Post Category → Tech

Legal Office Hours for Remote and Distributed Startups

TL;DR: Though I work with all kinds of startups in various locations, I’ve become particularly interested in, and connected to, the distributed/remote startup ecosystem; and decided to throw in a few hours of my time each week to support new teams growing specifically under that model via free virtual office hours. Info on that is near the end of the post.

Over the past several years, I’ve become fascinating with the idea of a startup ecosystem largely detached from geographic constraints, with companies recruiting talent based on fit and merit, regardless of where they live. For years I lived in the Hill Country outside of Austin, barely ever working from the firm’s downtown office because I just didn’t see a need to; and my clients didn’t care. Highly regarded Startup Lawyers don’t really need to spend much time in coffee shops or conventional offices. All they really need is a solid internet connection. Sidenote: I think Elon Musk’s StarLink (high-speed broadband anywhere) could be a game changer for the gorgeous Colorado mountain towns around where I presently live.

As my family – particularly my wife, who grew up in SoCal – realized that my growing client base didn’t care at all about my physical location, their willingness to continue putting up with Austin’s mosquitoes and deadly snakes (big problem outside of urban core), humidity, horrible traffic, decidedly limited outdoor beauty (save for a lake) and seemingly endless scorching summers (Mid-May through mid-October really sucks) reached a breaking point. Austin is an amazing and thriving city for many reasons, but it is not for anyone who likes needs the outdoors. No city is for everyone.

Because my wife and I had already decided to homeschool our three young kids, we had almost total freedom to pick a destination; and ultimately we landed on living near the mountains about an hour outside of Denver. Amazing weather and mountain views, literally limitless outdoor recreation, and a short flight or road trip to almost anywhere we needed to go. And yes, still rock solid broadband so I can close deals and work with clients just as easily as I did before. Little did we know that with both “homeschooling” and “remote” work, we’d started riding waves that would suddenly turn into a massive tsunami because of a pandemic.

I bring up this background to highlight how escaping the “tyranny of geography,” and the growing comfort with distributed startup teams, is not just an intellectual curiosity to me; it’s a core part of my life. When we’d announced that we were leaving Austin, there was no shortage of people who thought I was absolutely nuts and lighting a match to my legal career. They didn’t know I’d already been living in “the Texas countryside,” with a thriving ECVC client base and firm, for years. If my clients – all scattered across the U.S. and world – didn’t care that I was living on acreage in the Texas hill country, I knew they wouldn’t care about my living in the mountains of Colorado.

As our own adventures with remote/distributed work have continued, I’ve watched the broader ecosystem of “remote” startups mature as well. The number of companies using a distributed team, with few if any people in the Bay Area, has grown exponentially over the past 5 years or so; and we’re also increasingly seeing institutional investors who are happy to “venture” outside of their local markets in search of high-potential businesses that aren’t on the classic Silicon-Valley style VC circuit. Suddenly the distributed startup ecosystem has moved from a fringe quirk to a desirable asset with distinct competitive advantages.

But there’s one distinct disadvantage of “remote” startups that I keep seeing come up over and over again: they don’t connect as easily with serious lawyers. Most ECVC (emerging companies and venture capital) lawyers are still heavily tied down to local geographies, particularly the Bay Area. Strong teams in non-traditional markets often end up either using nearby lawyers who are totally lacking in the appropriate expertise/specialization, or they just wait until their investors happily “recommend” their favorite $1,000/hr Bay Area lawyer whose firm represents Uber and Apple. People who read SHL regularly know that I’ve discussed ad nauseam the deep problems (conflicts of interest) with using your investors’ pet lawyers; and also how the Bay Area market often promotes norms/practices (“unicorn or bust”) that are a poor fit for “normal” startups.

As I’ve been living through this pandemic and watching the growing zeitgeist around distributed startups, it occurred to me that I’m in a place where I could contribute some of my time to supporting the ecosystem. So I’ve decided to allocate a few hours of my time each week to free virtual “office hours” specifically for distributed teams. We can spend, via a phone call or Zoom, up to an hour talking about any legal/strategic issue on the team’s mind: formation, founder relationships, fundraising and structuring, governance, hiring, etc. No expectation of billing or future engagement. I really just want to get more visibility into how this growing ecosystem is evolving, and how existing market players can help it thrive.

