Shari Sweeney

Monday, 22 July 2002 09:56

Singing for a cause

It wasn’t your typical benefit with black tie, ball gowns and massive floral centerpieces, but the Rape Crisis Center of Cleveland wasn’t interested in celebrating its 25th anniversary in such a conventional way.

It instead staged a concert March 18th at the Cleveland Play House. The event comprised staged readings, solo songs and the debut of the Sing Out Chorale, a group of nearly 100 voices representing some of Cleveland’s best known corporate and civic leaders. Among chorus members were attorneys Gale Messerman and Dick Pogue, Cleveland Play House General Manager Dean Gladden, Dix and Eaton CEO Scott Chaiken, Ohio Senator Eric Fingerhut, and Judge Timothy McMonagle.

Soloists were Denise Dufala of WOIO TV and Cantor Sarah Sager of Fairmount Temple.

The Sing Out benefit, which took about a year to organize, was the brainchild of Amy Morgenstern and Polly Morgenstern (no relation), both of whom sit on the Rape Crisis Center board of trustees. The concert in the Bolton Theater and a pre-show dinner at the Cleveland Center for Contemporary Art netted more than $112,000 for the center, which provides rape victims with legal assistance and support and educates the public about rape and incest.

Thursday, 21 October 2004 06:55

Pre-nups

Prenuptial agreements are not just for wealthy VIPs like Britney Spears. They are fast becoming the norm for noncelebrity couples who have already made a previous trip down the aisle.

The prenuptial agreement provides self-protection in the event of divorce and ensures the intended distribution of property should the marriage end in death. It is an important wealth management tool for couples with the foresight to use one.

Prenuptial agreements usually deal with major themes. How is property from previous marriages dealt with at death or divorce? How is property acquired during the marriage dealt with at death or divorce? Will my lifestyle change if my spouse dies? After the death of my spouse, is it fair to expect the lifestyle that I had before the marriage or the one I had after the marriage? Where will we live, and how will the home be purchased?

Property brought into the marriage is routinely treated as separate property, not subject to division as marital property upon divorce and not distributable to the surviving spouse upon death. Property acquired during the marriage is usually treated as marital property, divisible upon divorce and distributed to the surviving spouse upon death, although this may differ depending on the wealth and age of the spouses.

Younger couples with more modest estates tend to treat acquired property as joint property equally divisible upon divorce, with all passing to the surviving spouse upon death. Older or wealthier couples may specify that acquired property is kept separate and not shared at either divorce or death, but divided in some other way.

It's also important to address the expected lifestyle and the capital necessary to maintain that lifestyle in the prenuptial agreement. A person whose lifestyle improves during the marriage will not want to return to a lower standard after the death of the spouse, so the prenuptial agreement should deal with this to ensure the welfare of the surviving spouse.

Life insurance is an excellent financial tool to ensure that sufficient capital is available to the surviving spouse. Life insurance proceeds can also be placed in a trust for the surviving spouse and distributed to the children upon the death of the surviving spouse.

One of the most difficult issues in a remarriage is deciding where to live. Even though each spouse may already own a home, those homes are usually sold and a new home purchased. The new home can be owned in the same proportion as each contributes to its purchase and divided in that proportion if divorce occurs.

At death, the home can be transferred to the surviving spouse free of any obligation to the estate of the first to die, or a mortgage or lien representing the deceased's ownership interest can be retained by the estate of the first to die during the period the surviving spouse occupies the house. If the property is financed, the prenuptial agreement should address payment of the mortgage. Will one party handle it all, or is the payment split in some fashion? Another option for older couples may be to investigate the benefits of renting or living in a retirement community.

While some prenuptial agreements are very detailed and provide terms governing the minutest details of daily life, most leave the practical issues to be worked out during the course of the marriage. However, this can be a costly mistake. Heath care costs and health care insurance should always be dealt with in the prenuptial agreement, as should expenses such as home maintenance and utilities.

