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Like restaurants, most start-up technology companies fold within the first year. So why in the world would a law firm want to give such companies free rent and support services? “I think there’s some pretty good potential if you are appropriately selective,” says Kenneth Silverberg, a partner at Nixon Peabody in Washington, D.C., which will open an incubator for six to eight start-ups in its McLean, Va., office on June 1. “Some of these companies are going to mature into corporate clients that any law firm would be delighted to serve.” The ideal would be if one of those companies wound up like PSINet Inc., the Herndon-based company that Nixon brought public and has been serving ever since. Even if that fairy tale doesn’t come true again, one outcome of Nixon’s unusual endeavor is that the firm will brand itself as “that firm with the incubator” — an identity that seems almost guaranteed to attract clients. According to Kendal Tyre Jr., an associate in the emerging companies group of the Rochester-based firm’s D.C. office, messages from eager entrepreneurs have been clogging his voice-mail and e-mail since the venture was announced. Traditionally, incubators are nonprofit organizations that provide office space and telephones to entrepreneurs with big ideas but little money. In the past decade, a new version has gained popularity — the for-profit incubator that not only provides a roof and a phone, but also guidance from counselors with business acumen and, most important of all, access to venture capitalists. The incubators take equity in the start-ups, typically 20 to 60 percent. The idea is that if one out of every 10 or 20 entrepreneurs the incubator invests in succeeds, it will more than make up for the ones that fail. The for-profit incubator housed across the hall from Nixon’s lawyers is a joint venture between the privately held Reston, Va.-based incubator Synfusion Inc. and a fully owned subsidiary that Nixon started for this venture, called NP Accelerator. Though some of the details have yet to be finalized, Nixon and Synfusion plan to split any profits from the incubator. The incubator’s investment in a particular company will be determined on a case-by-case basis. (Nixon also has a firm-based venture investment fund in the works.) In considering new ways to approach Northern Virginia’s technology economy, members of the firm’s emerging business group looked for an outlet that would allow them to “keep our ears to the ground, advance our practice, and get away from any image of a stodgy old law firm,” says Tyre. “The incubator seemed a good answer.” GROWING A COMPANY While no other law firms in the area have formal incubators in their offices, some have gone to great lengths to attract clients in the emerging-company scene. Greenberg Traurig, for example, has been renting space to venture capital firm Draper Atlantic for over a year in Greenberg’s Reston offices. And the old-line Richmond, Va., firm Mays & Valentine launched a business consulting company on May 3. Called mV-10, the venture is co-owned by two former Mays & Valentine attorneys and will offer management consulting to start-ups and midsize organizations undergoing change. Regardless of what approach firms take to lure start-up clients, catering to such companies tends to stretch their roles. J. Scott Hommer III, who leads Venable’s technology practice in Northern Virginia, describes his job as closer to that of a coach or even a father than a mere lawyer when dealing with a start-up. He has sent clients out to buy their first suits in preparation for a meeting with venture capitalists, driven the clients to the VC meetings, edited — sometimes heavily — their business plans, and even reminded a client of the importance of bathing. The Reston office of Piper Marbury Rudnick & Wolfe took that arrangement one step further when one of its clients, eKnow Inc., moved in for about eight months. “It was fun having them around,” says Nancy Spangler, managing partner of the Reston office. “If you thought of something in the middle of the day, you could communicate with them directly rather than sending them an e-mail or calling them.” She adds that for the younger lawyers, “it was great to see [clients] in action.” Sharing space also worked to solidify the lawyer-client relationship. “Very few, if any, law firms would take on such a risk with almost no guarantee of a return,” says Manuel Sanchez, one of the founders of eKnow. “Anyone with a soul would develop some loyalty there.” Such relationships are exactly what Nixon Peabody is shooting for with its new, yet unnamed, incubator. Nixon lawyers and the folks at Synfusion met at one of those dawn networking events so popular in Northern Virginia. Nixon was ready to attack the tech market in a new way, and Synfusion was an interested and willing partner. It also had experience evaluating pre-natal companies and shepherding them away from the great maw so many start-ups fall into. Nixon won’t necessarily make a lot of money out of this, at least at first. The start-ups can retain the firm if they want to, but there is no special contract requiring it. Tyre says the law firm will sponsor a series of seminars on the “ABCs and 1-2-3s on what start-ups should know as they venture into this market — from tax structures and what the best entity for organization is, to public offerings.” Law firm consultants say there is nothing wrong-headed about a law firm starting an incubator, but question whether Nixon will get a good return on its investment, especially considering that most companies in incubators have yet to secure investor financing. “A lot of these start-ups tend to be unprofitable,” says Peter Zeughauser, a Los Angeles-based consultant. “The smarter firms in [Silicon] Valley have figured out how to determine which of these companies are going to emerge and go through an IPO and then live on after that as a viable client. One indicia of that is whether the client already has financing. They let the venture capitalists vet the companies.” And though housing the start-ups keeps them close to the lawyers, Zeughauser says “all you’re doing is adding overhead to the cost of maintaining these bad clients.” This incubator, though, will have a safety net to weed out the losers. Don Hernley, the chief operating officer of Synfusion, says incubating companies must meet a progress schedule or be expelled from the virtual nest. At its earliest point, a fledgling enterprise is in the “validation stage,” Hernley says. “That’s where you determine if there’s really a value-added business concept” before the companies can move to the next level. Hernley says entrepreneurs like the rigor. “They find the discipline reassuring.” Silverberg says the firm will also benefit from the structured regimen. “Part of why we’ve done it this way — that is, to team up with experienced incubators — is to improve the success ratio.”

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