My personal thesis is that America’s size and unique geo/climate diversity is an enormously under-utilized asset in tech. Why should entrepreneurs and employees be forced to live in a handful of narrow, crowded, and increasingly over-priced concrete jungles when there are an endless number of beautiful, affordable, perfectly livable places that need high-potential residents but just don’t have the “tech” base to employ people locally? Because of some nonsense about the importance of “body language” and regular in-person meetings? Please. I think this pandemic is not just helping everyone realize the superficiality in some of their assumptions about remote work, but about a lot of virtual interactions: education, healthcare, and even connecting with the investor community.

A secondary thesis of mine is that the more geographically diversified a startup team’s network becomes, the less exposed they are to local startup power politics. Every geographically constrained ecosystem has organizations that have consolidated a level of local influence/control so high that it can feel like you need to kiss a brass ring in order to access resources you need. That dynamic is the opposite of what a real ecosystem should be; a decentralized resource where no single player can play gatekeeper and extract more value than their own value-add really merits. Promoting a more distributed startup ecosystem reduces the influence of overly self-interested power players, and enhances the kind of transparent meritocracy that helps teams access the right people with minimal wasted time.

Startup ecosystems are ultimately about relationships and people; not about artificial city or state borders. It’s time we talked more about the American ecosystem, and freed entrepreneurs and talented employees to work and live wherever is best for their companies and families. In the process, we’ll spread economic opportunity further across the country, and reduce many of the ills that have resulted from cramming people into too few of cities with not enough space and resources to make “living” affordable and accessible.

Summary of my background: Practicing over 10 years exclusively in emerging companies and venture capital law. Honors graduate from Harvard Law with various awards. Over half a billion in transactions covered, including with top VCs like a16z, sequoia, accel as counterparties. Built out one of the top elite ECVC law practices as managing partner.

Info on participating in virtual legal office hours for remote/distributed teams:

My LinkedIn Profile

Shoot me an invite request on LinkedIn (preferable), or send me an e-mail at [email protected].

Criteria (please explain in intro connection how you meet the below):

  • You already have, or expect to have, a distributed team. Not a 1 or 2 people that you “let” work remotely, but a full orientation around enabling remote work such that no one outside of whatever you might call “HQ” is disadvantaged in opportunities, because the whole team is included in events/meetings. It is fine to still have an informal HQ in the Bay Area, or other classic markets like Austin, LA, Seattle, NYC, etc.
  • The market you are going after has a credible shot at producing an at least $50 million (enterprise value) business. Unfortunately my domain expertise is really poorly fitted for mom-and-pop style businesses, or small apps.

This isn’t any kind of formal program with a hardened schedule, because my own availability varies day to day with deal/client work and firm admin, and I’ll scale my time allocation up or down as the number of teams fluctuates. Some of these calls surely will (and have) turn into long-term client relationships, but that is most certainly not an expectation here. I find no-agenda discussions with new founding teams extremely fun.

Luddites v. Tech Utopians: 409A and Legal

Background Reading:

TL;DR: Luddites pretend that technology can’t out-do them at anything. Tech utopians pretend tech can do everything. The truth lies in the middle.

In my sphere of the world, I interact with two profiles of people, both of whom I find somewhat obnoxious.

The first are luddites; often lawyers. These people cannot fathom the idea of clients wanting anything less than hand-crafted, white-glove attention to every legal matter. The compromises on quality and customization brought about by software and automation tools are an offense to their professionalism. They’ll walk you through 10 ways in which they can beat a piece of software, completely oblivious to the fact that 99.9% of the market doesn’t give a damn, if the software’s output is good enough.

The second are the opposite of luddites; what I’d call tech utopians, often young founders or engineers. To these folks, effectively everything legal professionals do is hand-waiving non-sense, charging hundreds of dollars an hour to fill in forms.  Build a simple automation tool, or DIY checklist for them, and their eyes light up; enraptured with how ‘smart’ they are for not ‘wasting’ money on legal services. And I happily admit to a bit of schadenfreude when they end up paying 10x later for cleanup, as part of their education in the value of legal counsel.

