there are situations where a “warm” introduction from a hostile source can lead to a problem, one in which a cold call may yield a better result.  But in most cases, even a positive introduction from a “bottom tier” introducer is better than no third party introduction.  For example, I’ve heard a number of venture capitalists say that they have never (ever) invested in a company that sent directly its summary or powerpoint over the transom. 

Ensuring a Positive Message in the Introduction

Just because you have someone lined up who is a top tier or middle tier introducer, does not mean you are set.  As an illustration, I have a client who was looking for an introduction to a particular potential joint development partner.  The client discovered that an MD working at one of the company’s clinical trial sites had previously done a lot of work with the targeted joint development partner.  Upon discovering this, the CEO quickly moved to ask the MD for the introduction, which the MD agreed to do.  As it turns out, the MD by his nature was very measured in his words when making introductions.  In making this introduction, the CEO later found out that the MD spent as much time disclaiming knowledge about the company and its prospects as he did explaining in a measured way the positive results of the recent trials.  While the CEO did get the meeting, he spent considerable time explaining why the MD was not more enthusiastic about the CEO’s company.

So, how do you ensure a positive message in the introduction?  Ask the introducer what he or she is going to say.  Provide the introducer with an elevator pitch length email about your company.  Provide him or her an executive summary or the bullet points to touch on during the introduction.  You should do as much work as possible for the introducer to make sure that his or her job is easy and that he or she gets the facts right.  That said, the introducer should know the basics about your company as the prospective investor, joint venture or joint development partner, CEO, etc., will likely have at least one question for the introducer.  If the introducer does not know rough headcount or revenue numbers, or whether the company has filed an IND, for example, not only can that be embarrassing to the introducer but it will also degrade the effectiveness of an otherwise good introduction.

While serendipitous introductions or connections do happen, many times a good introduction is the product of deliberate, diligent entrepreneurial efforts of finding the right person with the right connection to deliver the right message.

After hunkering down for some time and receiving some initial responses from the flurry of grant applications that were submitted in the spring of this year, many Midwest biotech and medical device companies are once again beginning to consider the private capital markets for funding.

In this post, I discuss both the timing and preparation for the next round of equity financing.

Timing for the Next Round of Financing

Companies should factor in at least 4-6 months time between circulating an executive summary/business plan and closing a round of financing with new outside investors. For most companies, that range of time is likely the best case scenario. While there has been some modestly positive signs recently of transactions and valuations picking up, it may be prudent for companies to consider at least 6-8 months time as a more realistic period to raise capital.

Preparation for the Next Round

Regardless of whether a company chooses to put together and use a private placement memorandum, it is a good idea to do some internal checks and corporate cleanup prior to the offering. Not only does it marginally improve the chances of getting funding at a better valuation, it also decreases the fundraising time because fewer issues and surprises come up during the investor diligence period.

Here are some questions to consider before starting your next private offering:

Corporation and Limited Liability Company Issues

• For corporations:
  • Have you been following corporate formalities, such as the following:
    • Holding shareholder and board of director meetings at least annually and preparing minutes of these meetings;
    • Keeping separate your corporate and personal bank accounts; and
    • Signing corporate documents in a corporate capacity (i.e., as an officer of the corporation).
  • Do you have a stock ledger and option/warrant ledger, are they up to date, has all issued stock been properly authorized (e.g., board approval) and issued?
  • Are the Bylaws up to date and have you complied with them?

• For LLCs:
  • Does your operating agreement accurately reflect current ownership?
  • Does your operating agreement accurately reflect the management structure?
  • Does your operating agreement appropriately and accurately address allocation of profits, losses, and cash flow and does it address minimum distributions?
  • Does your operating agreement address information rights?
  • Does your operating agreement appropriately “opt-in” and “opt-out” of applicable statutory defaults (e.g., the ability to cause the LLC to dissolve)?
  • Have you complied with the member managed or manager managed requirements?
• Is your company current with its state filings and foreign registrations?
• Are your financial statements current and accurate?
• Have you been complying with Section 409A in valuing your stock options and other equity-based incentives?
• Has the company obtained applicable certifications for investor tax credits/incentives?