Many couples assume these details will work themselves out over time; unfortunately, it's the details that often cause the most problems in a remarriage.

Michael A. Sweeney is a partner at Brouse McDowell. Reach him at (330) 535-5711 or msweeney@brouse.com.

Monday, 22 July 2002 09:41

Searching for an angel

The NASDAQ is soaring, the economy is booming, dot-coms are cropping up like daffodils in the spring, and it seems that every week, yet another IT-related company announces a multimillion dollar public offering.

It’s no wonder, then, that entrepreneurs might think that securing venture capital is as easy as strolling to the nearest ATM. It turns out, though, that the biggest challenge Cleveland start-ups face is not finding millions in venture capital, but securing seed money, early-stage contributions that go toward such things as hiring staff, leasing equipment and beefing up business plans to ultimately make a new enterprise more appealing to big-money investors.

“In the early stages, you need to get other kinds of financing to get to the point where you can get venture capital,” says Warren Goldenberg, a partner at the Cleveland law firm Hahn, Loeser and Parks. “It’s much more difficult to get the angel funding into the deal. There just aren’t as many people ... willing to make those investments.”

And they are extremely risky investments. Jim Cookinham, executive director of the Northeast Ohio Software Association, says that while seed money is critical to, say, a fledgling dot-com, “we’re talking incredibly high risk. You put in $75,000 and chances are pretty good that you’re not going to see it again.”

The National Venture Capital Association (NVCA) and the Venture Economics group of Thomson Financial Securities Data reported in January that an astounding 50 percent of more than 540 initial public offerings in 1999 were venture-backed, a 30 percent increase over 1998. According to the NVCA, the median age of an IPO in 1999 was only 4 years old, many of them IT-related start-ups.

But the headquarters of such venture-backed IPOs, Goldenberg says, are more likely to be in California than Cleveland. Even when companies are born here, financing must often come from out of state. Witness Cleveland-based NetGenics, a biotechnology software firm that in March filed plans for an initial public offering. The company has never made a secret of the fact that its investors are based in other, larger cities, including New York and Chicago.

Are Cleveland start-ups doing something wrong or simply at a different point in the start-up funding curve? What can new ventures do to improve their chances of grabbing precious seed money and, ultimately, venture capital?

The answers are complicated. Northeast Ohio must clear a number of hurdles — among them, a dearth of qualified managers, low numbers of proven successes among start-ups, and a shortage of fully realized business plans with which to seek investments in the first place.

“If you look at California or Boston, they have well-developed networks of angel investors,” Goldenberg says. “These are people who became rich themselves by forming technology companies — they understand it and are willing to invest.”

They also, he adds, understand the importance of strong management to the success of their contribution. “Investors are looking for qualified management as a stronger [requirement] than technical ideas.”

Lack of solid management can be a real liability — indeed, a deal-breaker — when entrepreneurs search for seed money and venture capital. Locally, Northeast Ohio’s industrial legacy is something of a roadblock: Cleveland, Goldenberg says, is “still a big corporate town,” where working for someone else is the rule excepted by start-ups.

Finding management, as opposed to technical talent, is a Catch-22: The area needs successful start-ups in areas like biotechnology and software development to give managers the experience individual and corporate investors like to see.

Goldenberg says that by contrast, in Southern California, “all these people are walking around with business plans in their briefcases. There’s a whole pool of people who have formed companies and gotten rich and now [are managers] of new companies. That’s a different kind of talent from somebody who’s a manager at a Fortune 100 company. It’s a different skill set.”

Wayne Zeman, executive director of the Lewis Incubator for Technology (LIFT) for Enterprise Development Inc., agrees.

“I call it the genetics of this region,” he says. “[Northeast Ohio] has a lot of wealthy people, but most of them made their money in the heavier industries, like steel and automotive. To have them jump to information technology is hard. They don’t have the comfort level necessary ... to make an investment. It’s going to take some time.”