Luddites are in self-denial regarding how much of their work can actually be done quite well, and sometimes better, by technology. Tech Utopians are in denial about how much work still requires, and will require for a very very long time, highly-trained, highly-intelligent people who aren’t conflicted, and who can analyze and deliver things that even the most advanced technology cannot. And yes, those people are way more expensive than software.

The bottom 25% of most professions is probably dead in the water relative to software; think TurboTax and LegalZoom. As AI becomes more sophisticated, that will probably move up to something closer to 50%. This is quite visible in law as lower ranked schools (many of which are a racket) are getting sued by debt-saddled graduates who can’t find jobs, and the credentials of lawyers at well-paying firms edge up each year.  To some extent, it’s never been better to be an elite lawyer. It’s never been worse to be any other kind.

Tech-Enabled Lawyers

The truth about almost every profession, at least when you move beyond the lower rungs, is that technology is a supplement, not a replacement, for people. It’s a tool. And a very powerful one for those who can figure out how to leverage it.

E/N’s recruiting process is designed to systematically filter out luddites. That’s because, not only do I simply not have the time or desire to waste hours of my life trying to train them, but technology (automation, machine learning, communication tech, project management, etc. etc.) is so deeply integrated into our workflows that to add anyone who doesn’t ‘get it’ into the mix would cause a total breakdown. Before I look at emotional or analytical intelligence, or communication skills (all of which are important), I want to know what kinds of technology this person already uses in her/his life.

When lawyers from other firms ask how they might operate and scale leanly like E/N, my answer is as swift as it is depressing: “first, you have to fire half of your payroll.” They usually start laughing, until they see the dead serious look on my face. The legal profession is full of luddites, everywhere; even among the younger generation and in firms that service tech clients. And there’s no room for them in tech-enabled law firms. “Get it” or get out.

And yet with all of the technology that we leverage, I tell every single E/N client that we are not cheap, and never will be. Cheaper than our true competitors, certainly. And dramatically more responsive. But talent costs money.

409A: Trim that fat

When I wrote 409A as a Service: Cash Cows Get Slaughtered a few years ago, highlighting how eShares was using their own technology to trim the fat in an industry that (in my opinion) really was in many cases extorting startups, the response from the luddites was predictable. “Here are 10 reasons why you can’t automate a 409A valuation.”

Over the years, eShares as a platform has grown (as I knew they would), and many of our clients have been thrilled to take advantage of their service. Tech-enabled 409A; not fully automated. They recently published a blog post called The art and science behind an eShares 409A breaking down how automation is used in their reports, and how it’s not.

The future of professional services belongs to people who embrace technology and let it do what it does best, without diminishing the areas where human intelligence and creativity are superior, and will continue to be so for a very long time. Not tech-less. Not tech-only. Tech-enabled. 

The Tech Law Ecosystem vs. BigLaw; Except in Silicon Valley

Question: Why is it that, despite being the epicenter of championing innovative business models, dynamic markets, and the disruption of bloated institutions, Silicon Valley remains dominated by a handful of very large, expensive law firms built on century-old delivery models?

The Blunt Answer: Those large firms have dedicated biz dev people whose job is to write checks/cut deals with market players for referrals, and establish referral circles with investors who have heavy influence on the “pipeline.”  Referral pipelines rife with conflicts of interest have enabled BigLaw to entrench itself.

The entrenched firms deliberately seek out VCs (not just companies) as clients, who tacitly understand that, in exchange for the firms’ not pushing too hard on VC deals (when they represent companies), the VCs are supposed to act deeply concerned when they don’t see one of the good ol’ firms at the table; even if the lawyer they’re poo-pooing has impeccable credentials, experience, and even just left one of the very same firms on their ‘preferred list.’ Sound incestuous? It is. See Don’t Use Your Lead Investor’s Lawyers and Why Founders Don’t Trust Startup Lawyers.

It’s well known among the tech law community that no tech ecosystem –not Austin, Seattle, Boston, NYC, etc. – takes law firm “brand obsession” to levels anywhere near those of Silicon Valley, in large part for the above reasons.

