The growing momentum in the Madison startup sector isn’t only helping new companies.
It’s also boosting the lawyers, part-time CFOs, accountants and other consultants who help those startups grow — and sometimes take a loss when they fail. Those service providers, at firms both large and small, generally offer sweeter packages to cash-strapped startups, discounting their usual rates or allowing deferred payments until the next fundraising round closes.
And in doing so, they become much like investors, who risk their money on young companies and hope that investment pays off later on.
“We all want to help each other grow and prosper,” said Derek Notman, the founder and CEO of Intrepid Wealth Partners.
Notman is relatively new to the area, arriving to Madison three years ago to be closer to family in Minnesota.
But he chose the city because its “startup community is fantastic” and works for his business model. Notman’s firm gives personal finance advice to entrepreneurs around the world, though that often bleeds into advice on their companies.
People such as Notman are important, said Wisconsin Technology Council President Tom Still, because a tech-based economy can’t grow without a strong service sector. Those service providers come from such industries as finance, accounting, law, banking, insurance and real estate.
“It’s really necessary for entrepreneurs, startups, scale-ups to have access to that kind of expertise,” Still said.
Those providers are also a sign that Madison’s startup ecosystem has “grown up,” said StartingBlock Executive Director Scott Resnick.
Startups often begin by getting free advice from places such as UW-Madison’s Law & Entrepreneurship Clinic. They then turn to lawyers such as Michael Best & Friedrich’s Melissa Turczyn once they’ve got a solid business plan. Turczyn, who has focused on early-stage companies since 2008, is one of the most active providers in the area.
Among her clients is Quietyme’s John Bialk, who said startups need to make sure their paperwork and books are in order. Otherwise, he warned, investors will ignore them.
“If you don’t get it right at the beginning, you’re probably not gonna make it,” he said.
Law firms compete for clients through creative pricing structures
There’s no shortage of startups for law firms to turn into clients. And to do so, lawyers reach out to the founders early on to establish a relationship.
They also need to offer discounts and flexibilities to stay competitive, said Kate Bechen, who represents startups at Husch Blackwell. Her firm, she said, takes a long-term view at partnering with startups and looks for a “solid business partner who we are comfortable to take a gamble on.”
That usually means law firms develop a wide portfolio of startups, said Mary Turke, the former managing partner of Michael Best’s Madison office who has now launched a law firm based off the “gig economy” model that Uber and others use.
“Not everyone’s gonna be successful,” Turke said. “You’ve kinda gotta play the odds.”
The larger law firms also have more lucrative clients, though a handful of lawyers work for boutique firms that focus primarily on startups. That includes Neider & Boucher, a law firm aimed at small businesses, and AlphaTech Counsel, which bills itself as “the emerging company’s counsel.”
The legal issues startups face, meanwhile, are broad. They include employment law, immigration law when hiring a non-U.S. citizen, intellectual property protections and general help with legal documents and contracts.
Other industries also turning to startups
Though the legal industry is the biggest player, it’s far from the only one in the Madison area getting involved with startups.
Insurance companies, banks and talent-search firms are among those tapping into the startup market. So too have a couple of “CFOs for hire,” partly due to the lack of available talent in the area.
“Locating a permanent CFO can be quite difficult [in Madison],” StartingBlock’s Resnick said. “Only a few individuals in the community have that expertise, particularly in high-growth startups, so you’re looking to import those types of individuals.”
Luella Schmidt is one of the part-time accountants and financial advisers local startups hire. Her firm, Fine Point Consulting, helps startups around the country with anything from CFO services to the “back-office stuff no one wants to focus on.”
The number of local clients she’s had since she started 10 years ago has grown rapidly, she said. She credited that trend to the increased amount of local networking events and more companies raising their first “seed” rounds, providing them enough cash to go to her earlier.
“It’s really astounding how much has changed in 10 years,” she said.
Larger companies — those that have raised about a million dollars or more — also turn to Susan Healy, who spent 12 years at Goldman Sachs and was CFO at the Madison biofuels company Virent and the Dodgeville retailer Lands’ End.
Healy, through her Ascendancy Advisors firm, has helped companies such as EatStreet and Propeller Health develop a “forward-looking model.” And “more and more” companies are reaching out to her these days, she said.
Healy usually stays on until companies hire a full-time CFO, as EatStreet did after closing a $15 million investment round last year.
EatStreet has also worked with the tenant broker firm Cresa Madison, whose Ross Rikkers reached out to EatStreet CEO Matt Howard while the company was in the gener8tor program.
First, Rikkers helped Howard get a small office. Then he helped the company move to a larger space — and soon after the whole floor of that building. Most recently, Rikkers helped the company take over an even larger space on West Washington Avenue.
“It’s a perfect example of what a number of the service providers in Madison and elsewhere are hoping to do,” Rikkers said. “You prove some expertise to these startup companies and you hope that someday, they’ve hit it big.”
New resource launches for entrepreneurs
This week, a new website called Atlas Providers launched to help entrepreneurs find local service providers.
The website, which has the backing of the Tech Council, looks to be a “one-stop shop” where startups can search for vetted service providers.
“If they are gonna have to actually go out and pay for services, it’s usually an instance where they need the service yesterday,” said co-founder Nick Lombardino. “And they don’t necessarily have the time, energy and capacity to research, vet and speak to these services providers in time.”
Atlas Providers is still in its early stages and has some notable omissions, though Lombardino said more providers will soon be included.
Turczyn, the Michael Best lawyer who’s listed on the website, said the wealth management section will likely grow as more startups get acquired or go public.
Those so-called exits would lead to more customers for Notman, the wealth management adviser who also co-founded the Atlas Providers website.
But, he said, he’s already pretty busy.
“I’ve got more work than I know what to do with,” he said.
— By Polo Rocha,
Photo by Michelle Stocker, The Capital Times