The Great Dotcom Float Race
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2 October 2014
Oxford and Cambridge have long been centres of academic excellence, but now the intellectual capital passing through these hallowed universities is driving a regional dotcom boom from which law firms can only benefit. Matt Barnard reports.
Attracted by the abundant intellectual capital, Cambridge has long been the centre of that part of East Anglia dubbed Silicon Fen. But, for the past year, both Cambridge and its rival Oxford have been experiencing a dotcom boom that is proving rich pickings for the local lawyers.
Isabel Napper, an IT/e-commerce partner at Cambridge-based Mills & Reeve, is typical when she describes the increase in dotcom work as "phenomenal" - from start-ups to the ultimate goal of initial public offerings.
Internet entrepreneurs need a healthy mix of bright ideas, ambition, arrogance and charm. The two university cities are magnets for exactly that kind of person and they are creating work by the bucket-load. "They tend to be very driven," says Christine Reed, head of the IT/e-commerce group in Manches' Oxford office, in a tone which implies that what she actually means is that they are driving her round the bend.
Home to the kind of heritage that makes American tourists slack-jawed, Oxford and Cambridge are popular destinations for lawyers who want to escape from the pressure-cooker of London.
Part and parcel of the snob value is the sense of tradition the university towns inspire, which the legal profession can more than equal. In contrast, Silicon Valley is populated by people intent on breaking traditions, and the law firms that have prospered there have found new ways of working to match the new generation of entrepreneur.
UK lawyers also face the challenge of matching the change that is going on in the business world they are trying to service. David Woods, head of Eversheds' east of England IT and e-commerce group, which includes Cambridge, thinks that they are doing just that.
"One of the good things is that those of us in the Cambridge office who are dealing with these sort of people rarely wear suits nowadays. They [internet entrepreneurs] may drive up in their Ferraris, but they've got their jeans on," he says.
Woods puts it all down to the Eversheds culture. "Get your sleeves rolled up and get out there with the clients - don't be fuddy-duddies" he says, conjuring up images of a middle-aged teacher in corduroy trying to tell his pupils that he is up with all the latest popular beat combos.
Yet the lawyers in Oxford and particularly Cambridge have been pretty successful so far in keeping the work within city boundaries. Leading e-commerce and internet lawyers in London say that they do not get much work from either city.
Some observers say that because London is still the natural home of the e-commerce entrepreneur, few London-based firms have had to look further afield to benefit from the dotcom revolution.
Michael Chissick, a partner in the IT department at London-based Field Fisher Waterhouse, says: "In my mind London is very much the centre for the internet and e-commerce in terms of design skills, fund raising, advertising and the media."
Others, such as Michael Harts, a partner at the London office of Baker & McKenzie, says London firms have failed to enter the regions because they have been too distracted by their own workload to concentrate on other centres.
"They [Oxford and Cambridge] are definitely places in which our industry is developing and we probably should be doing more in that area, but the thing is we are so busy dealing with the client base that we've got," says Harts.
Despite the much vaunted power of the internet, e-businesses still cluster round areas of expertise and talent, and both Oxford and Cambridge have the quality, if not the quantity, to match London. The local firms are confident that they can service the demand, but any boom will attract interest and some industry observers are wondering whether the arrival of US firm Brobeck Hale and Dorr in Oxford is a harbinger of change.
Brobeck Hale is a joint venture between two US law firms which specialise in technology. It arrived in Europe in 1990, setting up offices in London and Prague. Its strategy was to open offices in centres of technology or potential centres of technology. In 1994, it decided that Prague was not going to be a centre of technology, but it found its London office thriving, particularly in the past few years. The firm was closely involved in the flotation of both QXL and Freeserve, two of the biggest internet players.
The Oxford office of Brobeck Hale will open with three corporate partners, Joe Pillman, Jonathan Loake and Kate Eavis, all of whom come from local Oxford firm Morgan Cole and have been working with Brobeck Hale for a number of years. The office will be up and running once Pillman, Loake and Eavis have worked their notices. Chris Grew, a partner in Brobeck Hale's London office, says that it was not only the dotcom boom but the whole technology strength of the Thames Valley region which attracted it to Oxford.
Brobeck Hale's parent firms in the US - Brobeck Phleger & Harrison and Hale and Dorr - were at the heart of the technology boom, with large offices in Silicon Valley and Boston respectively. Unlike England, where London is overwhelmingly the legal centre of the country, the US is more industry-focused in terms of its legal centres and this is one reason why Brobeck Hale brings a more aggressive attitude to the way it does business.
In the high-tech industry and particularly the dotcoms, with the right idea a small company can become very big very quickly. Brobeck Hale specialises in what it calls "life-cycle financing".
This means dealing with everything in the financial life of a company, including taking on the entrepreneur who walks through the door with a bright idea, finding venture capital funding, dealing with the investment bank work as a firm grows, helping it float on the Stock Exchange and then helping it expand and buy other companies.
Grew sees his firm's role as much more than legal advisers. "It's no secret we've tried to stay under the radar screen of the legal community because we're not a lawyer's firm," Grew says. "We provide more than just legal advice, we also help to steer our clients. Not just for the dotcoms, but for everybody in the technology industry, it's their own flesh and blood and they want their legal advisers to be very proactive and to be able to help and not hinder them."
For many internet and technology start-ups, initial funding is a serious problem, and while UK firms are still struggling with the question of equity for fees, US firms have gone beyond that. Grew says that his firm has a number of ways of structuring a deal so that fees can be deferred, and that often the firm will make investments in the company it is dealing with, not as a trade for fees but within the normal round of investment. This means that it is in the position of having to discriminate between which clients it thinks are a good bet and which aren't.
This role is one which UK firms are just beginning to come to terms with. "The problem for law firms is that they are often not equipped to make the investment decision as to whether a particular dotcom is going to be a good bet," says Ben Goodger, head of IT and e-commerce at Willoughby & Partners' Oxford office. "I think the only way is to set aside, say, £25,000 a quarter to waste on crazy dotcom ideas on the basis that two out of 10 will do so well it'll cover the rest."
One of the problems with this strategy has been that until recently, dotcom shares have been rated so high that some potential clients have been pricing themselves out of the market.
Goodger says: "Someone offered me £10,000 for one share, and I was proposing that my firm take a share at £1,000. I said that is a totally unrealistic valuation for something that has not even happened yet, but he wasn't interested. He probably would be now as the whole market is being more realistic."
For now, the firms in both Oxford and Cambridge are doing well out of the internet revolution, but it is only the start of a new industry with a new way of working. As people learn how the big money is to be made, the market will need law firms which are prepared to take risks.