Another difficulty facing Cleveland-area tech entrepreneurs is follow-through — putting a strong plan behind that great idea.

“Some businesses haven’t developed their idea to a stage where it’s fundable,” Zeman says. “They haven’t looked at the competition, they haven’t looked at what’s already out there. They feel that they have a strong technical idea that will automatically be a great business. That’s not always the case.”

As to management-recruiting difficulties, Zeman says some companies have actively sought out-of-state staff with a local connection.

“There’s a surprising pool of people who either were educated or grew up in Northeast Ohio and really value this region. There are a lot of people across the country that would like to come back, but you can imagine the challenge in finding them.”

So what’s an entrepreneur to do, short of packing a briefcase and heading for Silicon Valley?

The outlook is hardly as bleak as it may appear. Most local experts agree that the landscape is improving. Zeman points to technological resources throughout the area — from universities and medical facilities, to NASA’s Glenn Research Center — as well as the state’s Edison business incubator and education programs, as forming a strong support system to help entrepreneurs and inspire confidence in potential investors.

The encouragement and support are apparently working: Almost 40 percent of last year’s Weatherhead 100 list of the fastest-growing area companies were in the IT category, from software development and telecommunications to e-commerce. In 1998, less than one-quarter of the Weatherhead 100 were IT-related firms.

Goldenberg notes that the very fact that people are recognizing the difficulties finding seed money and venture capital signifies progress.

“I think it will continue to get better,” he says. “Now, when I go out and am talking to people [about investing] in deals, they’re willing to listen.”

Zeman notes that more ancillary businesses, such as law firms, investment bankers and business incubators such as LIFT, are placing particular emphasis on helping to pair entrepreneurs with potential angel investors.

“Our job is to help people start and grow technology-based businesses,” Zeman says. “That covers a whole range of technologies — software, IT, and also biotech and biomedical.”

The organization offers, in addition to four incubators and various educational programs, two programs to help start-up companies find sources of capital. Innovest (www.innovest.org) is a statewide program that places about 30 entrepreneurs in front of 300 or so potential investors, “a full range of angel investors, venture capitalists and some investment bankers. It really covers the whole range of possible sources of funding.”

Innovest has resulted in some $180 million in investment capital in its three-year existence, much of it in the form of early-stage funding.

The other program, operated by Enterprise Development for the federal Small Business Administration, is an Internet-based matching service through which entrepreneurs can post an abbreviated business plan for access by qualified investors.

Could these things happen without help from Innovest or SBA programs? “It’s hard to say,” Zeman says. “But this is a venue that makes it much easier, particularly when trying to find angel investors. Because they’re all individuals, it’s hard to get these businesses hooked up with them.”

Goldenberg and some of his colleagues have stepped up to the plate, putting together deals for start-ups and often actively seeking investors.

“Somebody has to,” Goldenberg says. Attorneys might, in addition to completing corporate legal work, do anything from provide strategic business advice to help structure financing or hook businesses up with investment bankers. “In many cases the entrepreneurs are very young and ... have never done this before.”

This May, NEOSA will host the Seed Capital Initiative, a day-long event designed, in part, Cookinham says, to graduate entrepreneurs from what he calls “financial kindergarten” and inspire confidence in potential angel investors. The Seed Capital Initiative — scheduled just before the Cleveland World Trade Conference, which this year will focus on e-business — will include a presentation of early stage financing options and business plan reviews “to expose investors to these companies and [help them] evaluate ideas,” Cookinham says.

Goldenberg, whose firm is a co-sponsor of the event, hopes to attract not only potential investors, but the stockbrokers and financial planners who advise high net-worth individuals, “to get people comfortable with how these deals are done.”

How to reach: NEOSA, (216) 592-2257; EDI, (216) 229-9445; Hahn Loeser & Parks, (216) 621-0150

Shari Sweeney (Sweene@aol.com) is a Lakewood-based freelance writer.