Making Connections, Managing Risk in Startup Deals: A Visit to Boston Law Firm Mintz Levin
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those outside looking in. If you look at what happens in the venture industry, if a company is successful and has an exit, the same investors will often invest the next time in that same management team, because it eliminates the risk of working with someone new. What we can do in our role is mitigate that same risk, because of our familiarity with the industry and how it works.
X: On the other side, what kinds of work do you do for venture funds? Maybe you can take Rockport Capital, the cleantech investing fund, as an example.
TB: Most of the major funds around here have at least one partner dedicated to cleantech, but Rockport and Braemar Energy Ventures are the only two East Coast funds dedicated to cleantech. What these funds need is operating background and an understanding of the industries that the technology companies they build are going to be selling into. Rockport happens to have a very strong understanding of the utility industry and the coal industry—big, slow-moving industries where members of their partnership have or had board seats in major companies. We get involved as transaction counsel.
X: So you’re not involved in fund formation or fundraising from limited partners?
|Selected San Diego Law Firms
Serving Technology Startups
|Cooley Godward Kronish
Fish and Richardson
Foley and Lardner
Knobbe Martens Olson & Bear
Latham and Watkins
Luce Forward Hamilton & Scripps
Morrison & Foerster
Stradling Yocca Carlson & Rauth
Townsend & Townsend
Wilson Sonsini Goodrich & Rosati
TB: We do less of the fund formation work, although we have been asked to do introductions to LPs, and we represent significant LPs such as the endowments of MIT, Tufts, Johns Hopkins, and Dartmouth.
LG: There isn’t much fund formation these days anyway. The late 1990s, when everybody was jumping into dot-com, may have been the only era when somebody could form a venture fund and raise money without having a demonstrated track record of success. How could somebody start a new fund today? We have existing funds that can’t even raise their third, fourth, or fifth funds.
TB: I met yesterday with a group that wanted to invest in energy projects. They think they can go out and raise money, but the reality is that right now they need to attract people with experience making money in projects, and add to their team, before they raise the capital. So one of the roles I’ll play is I will introduce them to a couple of guys I know who had project funds previously, who aren’t doing that right now, and we’ll connect them and see what comes of it.
X: What kinds of things are you called on to do as transaction counsel, when you’re helping a fund set up an investment in a particular company?
TB: On the one hand, we negotiate the actual terms of the deals and the general roadmap. But we also do more creative things. In one deal that I’m thinking of, [the client] said “We’re putting money in, but we want an out, because this is particularly risky. Can you structure a deal that gives me a parachute if things turn south?” I sometimes say that we’re just glorified insurance salesmen. We just manage risk.
We are often called upon to come up with solutions to difficult problems. In the event that a business is going sideways or south, there are a myriad of issues around having a variety of shareholders who invested at different times on different terms with different interests. That makes for incredibly complicated dynamics, and Lewis will often be called upon to manage those dynamics—and without that, those companies will fail. I’m not overstating that.
LG: There have been times when companies were within weeks of running out of cash unless they could push through some type of financing. Not everybody is happy when it’s … Next Page »