IT clients provide a risk e-business

Everyone knows of someone who has a third cousin of their sister's brother-in-law who three months ago was a spotty-faced teenager only interested in Lara Croft but who is now worth £5m through involvement in an on-line gizmo brokerage or some such e-commerce project.

In scenes reminiscent of the California gold rush, wagon trains of lawyers are gathering en masse, hastily putting up their tents and immediately offering a glossy and tempting range of services to the e-commerce sector.

Such is the excitement generated by the search for gold that many young and top performing lawyers are resigning from their firms and joining the camps to dig for their stock options rather than adopt the slower and more traditional route to fortune through working up to a partnership.

The ethical problems relating to the debate over equity fees and start-up IT companies are currently, and quite properly, taking up much space in the legal press. However, another crucial issue which has not had quite so much publicity is that if law firms are be paid in their client's shares instead of cash, then they must improve their risk analysis skills.

There are areas where lawyers have developed talents for assessing risk. Practices active in the property field frequently undertake work on speculative developments as they have extensive knowledge of the sector and can weigh up the track record of their client.

With the advent of conditional fees, lawyers active in the personal injury field have learned the skill to weed out the no-hoper from the absolute certainty. Once again lawyers can draw on many decades of experience in litigation. But where is the similar historical background in e-commerce?

In an industry where the rate of progress is so fast that an internet year is only 60 days, who knows whether the ground breaking idea by your new client for an innovative e-commerce product is not about to be launched by IBM or, if there actually is a market for an on-line gizmo brokerage? Client confidence or even a "gut feeling" is surely not enough. In trying to pick out the winners in the e-commerce lottery, the legal profession must rely on advice from professionals whose core business is to identify likely success.

Managing partners and finance directors of law firms should be very wary of contracting gold rush fever and committing too many of their firm's resources to exciting but impecunious IT start-ups.

Work for e-commerce start-ups sounds like one of the more glamorous areas of work for lawyers but unbridled enthusiasm could lead to over-trading with IT and corporate finance departments coming under heavy cash flow pressures if the issues are not confronted by an experienced eye.