Stubbs Alderton & Markiles knows a little something about the entrepreneurial spirit. The Sherman Oaks law firm has created a business model that revolves around helping startup companies form and develop their businesses. While other law firms help guide startups in legal matters, what sets Stubbs Alderton apart is its accelerator, known as the Preccelerator Program, where businesses are provided a space and resources to develop their ideas into reality. The firm also has a crowdfunding business, FlashFunders, which helps companies raise capital on global markets. In addition, the firm’s partners pool their money in a fund that has invested in tech startups, including online video service Skype Inc. “We decided that we really wanted to be known as the firm that was solely dedicated to representing emerging growth and technology companies,” said Scott Alderton, founding partner. “Everything that we do, we try to be unique and groundbreaking. We try to think of ways to differentiate ourselves and provide value where other competitive law firms are not.” Silicon Beach Stubbs Alderton opened a Santa Monica office in November 2012 to be closer to tech companies in the Silicon Beach area. The firm decided to utilize the location as co-working space for its clients and host educational events for the startup community. This quickly matured into its formal accelerator program, which the firm refers to as a preaccelerator because it was created for companies in the earliest stage of development. In 2014, the firm doubled its Santa Monica office space to accommodate growth of the program. To join the Preccelerator Program, which is a term trademarked by the firm, entrepreneurs must fill out an online application, go through an interview process and engage with the firm – whether it’s through the company’s startup package or another alternative fee package that can be negotiated. The startup package costs $7,500 and includes all incorporation documents, founder documents, contract agreements, employment agreements, option agreements, nondisclosure agreements, website terms and conditions, and privacy policies. The firm values this package at $15,000 but tries to make it more affordable since it’s working with new ventures. “We understand that startup companies don’t have an endless amount of funds, so we try to provide them with the greatest value we can for the smallest amount of money,” said Heidi Hubbeling, director of marketing for the firm and director of operations for the Preccelerator Program. “We provide a lot of value and act as their business advisers and not just their attorneys.” Once in the program, startups have 24-hour-a- day access to the firm’s Santa Monica facility and are able to attend its 50-plus educational and networking events a year. On-site mentors advise companies in the program, which currently retains 31 mentors. One of the most valuable offerings of the preaccelerator is its perks portfolio package, which the firm values at upwards of $200,000. It includes $100,000 credit from Google Cloud Platform, $5,000 credit from Amazon Web Services Inc., free membership to the Los Angeles Venture Association and other benefits. “The idea was let’s preaccelerate these companies so they go from idea to formation of a company to the point where they now need to go into an accelerator as one path or get funded, get their own office space, develop and move on,” said Alderton. In total, the program has had 20 companies enrolled and currently has 10. Some of its success stories include political matchmaking app Voter, which was ranked the No. 1 up-and-coming app to watch for in 2016 by Newsweek, and Team(You), which was named one of the top 10 emerging startups in education this year by annual global startup event Launch Festival. Lockaware Inc., a vetting and marketing website for locksmiths, is in the Preccelerator Program working out of the Santa Monica office. “We knew we had a good idea. We knew we needed to get good advice and protect our idea,” said Marty Chaskin, co-founder and chief executive of Lockaware. “We wanted to build a good company, but didn’t know where to start. Scott connected the dots for us.” Stubbs Alderton makes money on the front end through its startup package as well as on the backend through a 2.5 percent equity warrant. However, with the reward come certain risks. “The challenge is you are working with an early stage company and the reality is 50 percent or more of them fail,” said Brent Reinke, a corporate partner at Musick Peeler & Garrett’s Westlake Village office, who is in the process of developing his own incubator. “If somebody takes equity in lieu of fees, you take the chance that the company you are taking equity in is going to fail. So the best way to minimize that is to do a vetting practice before deciding if that is the right company (to invest in), just like a venture capitalist would.” Investment strategies In addition to the Preccelerator Program, Stubbs Alderton also has a crowdfunding company, FlashFunders, which it co-owns with financial investor Europlay Capital Advisors in Sherman Oaks. Started in March 2015, the service provides a no-fee online equity funding platform for startups to globally market their products or services and collect capital. It is also the only crowdfunding platform that is a licensed and registered broker dealer under the Securities and Exchange Commission’s rules, according to Alderton. FlashFunders has raised more than $14 million for companies listed on its platform. The law firm will suggest using FlashFunders to its clients if it is an appropriate fit, but the platform is available to any entrepreneur who meets the qualifications. Of course, Stubbs Alderton also reaps business if a startup grows to the point it needs more sophisticated legal help. The firm has practices in middle-market corporate securities, middle-market mergers and acquisitions, digital media and entertainment, counterfeiting and brand protection and general litigation, which is currently the area experiencing the most growth. Stubbs Alderton started in 2002 with five lawyers and one support employee and has grown to 27 lawyers and about 40 employees. The firm has 13 partners who participate in two other arms of the business – SAM Venture Partners and SAM Development Co. SAM Venture Partners is a fund, comprising of the partners of Stubbs Alderton, that invests in early stage technology ventures. It typically backs clients of the firm but has injected capital into outside companies as well, including Skype, which was one of the fund’s early successes. SAM Development Co. is the firm’s real estate development branch that manages construction projects, typically to take the weight off of its clients in regard to real estate, so they can focus on developing their business. Its latest project was an 11-unit beachfront condominium complex in Oceanside that had no client involvement. Even though the firm might invest capital or oversee real estate development for client companies, Alderton said that his fiduciary duties as a lawyer always come first to avoid any potential conflicts of interest. When investing, SAM Venture Partners acts as a silent and passive shareholder, and will even forgo voting rights if asked. In regard to construction, SAM Development Co. will manage a construction process for its clients for a flat fee but is not the owner of a project. “We’re really proud of what we have built and developed, and we think that we are unique and different from other law firms,” said Alderton. “The objective always was to deliver absolutely top-quality, technically excellent legal services, but in a different context to a market that needs those services but can’t access them from traditional big law firms. That’s kind of our story.”
