Several law firms in Los Angeles have created venture capital outfits that invest in early stage startups and offer legal advice in exchange for equity stakes in the companies.
These offshoots at firms such as Stubbs Alderton & Markiles and Manatt Phelps & Phillips are not necessarily huge revenue generators, lawyers at the firms said. But the venture capital initiatives — as well as accelerator and incubator programs tied to the operations — offer access to a pool of new clients, and relationships formed with executives at startups can lead to a steady billing stream down the line.
“The benefit of us running an accelerator is we’re developing relationships early on with early stage companies and grow with them until they get to later stage financing and mergers and acquisitions, and that’s where we’ll make money on the back end,” said Heidi Hubbeling, chief operating officer of Stubbs Alderton’s startup accelerator. “We get new clients for the long term; it’s a good marketing opportunity for the company.”
Stubbs Alderton operates its incubator — dubbed the SAM Preccelerator program — out of space at Santa Monica’s Third Street Promenade.
Companies selected for the six-month program get a $25,000 credit toward Stubbs Alderton & Markiles’ legal services, access to the law firm’s network of more than 100 mentors, and $25,000 in cash. In some cases, the startups are invited to remain in the program for an additional three months. Stubbs Alderton takes 7 percent of participating companies’ unrestricted common stock in exchange.
Local program alumni include Venice-headquartered location-based marketing firm Rally Networks and Sherman Oaks-based digital payment outfit Payclub Inc.
Law firms spinning off venture capital arms and providing accelerator programs has been a trend for almost two decades.
Sawtelle-based law firm Manatt Phelps & Phillips founded its Manatt Venture Fund in 2000 to “provide an alternative stream of revenue to the firm and strengthen our relationships with venture capital, startup and technology communities,” the firm’s Chief Executive and Managing Partner William Quicksilver said in an email.
The venture arm is funded exclusively by partner capital.
Manatt Venture Fund is led by Lisa Suennen, who was appointed in November 2018.
Manatt declined to disclose specifics on its clients and funding, though Quicksilver said it prioritizes seed and early stage investments.
Industry tracker CrunchBase Inc. reports Manatt Venture Fund has made 65 total investments, including Santa Monica-based client Vyng Inc., which develops video ringtones and has raised $7.2 million since its 2014 incorporation. Another Manatt investment, Venice-based Pledgeling Technologies Inc., raised a $4 million early stage funding round in February 2018. Manatt also invested in social media site Pinterest Inc., which on Feb. 21 filed paperwork for an initial public offering that’s expected to raise some $1.5 billion.
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