Every day presents new legal challenges for emerging technology companies such as FarSounder Inc.
It’s a world where simple contracts are made complicated by dealings with foreign vendors and customers, said Cheryl Zimmerman, CEO and president of the Providence-based sonar technology company.
“You have to decide when to use a law firm and when to make decisions in-house,” she said. “As a small company, we have to watch [our expenses].”
FarSounder chose corporate lawyer Jayne Donegan, a partner at Brown Rudnick Berlack Israels LLP in Providence, to represent the company about a year after it formed in 2001, Zimmerman said.
“She seemed to understand the stage of the company at that time and the needs of an emerging technology company as we grew,” Zimmerman said.
Donegan said she had started focusing on emerging technology companies after the dot-com crash six years ago, because “a number of companies I had been working with imploded along with everything else.”
Seeing a growing number of startup technology companies in the state aided her decision to refocus, she said. Plus, she wanted to build a client base in her “own backyard” instead of commuting to Boston.
Donegan credits the state’s Slater Technology Fund, which provides seed money for technology startups, with helping to create a “focal point for an entrepreneurial community to develop.”
Brown Rudnick developed an “emerging companies group” at about the same time as Donegan was refocusing her practice. The group consists of corporate lawyers who want to recruit promising startup companies as clients, Donegan said.
The group was inspired by the realization that a majority of the firm’s larger clients were small at one time – and Brown Rudnick had represented those clients from the startup phase, she said.
Donegan finds clients by participating in the Brown Forum for Enterprise’s steering committee and by judging the Rhode Island Business Plan Competition, she said. She also represents the Slater Fund, which puts her in a good position to meet possible clients.
“You don’t make a lot of money representing this kind of company at the beginning,” Donegan said. “A lot of what we do is connect them to others.”
Those “others,” she said, include potential finance sources such as “angel” investors – wealthy individuals or entities interested in providing startup funds. Donegan also might connect her clients to accountants, consultants and the firm’s patent lawyers.
“I’m the point person,” she said. “They call me for whatever. If it’s not what I personally do, I call someone else in the firm that can do what they need.”
Christopher Graham, corporate lawyer and partner of Edwards Angell Palmer & Dodge LLP in Providence, said he also spends a lot of time with his emerging technology company clients. Much of his time is uncompensated, he said, because of the “few dollars” the clients have to distribute.
Investing time and energy in the companies is a way to “generate economic momentum for the entire community,” Graham said. And economic development generates business for the firm.
Brown Rudnick recognized that aspect as well, and developed some basic fixed-fee packages to attract startups, Donegan said. There are incorporation packages, patent packages, finance packages and others. “It makes sense for us.”
The fixed-fee packages are a “definitely a benefit for startups,” Zimmerman said.
Choosing representation generally is a “big deal” for small companies such as FarSounder, she said, because the company operates on a complex level.
FarSounder wasn’t looking to bring in a large law firm, until it started needing contracts with dealers, vendors and customers such as the Royal Australian Navy, the Japanese government and international cruise ship companies, she said.
Donegan said she spends time reviewing, amending and creating agreements with the company’s global partners. She also creates licensing agreements and employment agreements.
But the majority of her work involves corporate finance, she said.
“The biggest thing this kind of company spends so much time on is raising money,” Donegan said. “They need a lot of money for R&D.”
They typically start with seed money, Edwards Angell’s Graham said. “That provides enough dollars to create a platform for the company to move forward.”
Next, they try to attract venture capitalists, which involves planning, he said.
“They need to be thinking about agreements they’re reaching with employees and shareholders,” Graham said. For example, most venture capitalists might look negatively at a long-term employment contract, he said. They might see it as a liability if they decide to change management in the future.
“In this business, you learn to expect that 19 of 20 [technology startup companies] might not go very far,” Donegan said.
She added, “For me, the company doesn’t have to go public to have success. Some are chugging along, making sales on a technology out there that’s benefiting people. … They are clients I enjoy working with.”