History

The full answer is of course a bit more complicated. See: When the A-Lawyers Break Free: BigLaw 2.0.  Before the Cloud and SaaS, big firms truly were necessary to deliver the tier of legal counsel that top tech companies needed, and Silicon Valley’s early growth period occurred largely in that era.  But at some point technology changes things, and the rules of the game shift.  I’ve staked my career on the view that this shift has occurred, and is accelerating.  I left a large, full service firm designed around the traditional “one stop law shop” model for a smaller firm that leverages technology and an ecosystem of top solo lawyers, boutique firms, and other services to replicate “full service” in a much more efficient and flexible way.

A Summary of Why The Ecosystem is Emerging (Outside of Silicon Valley)

  • There have always been second and third tier small firms that (i) picked up clients top firms were not interested in, and (ii) employed lawyers who either never met the criteria of top firms, or dropped out of those firms because they were fine accepting less interesting work and lower compensation for a more easy-going life.  An alternative to going in-house, these lawyers call themselves “outsourced general counsel.”
  • Top, well-funded clients that reached scale (the kind that seek out and are willing to pay for top lawyers) inevitably required a large set of legal specialties: tax, executive comp, IP, tech transactions, trademarks, etc. to handle all of their legal needs.
  • Lacking an affordable, third-party collaboration infrastructure (like today’s Cloud/SaaS tools) to coordinate all of these different lawyers, keeping everyone (dozens of different specialties) under the same roof to share the high fixed overhead costs was historically essential to getting large deals done smoothly and as efficiently (for the time) as possible.
  • Hence, top paying clients gravitated to large firms that could serve them, and as long as those large firms paid the most, top lawyers (in all specialties) were willing to accept the astronomical overhead, convoluted structure, and inefficiency of their large employers.
  • But now, virtually every proprietary resource that large firms once had exclusivity on is available as a SaaS tool or outsourced service, along with very affordable and extremely effective collaboration tools.
  • Therefore, those top lawyers, once locked into large firms, are realizing that as long as they can wrestle away top clients from BigLaw, they no longer have to put up with taking home only a small percentage of their billings.  They can drop their rates significantly, take advantage of their small footprint to optimize for their practice area, and take home at least as much, and often much more, as they did in large firms.  A win-win for lawyer and client – but a loss for “The Beast.”
  • End-Result: A growing ecosystem of significantly smaller, more flexible law firms and solo lawyers that (i) are at the top of their field, well compensated, and have much better quality of life, and (ii) by collaborating with one another, replicate BigLaw’s “full service,” without its soul-sucking bureaucracy.

Austin’s “Cut the BS” Culture: The Ecosystem Grows

In my opinion and based on observations from interacting with players in various ecosystems, Austin’s legal market is at the forefront of this emerging lawyer ecosystem.  Here the quality of attorneys outside of BigLaw – multi-specialty small firms, single-specialty boutiques, and even solos  – is extremely high and increasing, because the client base here isn’t anywhere near as brand-obsessed as in Silicon Valley.  We still have our own cronyism, but our strong “be authentic” cultural bent helps keep it in check.

At E/N, we connect clients on a regular basis with experienced, top-tier corporate, tax, trademark, litigation, executive comp., patent, etc. attorneys outside of BigLaw, all with better credentials than the lawyers BigLaw throws to startups, and at rates often below inexperienced junior lawyers at large firms.  And, as far as I know, none of us took a pay-cut in leaving BigLaw.  I am fully convinced that this ecosystem will continue to gain traction, and we have every intention of pushing that traction outside of the Texas market, including connecting with firms in other markets doing the same.

How BigLaw Will Respond

Of course BigLaw is responding, but it’s important to keep in mind that “BigLaw” is a set of many different players, each with their own perspectives on the old model.  The big winners of the traditional law firm model were (i) the many layers of in-house administration and management needed to coordinate dozens of specialties and hundreds of different kinds of lawyers, and (ii) the power rain-makers sitting atop the pyramid extracting a significant amount of billings from lawyers doing the work, including all the specialists. These constituencies will absolutely do everything they can to protect the old model.

The main marketing message that will emerge from these groups will be one of “integration.”  They will argue that keeping everyone under a single structure provides benefits that make up for the overhead and inertia. In other words, they’ll try to portray themselves as the “Apple” of law.  Expensive and huge, but “worth it.” I love my iPhone 6.

