Back from the Brink
After surviving its own nuclear winter, prosperity has returned to Silicon Valley.
Initial public offerings, and mergers and acquisitions are up, and firms are rehiring some of the same corporate associates they laid off three years ago. But that doesn’t mean a return to life as it once was. Though its infrastructure is intact, the Valley couldn’t be more different.
For one, many lawyers don’t have the same jobs they once had. Many left big firms, blasted off into the wild blue yonder of high tech, then landed elsewhere when the engines ran out. Some came home. Others are still looking for answers.
Take Mark Stevens, for example. The 45-year-old lawyer left a manic $10 million-a-year corporate practice at Palo Alto’s Fenwick & West in 1999 for the lure of a top job at Excite@Home, then a hot search engine and cable Internet service provider.
The company ended up being one of the first big Internet ventures to tank, and Stevens rode it to the bottom. After conducting six rounds of layoffs in his own department, he left in 2001, three months before the company went bankrupt. “The turning point for me was when I could no longer tell a story that I believed in,” Stevens says.
After trying his hand at venture capital and handling some deals part time for an old client, he rejoined Fenwick last year, but not before interviewing with some of the dozen or more national firms that had moved into the Valley in the meantime.
“My client base had been completely obliterated,” he says of his time away from law firm life. But, he adds, “We have the arrogance to think we could be successful again.”
On the other hand, Steven Wu is still out there. He left VeriSign in October 2001 after numerous restructurings to go out on his own. Feeling that diversification was the key to survival in the quickly changing Valley business world, he formed one consulting firm, two law firms and had, like nearly everyone else, a startup on the side. Wu says his young enterprises are not yet out of the woods, and he continues to struggle to keep each afloat.
“I don’t have the magic secret. I think it’s going to be a five-year exercise, especially in this economic environment,” Wu says.
For other lawyers the current sense is a mixture of optimism and relief that they survived.
“There was a palpable fear the world had changed forever,” says Hank Barry, a partner at Hummer Windblad. Before joining the San Francisco venture capital firm, he was a corporate partner at Wilson Sonsini Goodrich & Rosati. In between, he did a stint as the designated adult at Napster, serving as its CEO from 2000 to 2001.
Barry does sense one change. “People are a lot more collegial now, more willing to work together as teams, both within their firms and with colleagues” in other professions, he says. “We are a lot more humble, because we have a lot more to be humble about.”
For one, marquee names emblematic of the tech boom are gone, victims of defecting partners and expensive leases. Among them are Brobeck, Phleger & Harrison, with a reported $500 million in revenues at its zenith, and mid-sized boutiques like Skjerven Morrill.
The shakeout also saw large firms seeking acquisitions and smaller firms searching for stable corporate parents. Cooley Godward laid off some 86 associates and 50 staffers in August 2001 and unsuccessfully sought a merger partner, yet emerged intact. On the other hand, Venture Law Group, one of the highest flying of the new firms, merged in September 2003 with Heller Ehrman White & McAuliffe.
And some top firms stayed there. Wilson Sonsini was tapped by Google to represent it in its IPO this summer. But unlike days past, the deal is a straight fee-for-service, says marketing director Courtney Dornan. However, Wilson will cash in, thanks to 1999 and 2000 venture capital investments in Google by WS Investments, the firm’s affiliated investment arm, says Dornan.
Other West Coast-based firms that did not throw themselves into the tech market used the bust to bolster practices, either by cherry picking or subsuming entire groups.
In June, for example, Orrick Herrington & Sutcliffe took most of Clifford Chance’s securities litigation group. The British firm had tried to leverage the tech momentum to establish California offices and took in a large group of Brobeck defectors. But nearly all have left, and the firm has since closed its San Francisco, Los Angeles and San Diego offices, though it still has a small Palo Alto outpost.
In the meantime, national and international firms gained beachheads, either by merging with local firms or starting their own offices. Key clients switched firms. Skadden, Arps, Slate, Meagher & Flom; Simpson & Thacher; and Davis Polk & Wardwell—East Coast financial powerhouses—are showing up on public offerings and acquisitions that a few years ago would have been handled by the local firms that incorporated them or first took them public.
Despite the influx of outsiders, locals are liking their chances. “Personally, I am very optimistic,” says Fenwick & West chairman Gordon Davidson. Revenues and billable hours are at 1998 levels, Davidson says, and the firm has been able to rehire some of the 32 associates it laid off in September 2001. The most telling statistic: Fenwick has worked on more IPOs in the first six months of this year than it did in 2002 and 2003 combined, he says.
In early 2003, Fenwick picked up some plum assignments when Brobeck failed with Cisco Systems’ corporate and securities work.
Among the changes lawyers find is that their lives are a little slower, and they have time to see their families and take vacations. Such indulgences were verboten during the bubble.
“During the boom, the world moved in Internet time, and it put tremendous pressure on lawyers,” says Ian Ballon, co-chair of Manatt, Phelps & Phillips’ IP and Internet Practice Group.
Ballon, who chairs the ABA Science and Technology Section’s Computer Law Division, still recalls the anxiety-provoking “negative check-off box” of boom time lawyering: voicemails from clients suggesting a plan of action and concluding, “If I don’t hear from you in the next 15 minutes, I’ll assume it’s OK.”
HOURLY BILLING, JOB SECURITY LOOK GOOD
Gone are the days when firms demanded a portion of clients’ stock to represent them in a deal or an offering, or rejected existing clients outright that didn’t seem destined for great profits. “Billing by the hour looks pretty good these days,” says Ballon.
Gone, too, are the days when only chumps stayed at their law firms, rather than chasing prestigious in-house positions or trying their hand at venture capital.
Ballon remembers a call he got from a headhunter who was pushing a general counsel position.
“He said this would be an opportunity to pick up six figures [in stock options]. I would be 10 years older than the oldest employee and would be the only one who did not have multiple tattoos. I turned it down, but I remember hoping that I hadn’t done a stupid thing.”
He hadn’t. Less than a year later, the company went belly-up. “I felt vindicated,” he says.
While many say the bubble’s proportions were a once-in-a-lifetime experience, Valley veterans know the run-up won’t be the area’s last. The Valley is a center for nanotechnology, engineering in the minute scale of nanometers, a millionth of a millimeter, which could easily provide another wealth explosion, much as the Internet did. And many Valley firms also do biotech work, which some observers predict will be the dominant industry of the 21st century.
Ray Ocampo, former Oracle general counsel, recently joined a handful of boards of technology companies in anticipation of the improving economy. He says the next wave could be bigger and more sustained than the late ’90s bubble.
As companies grow and merge, there will be increasing IP litigation and antitrust issues. Convergence—the joining of two separate technologies, such as Internet phone service—is here. “I think quite possibly the next cycle will be a bigger boom, just a different form. There won’t be 1,000 different little companies, or companies like Pets.com.”
Despite the rebound, Ocampo keeps a measure of fatalism. “I suppose it could have been worse,” he says. “Everyone could have failed.”