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COVER
STORY - March
2001 by Susan Gosselin Sidebar- Whether or not you believe in the impending economic slowdown, times have never been better for the Kentucky entrepreneur. Consider these facts from Louisville’s Enterprise Corporation:
With all the extra support from venture capitalists and local governments, the expanding economy has brought faster growth, higher expectations and greater risks for entrepreneurs than ever before. Fortunately, many of Kentucky’s law firms are creating entrepreneurial divisions – a one-stop shop of sorts providing the kind of in-depth business counseling, legal service and networking a new company needs to thrive.
Law firms like Frost Brown Todd in Louisville and Lexington and Stites & Harbison in Louisville, Lexington, Frankfort and Hyden, are just two examples of Kentucky law firms that have taken dramatic steps to fill that gap for their clients. Through a series of mergers starting in 1999, Stites & Harbison joined forces with Varner, Stephens, Humphries & White, a well-established Atlanta firm, making it the only Kentucky law firm with an Atlanta office. Last year, the company further merged with the prominent intellectual property practice, Wheat, Smith & Beres, PLC, and with Farris Warfield & Kanaday PLC in Nashville early this year. What the mergers have given the company is access to the manpower, expertise and networking that entrepreneurs need, according to Ken Sagan, attorney and co-chair for emerging business at the Stites & Harbison Lexington office. “We now have more than 200 lawyers in our system, and many of them have long-standing ties with sources of venture capital, particularly in the financial markets in Atlanta and Nashville. It allows us to give our clients here seamless access to nearly any kind of legal expertise.
The firm has also added new services and perks for the “emerging” business clientele – including the bold step of accepting stock warrants from qualified, cash-hungry entrepreneurs in lieu of charging full fees. At www.stites.com, entrepreneurs can take advantage of a “Resources Guide for Emerging Technology Businesses,” free of charge. Stites has taken a multi-city, multi-disciplinary approach to its support of entrepreneurs, creating an Entrepreneurial Services Team comprised of attorneys who already represent the firm’s entrepreneurial, high-tech, biotech and e-commerce clients. Both the Lexington and Louisville branch offices are geared toward working in support of businesses who are in various incubator programs. An important client for the firm, the University of Louisville, also gives them access to the ideas and budding entrepreneurs coming from the academic setting. As a result of this effort, more growing businesses are finding their way onto the Stites client roster. Local additions include WYNCOM, Inc., a Lexington-based leadership seminar production company named to the Inc. 500 list in 1996, 97 and 98; ArchVision, a Lexington-based developer of 3-D graphic software; Lexington-area software developers Software Information Systems, Inc.; and Louisville-based RS Communications, a cell phone refurbishing business. The recent influx of entrepreneurial business, however, begs the question: Are these firms simply picking up existing local clients who would have otherwise taken their business to out-of-state, e-commerce specialty firms, or are these home-grown entrepreneurs really a part of a booming high-tech corridor between Lexington and Louisville? According to Sagan, it’s a little bit of both. “In Lexington, we’re very fortunate to have a good pool of high tech talent already here,” Sagan said. “With firms like Lexmark and IBM at our doorstep, we’ve been able to attract the right kind of high-tech people to the area. When they get here, they want to stay here. We have an excellent quality of life and low cost of doing business, after all. Since most new economy businesses are not constrained about where they can be based, why wouldn’t they choose a city like Louisville or Lexington?” Financing is another very important part of the growth of all kinds of business in Kentucky. In years past, companies needing venture capital or angel investors had to go to great lengths to find financing from outside markets. Now, with the establishment of incubator programs throughout Kentucky, and the birth of Kentucky-based venture capital firms like bCatalyst and Chrysalis Ventures in Louisville, many new businesses can find the money they need without making any long-distance calls.