Contracts and Leases

• Are all your key contracts in writing and signed?
• Do you have copies of the key contracts readily available?
• Do you have a system in place to keep track of contracts, including knowing those that are up for renewal, require notice for termination, require a payment, etc.?
• Have your significant contracts received necessary corporate/LLC approvals?
• Do you have standard terms and conditions for the sale of your products and services and do you use them consistently?
  • If you sell products to other companies, do you understand the basics of “battle of the forms” issues and do your contracting procedures take advantage of the rules?
  • Do your standard terms and conditions for product sales address warranties, disclaimers, liability limitations, indemnity, risk of loss, interest rate and cost of collection (including attorneys fees), jurisdiction, forum, and choice of law issues?
  • Do your standard terms and conditions for services address warranties, disclaimers, liability limitations, confidentiality/privacy, indemnity, intellectual property ownership, interest rate and cost of collection (including attorneys fees), jurisdiction, forum, and choice of law issues?
• Does your lease contain a renewal option, right of first refusal on adjacent space, and caps on tenant repair obligations?
• Have you reviewed your lease to determine whether you and your landlord are complying with it?

Employee Matters

• Have your key employees signed confidentiality, invention assignment, and noncompetition agreements?
• Do you comply with the federal requirements regarding documenting the citizenship of your employees?
• Do you comply with the applicable requirements regarding classifying individuals as employees or independent contractors (e.g., tax, workers compensation, unemployment)?
• Do you comply with applicable law concerning compensating employees for overtime?
• Do you understand how to limit exposure for wrongful termination and employment description lawsuits and have you taken steps to limit that exposure?
• Do you regularly document decisions made regarding employees in order to be able to support these decisions should they be challenged on the basis of discrimination?

Protecting Intellectual Property

• Do you have third parties sign non-disclosure agreements before they are allowed to view or hear about your confidential information?
• Do you have a standard non-disclosure agreement form that you use that has been reviewed by an attorney (rather than one that you found on the Internet)?
• Do you have trade secrets and if so, what steps do you take to maintain their confidentiality?
• Have you obtained trademarks or service marks to protect the names and logos of your business, products, and services?
• Have you obtained copyrights to protect your important written materials and software?
• Are you taking steps to ensure that you are complying with the U.S. and foreign general rules as to the timing of whether an invention can be patented?
• If anyone working with or for the company is associated with a university or uses university equipment in connection with company matters, do you understand the basics under the Bayh Dole Act and have you taken steps to avoid Bayh-Dole issues?
• In contracts with outside vendors and providers that involve intellectual property, do the contracts have work made for hire provisions?

The items listed above are just some of the items that may come up during investor legal and business due diligence. There are a number of industry or niche specific questions that typically come up as well. For example, for software companies, investors will want assurances that no open source, copyleft, or community source code is contained in any of the Company’s software products. For a medical device or biotech company, investors will likely spend more time on intellectual property and possibly FDA matters. In either case, more scrutiny should be spent prior to the private offering in those areas where investors are likely to focus.

Regardless of whether they are called university spinoffs, spinouts, or just plain start-ups, the University of Utah sure has a lot of them: 23 that started just last year— that’s second best of all universities in the nation. Think about how impressive that is. Like many places here in the Midwest, Utah has not historically had the amount of venture capital, the number of serial entrepreneurs, or the depth of tech company managerial talent that much of the coasts and the handful of hotspots in between enjoy.

As might be expected in light of the economy and tight capital markets, the last 12 months have been atypically poor in terms of the number of start-ups coming out of many Midwest universities; most of our universities only had a handful or fewer new startups this last year. Of course, there were a number of tech companies that started up that were not based on university technologies and they shouldn’t be overlooked. But, this is the land of the Big 10 and other top universities, whose R&D dollars dwarf those spent at the University of Utah. University of Wisconsin’s federal R&D expenditures are consistently in the top three of the country and are more than three times those spent at the University of Utah. It’s not just the money spent, either. I’m told that roughly 50% of the world’s peer-reviewed nanotech articles come from an institution within a 200-mile radius of Chicago. Midwest universities are responsible for discoveries ranging from nuclear fission to stem cells. So, how can we better translate some of our incredible university-based science and technologies into more start-up companies in the region?

