IPO Downturn Forces Lawyers To Change Their Tune
Business Attorneys Begin Handling Solid, Complex Venture Financings
ot more than a year ago, many San Diego law firms found themselves busier than ever with Internet companies looking to go public or raise millions in private funding.
Firms were busy with initial public offerings, venture capital financings, mergers and acquisitions, and intellectual property issues.
Although times have changed, given the softening of the local and national economy and the decrease in IPOs, area high-tech lawyers say their plates are still full, but with a different entr & #233;e.
Today, business attorneys may find that the number of venture financings they handle has significantly decreased, but the ones that are moving forward take longer and are more complex. Mergers and acquisitions may now be motivated by a company’s need to survive; therefore the deals are structured differently than a year ago.
From an intellectual property standpoint, a downturn in the economy has caused companies to utilize their technology more strategically and defensively.
The only thing missing from last year is the rash of IPO filings.
“Last year, I would be here at six in the morning and leave at nine at night because of the volume of transactions we had,” said Faye Russell, partner with the Del Mar office of Brobeck, Phlegar & Harrison LLP.
– Investors Want Solid Foundations
Russell said what the firm has witnessed is start-up companies with solid business plans are getting funded, but those with marginal plans are not.
“We are still seeing a lot of people with great ideas, and a lot of people are getting funded,” she said. “They are just not getting funded at the high valuation that you saw a year ago.”
Brobeck nearly doubled in size locally in recent months, going from 55 attorneys to more than 105. The firm attributed that growth in part to the continuing vitality of San Diego’s technology sector.
Even though there has been a demise of many dot-com companies locally, Russell said the business lawyer’s role is still highly visible with start-up companies.
Instead of being looked to simply structure deals, lawyers are now being utilized as advisers on issues ranging from how much money to raise to which venture capitalists to approach.
“A lot of our clients are startups,” Russell said. “Because they know we have worked with other start-up companies, they look to us for input (on legal issues), and they also like to know if their plan is in the margin of reason.”
Lawyers say now venture capitalists are not as eager to dish out the big bucks. They want to see business plans with realistic potential, and they don’t want to take huge risks.
– Profits Become A Bigger Priority
Mark L. Mandel, a Brobeck partner in the New York office, told the New York Law Journal, “The mantra of a year ago was revenue and the emphasis was on capturing the market share.
“Today, the mantra is profits.”
In San Diego, several Internet companies are dancing to a less-promising tune, and either could not receive funding or ran out of the money they had.
According to San Francisco-based research firm Webmergers.com, California companies accounted for a third of all dot-com shutdowns, with 107 companies calling it quits. To date, at least 327 dot-com companies nationwide have shut down since January of 2000 , half of which closed in the past three months.
Many still contend the dot-com industry is not dead, but merely finding a new way to survive.
Fred Cutler, director of UCSD Connect, the school’s entrepreneurship program, said it’s obvious things have changed, but those changes don’t necessarily spell disaster.
“There’s certainly not the growth of the dot-com (companies) that there was a year ago,” Cutler said. “The amount of dollars they brought in compared to last year has decreased, but there is still a lot of activity in that industry.”
– Diversity Helps City Bounce Back
Cutler said San Diego is doing relatively well compared to other regions because of the diversity of the local economy.
There has been a significant increase in the number of bio-technology and telecommunications companies, and a decrease in the number of pure Internet companies.
Cutler said other industries, like the legal field, have not been negatively affected by the change in the Internet industry because of the different types of transactions surfacing today.
As far as the exact number of companies that have failed in the industry, he said it’s hard to tell.
“That’s very hard to measure whether a particular dot-com goes out of business, because it may merge with another dot-com or be acquired by another company,” Cutler said. “There are less that have actually gone away than you would think.”