“In cities like Austin, Boston and San Francisco there are more venture capital firms than there are qualified opportunities. So, they’re now looking to secondary markets like Louisville to invest. We’ve stepped up our services to accommodate that new interest in our area.” In fact, what was once the regional firm Brown, Todd & Heyburn in Louisville is now Frost Brown Todd with a merger last November. The merger brought the firm seven offices in four states. With a grand total of 380 lawyers, Frost Brown Todd is now the largest firm in the region. The Emerging Business and Venture Capital Practice Group at Frost Brown Todd consists of an interdisciplinary group of attorneys with experience in areas ranging from corporate finance and tax to securities, regulatory, employment and intellectual property law. The larger firm now can help clients gain access to venture capital funds in Louisville, Lexington, Cincinnati and Nashville. They’re also providing continuous updates to all their growing clients with newsletters on changes in labor laws, equity compensation, and more. Services like these have not been lost on Frost Brown Todd’s growing tech client roster, boasting Louisville companies like IronMax, which provides products via e-commerce for the construction industry, and Appriss, which creates voice application services. The merger also brought in a new Cincinnati office that has more intellectual property lawyers than any other firm in the region. They are focused entirely on trademark, patent and intellectual property law, helping clients keep their trade secrets and create agreements with employees who will guard those secrets. That’s no small concern to John Bobel, president and chief operating officer of Travelago, a Lexington-based company that provides content-rich travel information over the internet. The company offers video destination guides online. Because his content is his inventory, Bobel requires a law practice that can help him with intellectual property issues. “Lexington is a great place to live and work, and our business allows us to base ourselves anywhere we want to be,” said Bobel. “But when you’re a freshly scrubbed entrepreneur, you need a law firm that can be a mentor to you. You need someone with the expertise to help you set up the proper procedures, establish accounting, handle corporate tax filing, draw up disclosure forms and settle employee contracts, as a starter. Basically, you don’t want someone who fixes a problem only after the IRS calls. In our case, we need a lot of advice on finding funding, syndication agreements and content partnership agreements. The change wasn’t fast enough for us – we still have our business in a California law firm. But, I’m glad to see that Kentucky firms are gradually bringing on the resources to deal with issues like these.” Perhaps more than anything, local entrepreneurs need their law firms to help them meet the level of sophistication required of most new companies today. “We’re pretty lucky. We already have a team of senior management in place that has serious national experience, as well as experience starting new companies, so we’re ahead of the game on that front,” said Greg Evans, chief executive officer of eRoute, a company he started in June through Louisville’s bCatalyst incubator. The firm offers companies the ability to provide low cost Internet access to their employees’ homes, as well as enhanced corporate content on an enterprise information portal. Their client companies can then offer an extension of their extranet giving employees access to information on human resources, employee benefits, corporate policies and breaking corporate news at home and at work. Evans took his business to Frost Brown Todd because he felt the firm could help steer eRoute through the rocky technology environment. “The
quagmire our company faces is the fallout of the
overvalued 1998-99 markets. Used to be, if you had a good
idea, you could get lots of money and time from your
backers. Your only duty was to grab as much market share
as possible. Not anymore. Venture capitalists look at
tech companies to grow very fast and achieve
profitability as quickly as possible. We have our own
counsel for the day-to-day matters, but we still rely on
Frost Brown Todd to help us with big picture issues like
setting up equitable partnership agreements, positioning
ourselves for the best possible valuations, copyright and
patents, and producing the staggering amount of
documentation a new business needs. It’s a big job,
and it’s good to know we can get the legal advice we
need to do it right here at home,” Evans said. Susan
Gosselin is a staff writer for The Lane Report.
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Copyright 1996-2001, by Kentucky Business Online. All rights reserved. Editorial
content is copyright 2001, Lane Communications Group The Lane Report is a trademark of Lane Communications Group. All other trademarks are the property of their respective owners. |
“Times are
different for entrepreneurs now, there’s no question
about that,” said Bill Strench, chairman of the new
Emerging Business Group at Frost Brown Todd’s
Louisville office. “Just 10 years ago, most of the
start-ups in Kentucky were funded by family, friends and
small time investors. Now, particularly if you’re a
technology company, you’re looking for quick growth,
venture capital financing, trademark protection, and a
senior management team – all while trying to get a
new business off the ground.”
“Most of all it
gives our clients access to the people who can help their
business grow, and the strategic expertise they need to
make the right decisions up front,” Sagan said.
“Just a few
years ago, there was no venture capital to be had in
Kentucky. The huge gains from the technology boom spawned
huge growth in the venture capital trade. New firms were
everywhere, vying to be part of the best companies.
It’s become incredibly competitive,” said
Strench. “The good news is, there are not only more
local venture capital firms, but the larger firms are
taking an interest in Kentucky.