In this article, I outline some of the things that the University of Utah and the infrastructure around it has done to facilitate start-ups. I also outline some of the good things that are already happening here in the Midwest. Finally, at the end of this article, I put my “services” where my mouth is and offer free legal services (yes, free) in helping to encourage university start-ups. I also call upon others, whether they are investors, service providers, mentors, university faculty members, or government agencies, to think about or relook at what they can offer to encourage more university start-ups.

The University of Utah Tech Transfer Office Overhaul

The University of Utah has just under 29,000 students. For frame of reference, that’s roughly 70% of the student population of the University of Wisconsin-Madison. Its technology transfer office went through a significant overhaul in 2005 after a new University president (Michael Young) was appointed. The University created the Office of Technology Venture Development (Tech Ventures) to drive regional economic development and commercialization efforts. The group coordinates activities between the University’s Technology Commercialization Office (TCO) and other college and university groups. As part of the restructuring, a new Director was hired and the TCO established itself as what its Director refers to as a “service-based business.”

Since the restructuring in 2005, the University of Utah has averaged 20 start-ups per year. Compare that figure to the less than 5 per year average that the University had prior to the restructuring. The overwhelming majority of University start-ups in Utah are now started by professional management–not the professor/inventor as is often the case here in the Midwest. For the first year or two of the company, many of these entrepreneurs work part-time or telecommute from California or neighboring states. They will often split their time between more than one company during the company’s first couple years. The Utah start-ups are typically in the biotech, medical device, energy, Internet and software industries.

Utah’s Initiatives with Seed Stage Money, Entrepreneurial Talent, Communications, Research Support, and Venture Capital

I met the Executive Director of Technology Commercialization at the University of Utah, Brian Cummings, at a biotech/pharma collaborations conference last month in San Francisco. Brian attributes much of their success to the common vision, cooperation, and collaboration that is present across many Utah groups and constituencies—the University, investor groups, entrepreneurs, State government, professional services sector, etc. When I asked him about the challenges that many areas of the country face with the lack of seed and early stage capital and the lack of early stage professional management pool, he pointed out Utah’s efforts to address those areas and other issues:

• The University of Utah established a seed fund named KickStart that was launched in April 2008. It is expected to fund 20-30 start-ups that are involved in the clean technology, life sciences and software/engineering industries. Average size investment per company for the fund is $100,000 – $250,000.
• The TCO is currently establishing separate specialized investment funds that focus on key high-value research areas within the University, such as interventional medicine, software, imaging, and energy. Each of these funds will focus on early stage technology companies and be roughly $20 million each. The money is being raised by the TCO from private investors.
• The TCO actively recruits entrepreneurs to start companies in Utah. Brian mentioned that the Utah ski resorts have been a particularly fruitful place for recruiting management talent visiting from places further West.
• Venture Bench, a University-based accelerator, provides a suite of services for pre-revenue University of Utah start-ups, such as business plan development, market assessment, networking, accounting and insurance, federal and state grant application assistance, corporate governance counseling, legal costs, and state filings, each at no cost to qualified companies.
• The TCO has a myriad of other very popular programs, such as business plan competitions, law clinics, entrepreneur in residence programs, etc. Many of these programs are cross-disciplinary or involve different colleges within the University.
• There are multimedia initiatives (e.g., utahpulse.com) in place to help ensure industry news, opportunities, and trends are shared among the state’s newspapers, magazines, blogs, and websites.
• The Utah Fund of Funds, a state of Utah economic development program (currently, $300 million), was created to support early-stage and growth-stage companies in Utah. Rather than investing directly in specific companies, the Fund of Funds is structured to influence venture capital and private equity firms to focus more of their investment efforts on Utah ventures.
• The University has implemented what it refers to as a “virtual incubator” program for qualified small University of Utah start-ups. Under the program, each company receives a voucher that entitles them to a $50,000 credit for sponsored research conducted at the University to further product and market development of a given technology.

