Craig Johnson, founder of Venture Law Group, redefined what a law firm can do for a start-up by helping companies develop business plans, find financing, and recruit management.
Venture Law Group has helped launch dozens of successful start-ups by coaching founders, recruiting high-profile management talent, and brokering financing deals. Hard to tell if its partners are lawyers or venture capitalists. And that's just the way they like it
When William Sharpe and his colleague Joseph Grundfest first called on Craig Johnson, in April 1996, they had only the vaguest glimmer of a business idea. Sharpe and Grundfest, both professors at Stanford University, envisioned marketing some instructional investment software and tools via the Web. Neither had ever run a company. But Johnson, founder of Venture Law Group (VLG), in Menlo Park, Calif., immediately saw in the academic duo the elements of a successful start-up.
Sharpe, a 1990 Nobel laureate for his theories on risk allocation in asset management, was at the time advising pension funds with assets of approximately $200 billion under management. And Grundfest, a former commissioner at the Securities and Exchange Commission, had proved himself a distinguished Netizen, promulgating cutting-edge strategies for regulating securities markets. What the two lacked--and what they had come to Johnson for--was a clear plan for packaging and selling their expertise, as well as a strategy for raising money to get the business off the ground.
"What we needed was somebody who could act as a coach and a team builder, who could bring to the table the right mix of people early on," comments Grundfest, who compares Johnson's role in Silicon Valley to that of a talent agent in Hollywood. "Craig Johnson is one of the elite group of people who understand the deal-making culture of the valley."
In several brainstorming sessions, Johnson worked for free--as a policy, VLG doesn't charge for the earliest stages of strategic business advice--to help his new clients refine their concept. Together they created the blueprint for Financial Engines, a company that would offer an electronic mode of aggressively managing the funds that American workers have socked away in retirement accounts, which now total $1 trillion.
Culling from a mountain of contacts he's developed during 24 years of Silicon Valley deal making, Johnson, 51, acted as a matchmaker, bringing the professors together with a software developer and with one of the valley's most respected venture capitalists, C. Richard Kramlich of Menlo Park's New Enterprise Associates. "Craig is very well regarded in Silicon Valley and has a lot of stature," says Kramlich. Indeed, Johnson's faith in the fledgling start-up alone was enough to pique Kramlich's interest.
Johnson went on to help recruit Financial Engines' president and CEO. Over a $3.95 plate of pancakes, Johnson persuaded 29-year-old Jeff Maggioncalda to forfeit a position with McKinsey & Co.'s prestigious high-technology practice and run the professors' new company instead. In January 1997, Johnson also helped raise $4.5 million in venture financing for Financial Engines, more than its principals had at first hoped for. "Craig has really helped develop the whole venture-financing protocol, and so he knew whom we should talk to," notes Maggioncalda, explaining that he decided to join Financial Engines largely because he trusted Johnson's gut instinct about the company. "He knew the strategies to get people interested, what sort of terms we should be shooting for, and what we should be willing to give up in the process."
For Johnson, who has served as midwife for hundreds of new companies, the birth of Financial Engines followed a familiar course. "It's a great example of how, with the vaguest of business concepts, we can help modify and develop what might become a successful $100-million company," he says matter-of-factly.
Johnson has positioned his Venture Law Group front and center in what has emerged as the Silicon Valley standard for setting up new businesses. Entrepreneurs have learned that they can bring their ideas to life by tapping into the skills of a wide range of people. VLG--situated in the heart of the valley's venture-capital community at the top of Menlo Park's Sand Hill Road--acts as a go-between. "Think of us as a McKinsey or a Boston Consulting Group for start-ups, with the added value that we can actually do the deals," he says.
Five years out of the gate, VLG, which according to Johnson generated $31 million in revenues in 1997, has emerged as a favorite adviser to Silicon Valley entrepreneurs and has offered strategic business, financial, and legal consulting to successful start-ups such as Internet search company Yahoo! Inc., E-mail service HotMail, Web auditing service I/PRO, and ultra-high-capacity-disk-drive maker TeraStor Corp., to name just a few. "We see ourselves as somewhere between a traditional law firm and a venture-capital firm," Johnson explains. In fact, the story of VLG is that of a successful Silicon Valley start-up--one that just happens to be a law firm.
Seizing a unique niche for itself, VLG was created to redefine what a law firm could do for a start-up. "They are geared to providing the kind of support that you need as a start-up," observes client Amyl Ahola, president of TeraStor. "The service we've gotten has been surprisingly, consistently positive."
At the outset of each relationship, VLG acts a lot like a venture-capital firm, picking and choosing as clients the start-ups in which it sees the greatest likelihood of long-term success. And while VLG does not actually finance the companies it jump-starts, it does routinely purchase small equity positions (typically less than 1%) through a venture fund called VLG Investments. As it did with Financial Engines, Johnson's outfit then helps assemble an external team of other advisers well suited to the clients' business needs. Along the way, VLG tries to become an integral player in refining its client companies' business plans and financing strategies--all with an eye toward building companies that will succeed and ultimately produce investment returns for VLG years down the road. The lawyering--and the bills--don't come until later.
It's a business model that's radically different from what traditional law firms have used. It initially relied heavily on Johnson's personal reputation. He had built up his "platinum Rolodex" while at Silicon Valley's top legal powerhouse, Wilson, Sonsini, Goodrich & Rosati, where he practiced for 18 years. As a partner there, Johnson attracted a strong following among early-stage companies and formed deep relationships with the venture-capital community. "He was really the number two person at Wilson, Sonsini," observes venture capitalist Kramlich. But by 1993, Johnson was consumed with the idea of creating a different kind of firm--one that would concentrate primarily on early-stage companies.