Without getting stuck on this topic because this post is long enough, anyone who thinks about it will be skeptical of an analogy between software-hardware integration and the ‘integration’ of lawyers in dozens of different specialties, especially as technology continues to erode the friction in cross-firm collaboration.  A better analogy would be something like the Mayo Clinic, but of course that would mean that BigLaw must accept that only the absolutely most complex transactions (think billion-dollar, multi-national mergers) truly require its “integration” – and The Ecosystem would be more than happy to unburden BigLaw (which would then not be nearly so big) of the other 99.9% of the market.

While management and top rain-makers will work to protect The Beast, the rest of the BigLaw pyramid will, over time, come to realize that The Ecosystem is more of a liberator than a competitive threat.  Finally, a way to practice your specialty much more effectively, do interesting work, get paid well for your talent, and not have the significant majority sucked up to pay for “stuff” that doesn’t enhance your work.  Much like how technology has created an explosion of interesting, well-paying work outside of large organizations in many “knowledge worker” industries, The Ecosystem is simply an extension of that process to law.

A Message to BigLawyers

Ask yourself: if you’re billing $625/hr at a large firm and have developed strong relationships with clients, what will those clients say if you tell them you can do the exact same work for them, but charge $400/hr instead – the only real change being the signature block on your e-mails? Certainly The Beast, including the deal lawyer who ‘controls’ the relationship, will do everything it can to push the work to another $625/hr attorney in the firm. But what will the Client say?

Viewed this way, BigLaw today can be accurately described as a mechanism by which rain-makers who (lower-case c) “control” client relationships force the “labor” lawyers to stay in one large firm, accepting only a small percentage of the value they produce in exchange for “deal flow.” And by having the talent pool controlled in this way, clients who need top lawyers have to pay the higher rates to feed The Beast and the rainmakers.  The Ecosystem, and the fact that no one really controls clients (who won’t be forced to pay $625/hr when they can find the same lawyer for $400), throws a wrench in this structure.

A Message to Lawyers Building The Ecosystem

  • Collaborate;
  • Optimize;
  • Don’t fall back on generalism, but resist artisanal lawyering;
  • And absolutely do not underestimate ever the importance of branding and marketing.

Start talking to each other and sharing work.  Being solo has many inefficiencies, and for many specialties the “optimal” structure will likely be more focused firms that effectively leverage their institutional knowledge with targeted, efficient tools and processes.

Take advantage of your small footprint to experiment and iterate on process, technology, pricing, etc. that was never possible under a large firm – you are a startup.  Resist the urge to price yourself as a generalist who does boring, cheap work, but also don’t design your firm in a way that is so “high-touch, high-end” that it can’t scale.  If you’ve hit on something that works, scale it and liberate more BigLawyers.

And absolutely never, ever pretend that all it takes to succeed is to simply “be a good lawyer.”  Clients care about brand and prestige, including the deal lawyers who connect you to clients. No one can find you if you don’t know the slightest thing about marketing yourself. Serious companies won’t want to hire you if your website looks like it was built overnight by a middle schooler. Learn.

The Ecosystem will be built by the most entrepreneurial of BigLaw, including those who are confident enough in their personal brand to break free from The Beast. Once a path has been laid, the more timid will follow.

And a Message to the Gatekeepers

So you say that you’re all about disruption and transparent markets, yet you continue to hand out referrals to firms that write you checks and send attractive blondes offering steak dinners.  I’m not mad at you.  I know how the game works.  Upstanding doctors fall prey all the time to Big Pharma’s biz dev tactics, so I totally understand your inability to resist being a hypocritical little sh**.

Thankfully, every ecosystem (Austin included) has enough gatekeepers who believe in true meritocracy.  The Ecosystem is growing and will continue to grow. Companies will find a much more vibrant, dynamic legal market.  Top lawyers will find interesting, well-paying work in non-soul-sucking settings, and the most innovative will be rewarded with scale.  I’m not pretending to be Mother Theresa and absolutely have an economic dog in this fight.  But knowing all the benefits that accrue both to startups and to lawyers (my people) from it, supporting The Ecosystem is absolutely part of my mission.