With e-commerce business booming, law firms are looking for new ways to secure the legal work on start-up companies. Sean Farrell talks to Quentin Solt, who has joined internet networking club First Tuesday.
The days when lawyers worked in dignified isolation from their clients' businesses, checking documents and emerging only to advise on technical points of law, are long gone.
Volatility in the legal market, the increasing demands of in-house counsel, and greater specialisation are just some of the pressures compelling lawyers to understand their clients' business needs as well as they understand the law.
And the pace of the internet revolution imposes even greater demands on firms to be as business-minded as their clients.
Lawyers are dealing with businesses that are still only ideas but have the potential to be floated publicly within months.
And the entrepreneur is often making an instant jump from hatching his brain wave to earning a small fortune without any understanding of the process involved in a share offering.
Berwin Leighton partner Quentin Solt's inclusion on the panel for First Tuesday's London roadshow (The Lawyer, 8 November) is a case in point of the greater involvement required from lawyers looking to cash in on the wonders of the web.
First Tuesday is a networking club for internet entrepreneurs and funders, which meets, naturally enough, on the first Tuesday of every month. It brings together people with ideas for web start-ups and venture capitalists who want to invest in the booming business of e-commerce.
The UK panel has sifted through 500 business plans and matched the best with the most suitable of nearly 300 funders on the First Tuesday network.
Solt's name stands out on the five-strong panel because he is the only lawyer among the panelists, who have impeccable credentials as members of the internet community. They include First Tuesday co-founder John Browning and three others who have built or run internet businesses. Browning was a journalist on The Economist for 12 years and was executive editor of Wired magazine.
Solt will be travelling across Europe as part of the roadshow, either as a member of other panels or to offer advice to those panels.
So what does Solt, a typical City lawyer, bring to the show?
Solt says: “They are looking for someone who can effect introductions for them – it's a network mentality. They are also looking for the grey hair – someone who has done it before and can lead them down the path. A lot of start-up entrepreneurs don't have that experience on board.
“What I filter in is the experience of the businesses that we have looked at. We know what succeeds and can ensure that the business plan stacks up.
“We are also providing commercial advice. I can bore the pants off you with legal technicalities, but they want solutions to problems.”
According to Solt, the internet throws up a host of new legal problems.
He says: “If you are selling goods over the counter in London we know that the trade jurisdiction is the UK. But if you go onto the net and buy coffee from Brazil, do you have to pay VAT?”
Another problem is the question of whether something has been legally bought by simply clicking a button on a website.
Solt says internet entrepreneurs need legal advice at an early stage because of the sheer pace at which they move from an initial idea to flotation.
He says: “They recognise that they need to comply with the law, for example on data protection. They know they need to get money from the market and will be subject to due diligence exercises.”
Solt says that potential funders want to know that intellectual property rights, copyright and contracts are all dealt with before they invest.
“They work at a speed which is unknown outside the industry,” says Solt. “E-commerce works at seven times the speed of normal industry – if an initial public offering takes five years, [an e-commerce business] takes a little under a year.
“We get business plans in and when I phone back a week later and say we have filtered it and like what we see, I am disappointed if they don't say it has moved on since then.”
And then there is the linguistic problem. “Lawyers talk in jargon, but these techies talk in jargon and it's American jargon,” says Solt. “A US client said he wasn't worried about an issue because it was to be tabled. To you and me that means it will be put on the table, whereas in the US it means it will be put to one side.”
As if to prove the point Solt and Browning – who has arrived for a meeting with Solt at Berwin Leighton's office – embark on a virtually impenetrable discussion about branding on the internet using phrases like “point of sale leverage”, “zeespot” and “crossplatform”.
Browning says lawyers must adapt in three key ways to keep up with the online explosion.
These include: “Understanding business imperatives as opposed to understanding the law. Speed, which is the business imperative for any internet business. And to be able to navigate uncharted laws.”
On the third point, Browning explains that there is a tendency for lawyers to be over cautious and “not to go the final step”. He says the caution of libel lawyers is the antithesis of the approach needed to deal with e-commerce businesses.
“Libelising a piece is a painful process because lawyers are doing their job and saying 'That could get you into trouble',” he says.
“But if you take a fraction of that approach to an internet business you will kill the business. It means [lawyers] “working very quickly with people who haven't a clue how to ask the right questions.”
How different firms work with e-commerce clients
Simmons & Simmons and Field Fisher Waterhouse both offer legal services for entrepreneurs at one-stop online shop MatchCo.
Field Fisher has also launched Incubator – its own all-in-one web service for setting up an e-commerce business.
Michael Chissick, head of IT and online at the firm, says: “We are working with slightly different clients here. They are faster and much younger.
“We are finding a lot of these clients need a bit of extra hand-holding.”
Howard Kennedy claimed in October that it was the first law firm to start an investment fund for internet companies, targeting high net worth individuals.
Corporate finance partner Keith Lassman says: “Any one of the companies in the portfolio could take off and make it big.”
Most internet innovations by law firms started life in the US, and the most high profile is the practice of taking share options in place of fees.
Field Fisher has taken shares in its client drparsley.com. Taylor Joynson Garrett and Cameron McKenna are considering doing the same with their clients.
But Simmons commercial partner Tom Wheadon says: “[Taking major equity stakes] may well happen but we would rather create companies that can pay proper fees.”
Partners can follow the trend started in Silicon Valley and make the ultimate investment by going in-house with a client.
Partners in Californian firms are moving rapidly as they leave for the promise of share options and a possible instant fortune. Hammond Suddards corporate finance partner Richard James is joining the Sports Internet Group and Stephens Innocent corporate partner Robin Fry left for a web start-up company in September.