Current Midwest University Initiatives to Encourage University Start-ups

While the University of Utah has done a lot, not all of their initiatives would work or “fit” here in the Midwest. But, there are a number of initiatives that we should consider. I don’t mean to suggest by this article that Midwest universities have been standing still. To the contrary, there are a number of initiatives that are currently underway and good things that are happening here at Midwest universities and their surrounding infrastructures. Being from Wisconsin, I know the most about those in Wisconsin. For instance, at the University of Wisconsin-Madison, the Wisconsin Alumni Research Foundation (WARF) offers a number of translational (from concept/lab to patent/commercial application) grant programs (typically up to $50,000 each), such as the Draper Technology Innovation grants, the Industrial & Economic Development Research grants, and the Coulter Foundation grants. WARF will also soon launch a significant new program that is designed to further these translational efforts of moving technologies from the lab to commercialization (details to follow soon). WARF has also set up a “co-invest fund” to invest in University of Wisconsin early stage companies alongside venture capital firms and strategic partners. WARF fully deployed its initial $10 million co-invest fund and has deployed roughly 20% of its second $10 million fund. WARF was also instrumental in setting up an early stage company mentoring group called MERLIN. The mentors in the group consist of experienced area business people that volunteer their time to support area start-ups.

According to my former partner at Michael Best, Alec Fraser, the University of Wisconsin-Milwaukee has had success recently with its initiatives. Brian Thompson, President of UWM Research Foundation (UW Milwaukee’s tech transfer group), attributes some of their success to their industry focus and catalyst grant program. UWM has targeted applied research and commercialization efforts in healthcare, biomedical, water, advanced manufacturing, and energy industries. They work with area large companies and foundations, such as Rockwell Automation and the Lynde and Harry Bradley Foundation, to help fund grants that support the evaluation of technologies and moving the technologies from the lab to commercial applications. The UWM Research Foundation also provides some funding support for writing grant applications.

Other Midwest Initiatives to Improve Start-ups

The positive initiatives are not limited to the universities. For example, the number of angel groups in the region has grown considerably over the last few years, through the efforts of people like Joe Kremer, Dennis Serio, and Tom Still. Most of these groups continue to actively invest, despite the economic downturn. Some states in the Midwest, such as Indiana, Michigan, Wisconsin, Iowa, and Kansas, have adopted aggressive tax incentives to encourage investments in technology company start-ups. More Midwest-based law firms are making concerted efforts at creating specialized teams that focus on technology companies and venture capital. New mentoring groups like that headed by Terry Sivesind (MERLIN) have popped up to assist early stage companies. And of course, websites such as Mike Klein’s WTN Media (wistechnology.com), Russ Smestad’s BiotechProfiles (biotechprofiles.com), and midwestbusiness.com, among others, provide great communication platforms.

The AlphaTech Counsel Offer

While a lot is going on and many people are pouring considerable efforts in encouraging university start-ups, our raw numbers can and should be better. I know that we, collectively, can do more to facilitate more quality university start-ups in the Midwest. It’s always easy to point out what other people or groups should be doing. Instead, I like to think about what I can offer personally. So this is what I am willing to do. For any Midwest-based entrepreneur (or group of entrepreneurs) that is entering into discussions with a technology transfer office to license technology from the university, I am willing to offer free legal services to set up their organization and get them off on the right foot. Specifically, I will offer the legal services associated with the following, free of charge:

• Choice of entity counseling
• Articles and bylaws/operating agreement
• Initial subscription agreements
• Initial consents (incorporator, shareholder, and director)
• EIN application
• S election (if applicable)
• Negotiate license agreement with university tech transfer office
• Negotiate equity agreement with university tech transfer office (if applicable)
• Employee invention assignment agreement
• Employee confidentiality agreement

This offer is obviously subject to a conflicts check and compliance with applicable laws and doesn’t cover government filing fees. I’ll extend this offer at least until the end of 2009.

If you are involved or want to be involved with the commercialization of university-based technologies, I encourage you to consider (or reconsider) what you can do to better support both the number and quality of university start-ups. It does not matter whether you are an investor (or would-be investor), accountant, attorney, consultant, mentor, university faculty member or administrator, government employee, or entrepreneur, we all have a role. And, collectively, we can do a better job to ensure that more of the incredible discoveries that are coming out of our universities are commercialized through local efforts to produce promising companies with good paying jobs.