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Menlo Innovations

(734) 665-1847
410 N. 4th Ave., Godfrey Building, 3rd Floor
Ann Arbor, Michigan 48104

Rich Sheridan

Lots of people were happy when Accuri Cytometers was acquired for a reported $205 million two years ago. That list included the usual suspects of the startup’s executives and investors.

It also included one of its vendors, Menlo Innovations. The downtown Ann Arbor-based software firm has track record of trading a few of its billable hours for equity in the startups.

"We are simply trading away some of our receipts for equity or a future royalty payment," says Rich Sheridan, CEO of Menlo Innovations. "The more work we do the more valuable that piece becomes subject to the longterm valuation of the company. We don't come in saying we want 10 percent of your company. We say we're willing to trade this much cash and we want to be treated like any other investor."

The 12-year-old company has made about 20 of these deals. Four went belly up, a couple are doing quite nicely and the rest somewhere in the middle. That's a batting average on par with most accredited investors. That experience helped Sheridan become a bit of a eagle eye when it comes to spotting winners in the high-stakes world of startups.

When entrepreneurs come through his door he knows what traits to look for and which ones to avoid. For instance, good chemistry between the startup and Menlo Innovations is key.

"In some ways it's a marriage," Sheridan says. "We're going to be entering into a pretty-serious contract and relationship with these guys that includes us betting on the future outcome of their company. We think we're pretty darn good at what we do but we're not the whole equation."

The chemistry between the team members in the startup is just as important.

"We have seen founder teams that walk into our door and shake hands with each other every time they met at our place," Sheridan says. "It's a problem if the only time they are getting together is the time they are getting together with us. We don't think they are forming much a team on their side."

Sheridan also looks for entrepreneurs ready to put in work. Not the ones looking for some sort of Menlo miracle that creates a money-making company that runs itself and ensures early retirement.

"This isn't a lottery ticket for them," Sheridan says. "There are very, very few lottery ticket wins in the lottery system. There are even fewer lottery ticket wins in the startup system."

What normally happens is Sheridan and his team will get to know their potential suitors on a small project first.

"It's the equivalent of the progression toward marriage," Sheridan says, explaining it's like going from dating to becoming a couple to engagement and then the wedding. "Nothing defines a relationship better than working together."

That's what happened with Accuri Cytometers. Menlo Innovations had previously worked with its then CEO, Jen Baird, on a small project before she proposed a Accuri/Menlo partnership. It didn't take long for Sheridan and his team to notice that she was building a winner.

"The thing we noticed about Jen was she brought in really good people," Sheridan says. "She built a great team in her startup. That's a bit of a trick because they're not being paid well either. They are probably betting on the outcome like we are. Jen’s ability to sell the vision of a company was pretty darn good."

Plus, she was always testing it out in the real world. Sheridan saw that she didn't know all the answers and she wasn't going to let her pride get in the way of asking important questions to build great companies. He knew he had a partner worth betting on.

"We take a very longterm view on these," Sheridan says. "We don't expect a lottery ticket on our side either. We know it's a lot of hard work."

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