When Is a Law Firm Not a Law Firm?

Tweet

VLG's desire to identify and attract Silicon Valley's best early-stage companies as clients and investment opportunities demands that the firm be aggressive and visible in a steady stream of deals. That gives its lawyers an up-to-the-minute perspective on the market--something that even the most seasoned corporate executive can lose while running a business. Says Financial Engines founder Grundfest, "They've got experience that most entrepreneurs lack, because they've seen so many more venture deals."

"They often leverage what they learn from one company onto another," adds client Ariel Poler, founder of I/PRO, which audits and measures the effectiveness of Web sites. "Their networking is very helpful." In several instances, Poler says, VLG lawyers have introduced him to another of their clients, opening doors to new business relationships. In December 1996, for example, VLG partner Jim Brock introduced Poler to executives at Silicon Investor, a Web site for investors, who were looking for an outside board member. He accepted the board seat.

The firm also plays a role in helping entrepreneurs maneuver through the most treacherous junctures of a start-up--when a venture will either crater or rise to the next level. Financial Engines CEO Maggioncalda credits Johnson with keeping all the players in the game when the time came to ante up seed money. After discussing the subject privately with each potential investor, Johnson then matter-of-factly broached the buy-in topic in a meeting with everyone, asking each person to state publicly the specific amount he or she would contribute to the new venture, and writing it all down.

"He was able to create things out of nothing," marvels Maggioncalda, likening Johnson's role in the formation of new companies to that of an alchemist. "In a very nonobvious way he set a rhythm and a tempo that made everything come together."

In some ways, VLG seems an odd moneymaker. While the firm counts fewer companies per lawyer than its closest competitors, it has so far managed to offer incoming lawyers a tidy $91,000 a year--near the top among valley law firms. Partners' earnings have begun to close in on those at Wilson, Sonsini. (Johnson says he personally clears the $1-million mark these days.) In part, VLG's financial health has resulted from the firm's ability to tack premium rates onto its normal hourly fees for certain creative deal work, and from a 98% bill-collection rate, Johnson boasts. But when compared with other players in Silicon Valley, such as major VC firms like the Mayfield Fund and Kleiner Perkins, VLG still lags behind the competition in earnings. The bulk of the VC firms' wealth typically comes from stock distributions. "We hope in the future to close the gap a little through our own investments," Johnson says.

For now, the closest analogue to VLG in terms of earnings is Silicon Valley's LECG, a cohort of Berkeley law and economics professors that is not a law firm but does offer strategic business consulting. That group, which Johnson points out went public in December 1997, mirrors VLG in terms of size, revenues, and profits, he says.

Determined to recruit and retain top-tier talent, Johnson has tried to mix the long-range upside potential of VLG's investment returns with a collegial culture. The firm has set out to attract young, energetic lawyers who are interested in taking their relationship with a client to a new level. Many have defected from top law firms, lured by the concept of being involved at the most exciting stage of a company's development. Like many of their entrepreneurial clients, they are also attracted to building something of their own from the ground up.

VLG's culture is reflected in everything from the office that features outdoorsy photos of lawyers with their families to the profit sharing that gives everyone a slice of the firm's success. Four times a year--at the end of each quarter--VLG tallies up its expenses and overhead, subtracts that amount from its receipts, and divides what's left among everyone from the file clerks to the senior lawyers.

Partners, who carry the greatest burden of bringing in the business, receive a much larger portion of their pay in profits than do junior lawyers and nonlegal staff. The final quarter of 1997 was VLG's most profitable ever, producing big bonuses all around. In 1993 a single profit point (the equivalent of a share in the firm) was worth nothing. "We felt lucky to be able to pay our salaries in our start-up year," Johnson notes. In the subsequent four years, the value of a point has increased from $1 in 1994 to $2.13 in 1997. "Given that our point total has more than doubled since we started, we are proud that our per-point value has continued to increase," Johnson says.

From the outset, Johnson hoped that VLG's culture combined with its earnings potential would lead to zero voluntary attrition among the firm's lawyers. So far, VLG has lost 10 lawyers. Holding on to good people is a problem for many firms in the area. "Turnover is our enemy," Johnson laments.

Another serious issue is whether the firm's cozy culture can survive the increase in personnel. In five years VLG has expanded from 14 to 75 lawyers and has added a Pacific Northwest branch, in Kirkland, Wash. "With their expanded growth, they do less and less for their employees, but they expect more," grumbles a former employee. "The bigger it's getting, the more it's becoming just like any other law firm."

Johnson acknowledges that the firm's growth has begun to wear away the "warm and fuzzy" aspects of VLG's culture. But in order to fulfill the firm's goal of holding on to top-quality lawyers by providing them with a steady stream of fun and challenging work, growth has become a necessary evil, says Johnson. "Young attorneys want support as they become more senior--which means growth," he explains. "The only way to slow growth is to change the nature of what we do or how we perceive opportunity. This will gradually happen as our equity investments become more important. People will perceive growth as dilution."

 PREV  1 | 2 | 3 | 4 | 5  NEXT 

Read more:

Sign-up for our Leadership and Managing Newsletter

Email Address: