From seed to growth, from just an idea to a successful exit: this is the exciting world of venture capital, where lawyers grow alongside the companies they incorporate and mix in a world of innovators and investors. Gunderson's expert attorneys tell all...
How would you define Gunderson’s venture capital practice?
Melissa Marks, partner: One way to think about our practice is as outside general counsel to venture capital funds and venture-backed technology companies. We advise venture fund clients on fund formation matters as well as on investment transactions. For our technology companies, we advise on intellectual property transactions, privacy compliance, private corporate governance, equity and debt financings, employee matters, and more - essentially anything that crosses the legal path of a start-up, other than litigation.
"Our clients include leading funds investing in companies at every stage..."
Mike Heath, partner: We work with companies as early as a single founder with a pitch deck and wireframe, all the way up to so-called “decacorns” – this is an industry term for a private company valued over $10 billion. It’s a play on the more well-known word, unicorn. Our clients include leading funds investing in companies at every stage – from Seed to Growth – in the negotiation and documentation of their investments.
What is unique about Gunderson’s venture capital practice?
MM: Gunderson is one of very few large law firms where transactional attorneys can truly be generalist practitioners throughout their career. Whereas other firms offer a rotational model where attorneys spend some or all of their career as a securities lawyer one year, an M&A lawyer the next, we have the opportunity to be all of these all the time, and we get to do it all for high-profile clients in an exciting and ever-changing market sector.
MH: When it comes to raising and investing in venture-backed companies, we are the market leader – closing more deals than any other law firm since the industry started tracking that number almost a decade ago. Unlike many firms, attorneys at our firm who practice in this space are working with start-ups and venture funds 100% of the time. That leads younger attorneys to get a very high number of “at bats” very early in their career compared to other firms.
Why did you choose this practice area?
MH: Growing up I’d always been interested in being on the bleeding edge of technology, and this practice allowed me a window into that world while still practicing law. I also enjoy the collaborative nature of the practice. In a venture financing, most investors who are “repeat players” aren’t viewing the deal as a zero-sum game and so it allows more creativity and collaboration than my experience with more “private equity” practices.
"When it comes to raising and investing in venture-backed companies, we are the market leader."
Damon Zhangchai, junior associate: Venture is the dominant industry in Silicon Valley – it really is the driver in a way that private equity or some other kind of finance practice isn't. It always made sense for me, personally, to keep it close to the ground, so to speak.
What are the roles for associates and partners?
MH: Partners are typically more heavily involved earlier in the process, e.g. in negotiating a late stage venture term sheet or in negotiating an M&A letter of intent. After a term sheet or an LOI is signed, a partner will typically work with one or two corporate associates to see the transaction to a close. Typically a partner will review drafts, mentor associates, and negotiate on conference calls. Every deal and client is different though, and there’s certainly no one right way of doing things.
DZ: An associate – from a junior associate up until when you’re a mid level – is expected to be the primary point of contact with the client. Considering a typical day, as an associate, ballpark 40% of your time is general “corporate maintenance” work. For example, when a founder emails or calls you and needs to throw something together. Another 40% is venture financings for those same start-up clients, which are the bread and butter of the transactions that we do. When a client gets a term sheet, we review the term sheet and work with them to mark up that term sheet to the extent necessary. Lawyers on both sides negotiate the definitive agreements underlying that financing round. The other 20% is what I would frame as “big ticket transactions,” which are exit transactions.
What are the biggest challenges for lawyers and their clients in this market?
MH: I think the biggest challenge for lawyers in this space is what I call the “yesterday expectation.” Our clients like to “move fast and break things.” As you may be the first attorney that they’ve ever worked with, they may not have an appreciation for all the things that you do, and the amount of work that some “asks” will take. There’s sometimes an expectation that everything be done yesterday, which can be challenging.
Andrew Person, associate: I think a challenge, especially because we work with a lot of early stage companies, is to figure out a way to provide excellent legal service but to do it in a cost-efficient manner. There's always a kind of push and pull with that: being able to give to our clients but also charging what they can pay. On the corporate side, sometimes there are changes in laws, whether it be a California law or a Delaware-specific law, and we need to be up to date with and cognizant of any kind of changes in the law so that we can communicate that to our clients.
What do you enjoy most about your work?
MM: I love the variety that my practice offers. In a single day recently I was able to attend a board meeting for an e-commerce brand of which I am also an enthusiastic customer; negotiate a merger agreement for the acquisition of a media property; advise an international SaaS company on US tender offer regulations; and counsel the general partner of an aerospace-focused venture fund on a potential investment.
"The biggest satisfaction is really seeing a client go from an idea to a just newly incorporated to a successful exit."
DZ: My favorite part is helping companies that I’ve incorporated years ago. I have about two dozen companies that I’ve formed and have been with from the start so they're extremely comfortable with me and I'm equally comfortable with them. Oftentimes the advice isn't strictly legal advice that they're asking for, but rather they're looking for another person to be at the table, someone that they trust, and because we've built this relationship over years, they reach out to me to give generalist advice and perspective.
AP: The biggest satisfaction is really seeing a client go from an idea to a just newly incorporated to a successful exit – that to me is kind of the most enjoyable thing. We get to see the fruits of their labor and sometimes that's after two years or sometimes that's after ten, but being able to see them be successful and get the exit that they were hoping for – that's always the most rewarding to me.
How should lawyers build a career in this market?
MM: Because venture capital is a smaller legal market than, for example, private equity, lawyers who develop an interest in the practice early have an advantage over those who try to lateral into it from a different practice later in their career, as the number of lateral positions is limited.
MH: Be patient. As a young attorney you will likely be working with lots of early stage companies. Those early stage companies are the lifeblood of a practice. You will grow with them, and them with you. While success in Silicon Valley may seem like an overnight fairy tale, the reality is that for most companies it will take years and years of hard work. That said, time is a finite resource, so you need to be like a venture capitalist and develop a sense of what companies will be successful in raising venture capital and reaching an exit, and those that likely won’t be.
"Those early stage companies are the lifeblood of a practice. You will grow with them, and them with you."
What are the current trends affecting the market?
MM: There are more venture fund dollars in the market than ever before. SoftBank’s Vision Fund is the most noteworthy example of this, but the phenomenon is much broader, and is changing the venture landscape in a number of ways, like the recent increased focus on founder controls and governance structures. On the commercial side of things, ever-changing privacy regulations require tech companies to have their engineers work closely with legal counsel to understand how their data collection and usage practices must be tracked and disclosed.
DZ: Increasingly over the past two years, our clients have been doing more secondary transactions in connection with primary financings. This means the company is so hot and capital is so robust in the space that founders can release some liquidity in their ownership before the traditional kind of exit transaction (eight to ten years down the line) when you sell to a large industry player.
Do you have any career-defining moments?
MH: Moving to LA in 2012 to open this office is my career defining moment. The firm allowed me (as a fourth-year) to be the lone day-to-day person on the ground in a new and growing market. That decision ultimately set my career on the trajectory that it’s on today. Allowing a mid-level associate that sort of autonomy isn’t the sort of thing that I see a lot of other firms offering. I think it’s one of the things that really makes Gunderson unique.
"...ever-changing privacy regulations require tech companies to have their engineers work closely with legal counsel."
AP: I can think of one particular instance when I was a junior associate. I was doing a financing and I had done a handful of them before, but there was always someone that was senior to me on these transactions. I was working with an associate who was due to go on maternity leave in a month or so, but she ended up leaving earlier than expected. I was then the only associate on the matter and I had to figure out how to negotiate the document and how to run the transaction to close. That was a bit of a daunting experience, but I think I learned the most because I just had to force myself to figure out some of the more nuanced and complicated parts of the law that I didn’t have to really pay attention to as a junior associate. For me, it was career defining because I felt like I learned the most in the shortest amount of time.
What advice do you have for students considering a career in this area?
MM: Seize the opportunity to get some relevant experience while still in law school, whether through an entrepreneurship or other transactional clinic, by taking a venture law course, or by interning at a start-up company over your 1L summer or during the semester (and on the latter point, don’t limit yourself to applying only to companies that have posted for a legal intern; this industry values initiative and drive, so if there is a start-up you would like to work at, email them and tell them why).
"...this industry values initiative and drive..."
MH: The legal community in this market is very small, so first and foremost, treat everyone you encounter collegially. That doesn’t mean you can’t disagree but you need to do so professionally. This is not a practice area that rewards the bombastic, screaming grandstanders. Second, if you’re in law school, have a demonstrated interest in the area – join the technology or business law journal. Third, know the lingo and players. Read the industry rags. Fourth, live in a city where venture happens. It’s much easier to build a practice in technology and venture capital hubs than it is in other parts of the country.
AP: My advice would be to not be afraid to reach out to associates, partners, or really anyone in this space that does this kind of work. I think the biggest and greatest advice that I got was to continue to hustle and network because that not only helps from a business development perspective, but it also helps in terms of getting a job. For me that was the way that I kind of fell into the space. I reached out to somebody who was an alum of my law school and they took a chance on hiring me so I think that is the best advice that I could give to a law student.