Wednesday, December 06, 2006

Where did all the Venture Capital Lawyers Go?

Earlier this week a US client called me about a follow-on investment. Our firm had a conflict and could not handle the matter, so I rattled off the name of a few other firms about town that also worked in venture capital. Or, so I thought.

A few hours later, my client called me back to say that he had gone to the web sites of the firms I had recommended and that, in fact, they did not appear to have any venture capital specialists. In fact, they did not list venture capital as a practice area at all. He did not need a generalist, he said; he wanted someone who did VC deals on a regular basis, so could I please send him another lawyer's name?

Turns out, he was right. The same law firms who, until recently, were spending thousands of dollars on sponsoring venture capital fairs and other marketing initiatives appear to have dropped the startup community altogether. This trend to repositioning started a few years ago with Boston's now-defunct firm, Testa Hurwitz. I remember receiving one edition of the firm's Venture Capital newsletter, which announced it had been re-branded as a "Private Equity" newsletter. I understood the shift; venture capital is one part of what is a very broad private equity asset class, and appealing to all of investors in that class seemed to me to be a reasonable hedge against swings in the venture capital cycle.

I understand the repositioning by Canadian firms away from startups. Marketing to the cycle is standard law firm practice: this quarter's M&A specialist will be next quarter's workout guy. I even understand why most large firms make the business decision to reject clients that generate less than $30-50k in recurring annual revenues. Why risk getting locked out of a larger deal because of a conflict by a smaller client?

But I worry that this isn't simply market positioning; rather, it's a sign of a long term retreat from servicing startup clients altogether. Which would be a shame. 97% of Canadian businesses have 250 or fewer employees. As a group, they account for more than 60% of GDP. Even at reduced levels, the amount of venture capital that fuels our economy is staggering.

But it won't last if we can't generate and support businesses that yield venture capital returns. That much has been made increasingly clear by the venture capital community. To maintain a robust business generation centre, I think it imperative that as a profession we actively solicit and support those driving new businesses, regardless of the market cycle. Supporting those businesses means more than servicing them; it includes bringing the mythical "value add" we all talk about, building and fueling legal and business networks that will sustain your clients as they grow south of the border and beyond, among other things. The legal communities in Silicon Valley and the Northeast still actively solicit and support emerging companies. If we wish to maintain similar momentum, it seems to me we need to do the same.

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