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Michigan Business Breakthrough Benefits U-M Startup
By John MassonJune 3, 2013
Internal bleeding can be a life-threatening problem even when it happens in the controlled environment of Tier 1 trauma centers like those at the University of Michigan Health System. But when it happens in a tiny Ghanaian village, far removed from the nearest clinic, the results far too often are fatal.
Critical blood shortages in sub-Saharan Africa and elsewhere in the developing world force clinicians to make difficult choices in trying to save the lives of sick and injured people, especially women suffering from maladies such as ruptured ectopic pregnancy or childbirth trauma. Practitioners often have no choice but to scoop the patient's own blood out of her abdomen, filtering it through a couple of layers of gauze, and piping it right back in—a practice that can lead to fatal complications.
Fortunately, a multidisciplinary group of University of Michigan students affiliated with the Global Health Design Program visited Ghana in 2010 and, in response, devised Hemafuse, an auto-transfusion device clinicians can use to more safely re-infuse the patient's own blood back into her system.
The syringe-like plastic device is reusable, can be sterilized in an autoclave, and uses no electricity—all key advantages in the developing world. Better still, the unit costs as little as $6 per patient to use, and only one piece of it needs to be replaced for each new patient.
After the inventors got back to Ann Arbor, though, they learned that getting Hemafuse manufactured and onto the market was going to take some doing. Hanging in the balance were badly needed jobs in struggling southeast Michigan, where DIIME planned to base the manufacturing work.
That's where Michigan Law's International Transactions Clinic was able to help.
"We were thinking, 'Oh, that's pretty easy, we don't need a lawyer,' " said Gillian Henker, an engineering graduate who helped found Design Innovations for Infants and Mothers Everywhere, or DIIME. "But, okay, no, it's very necessary."
Henker said the founders approached the ITC in 2011, and were initially interested in using a fairly new Michigan corporate structure known as a low-profit limited liability company, or "L3C"—although the team of student lawyers at ITC, led by adjunct clinical Prof. David Guenther, '99, actually recommended a standard "C" corporation structure.
Henker and her teammates initially thought the L3C structure would allow the new entity to seek cash from investors as well as from grants, which more typically are aimed at nonprofits, so they went with it. What they found over time, though, was that the L3C structure resulted in investor and donor confusion.
"Having to say 'low-profit limited liability company' to an investor … just creates a branding nightmare," Henker said. Furthermore, she added, many foundations continue to make grants only to traditional nonprofits—501(c)3s.
"People just don't quite know how to put those two pieces of their brains together. People say, 'So you're a nonprofit,' and we say, no, but we're not going to max every single penny out of the market we're going after, because we can't."
Fortunately, the creative thinkers in the Law School's ITC—led by Guenther, a partner at Conlin, McKenney & Philbrick, P.C.—were able to successfully convert DIIME into a standard “C” corporation with a difference. DIIME’s charter contains standard benefit corporation features such as an express social mission--to improve human health--and a provision permitting directors to take into account the interests of employees, customers, the community and the environment as well as shareholders. DIIME’s charter thus allows it to make and distribute profits—but doesn't demand that it maximize that profit.
It's the first such "do-it-yourself" benefit corporation ever incorporated in Michigan, despite proposed state legislation, now stalled, that would have allowed such entities. In Michigan and potentially in 35 other states without benefit corporation statutes, Guenther said, DIIME has paved the way for social entrepreneurs to organize as for-profit corporations without having to give up their social missions.
"We looked very carefully at the Michigan Business Corporation Act and concluded there was no reason why shareholders couldn't include a social purpose and other benefit corporation provisions in their articles of incorporation," Guenther said. "The biggest surprise was that we could do something new and different, because when people have done something 100 times, you assume they've done it the right way, and the only way, each of those 100 times."
So that's how Guenther, along with ITC students and 2013 graduates Michael Byun and Gabe Katz, proceeded.
"When we came in, we were armed with little more than enthusiasm about learning the law," said Katz, who will join BakerHostetler and plans to specialize in commercial work. "We were able to really start from the beginning, realize what was necessary within the statute, and then take the steps to … get them there. We realized there was a space in Michigan for us to create a benefit corporation."
Aided by Guenther, their own organizational skills, a from-the-ground-up understanding of the statute, and an enthusiastic client, the student lawyers got to work.
"One of the things I really liked about this project was that we actually got to meet our clients, and we also had clients that were actually producing a tangible product that's creating a real benefit," said Byun, who's scheduled to begin a clerkship at U.S. Bankruptcy Court in Chicago. "I think we were all kind of helping each other figure it out, together. Our client is kind of like us in a lot of ways—only we never would have done something like this in college!"
Henker said she's glad to have had the opportunity to create the Hemafuse product – and help create the business structure that could eventually ensure that it's used all over the developing world.
"It's very inspiring," Henker said. "In Ghana, the practitioners are so passionate and so driven to do what they do, and so overwhelmed by the need that they face with these women, that you can't help but want to work with them and figure out a way to help."
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