Dotting the i’s

There are many internet companies that will be glad to see the back of the first year of the new millennium.

It has been a tough year for e-business. Companies such as Clickmango folded under a dead weight of losses and pessimism about the future of the web as a business, media and information tool grows unabated.

Most companies that use the internet as a medium will be hoping that 2001 will bring what they see as a well-deserved revival of their fortunes.

Interactive Investor International (iii) is just about keeping its head above the parapet. And while it has not been mortally hit by the sector’s crisis of confidence, it has been slightly grazed, since its turnover dipped to £1.5m in the fourth quarter, ending 30 September 2000, compared with £1.8m in the third quarter. It’s losses have also increased from £3.8m to £4m in consecutive quarters, with overall losses leaping from £3.9m for 1999 to £17.4m in 2000.

On the other hand, the five-year-old online personal financial services provider hit a peak in March this year, with nearly two million users and just over six million hits. So the success of the company would seem to depend on converting its impressive statistics into cold hard cash.

Anil Raval, who heads the company’s in-house legal department, is used to this approach to business, since when he joined iii nine months ago it was from investment banker Morgan Stanley Dean Witter’s legal department (The Lawyer, 13 March).

Raval was thrown into a frenetic situation when he joined the company. Not only was he moving to a company built on the most rapidly-expanding areas of law – financial services and the internet – but iii had just completed its initial public offering (IPO), floating on the London Stock Exchange’s techmark as well as Nasdaq.

Raval is reluctant to name the firm that acted for the company in the UK float, since the practice was subsequently dropped. However, it is known that at the time SJ Berwin provided corporate advice to the company. And Raval says that Shearman & Sterling represented iii on its Nasdaq listing.

While Raval obviously rates Shearmans highly, the company is currently reviewing its US lawyers. Since his arrival, Raval has been putting the legal department’s chosen UK law firms through their paces.

Raval says: “We’re in the process of reviewing our external counsel relationships and have extended the list to include the firms of Bird & Bird and Barlow Lyde & Gilbert.”

Stephenson Harwood and Herbert Smith remain as the department’s primary counsel. Raval says: “We’ve worked very closely with Stephenson Harwood post-IPO, and it’s been instrumental in helping us to cover new developments on the financial services side.”

Raval singles out for praise Stephenson Harwood’s litigation partner Sunil Gadhia and corporate partner Andrew Sutch, along with corporate partner Will Pearce at Herbert Smith, its other preferred firm.

The department decided to expand its choice of firms, particularly in light of its February flotation. Raval says: “Now that we’re a plc, it’s vital that we’re seen to be obtaining value for money in the provision of our legal services.”

The company is also presently using Stephenson Harwood on its wrangle with 3i. “The firm has also proactively guide

d the company in its defence strategy with the 3i group plc,” says Raval.

The case with 3i has been a bit of a fly in the ointment for iii. During the summer, venture capital company 3i made claims that the iii acronym was creating confusion in the marketplace among potential clients (The Lawyer, 21 August). Litigation proceedings are set to come to a head in summer 2001 and Raval has no doubts about the way things are going to pan out. “It’s not an issue for us, we work in completely separate areas of financial services,” he says. “3i is in venture capital while we work in personal finance. The companies’ names, logos, trademarks, user bases and brands are entirely separate and distinct. I see no prospect of 3i succeeding in this action.”

The iii legal team is gearing up for future action. The department itself deals in a wide range of work. A raft of new legislation, including the European Data Protection Act, both within the UK and Europe, is set to take effect in the new year in the areas of financial services and data protection. There will also be a new commerce directive. This, along with the increasing demands of IT and IP work, which includes the responsibility of protecting the company’s brand, logo, trademarks and domain registration, will be keeping the in-house legal department in iii busy well into 2001.

The department is also heavily involved in the company’s large number of strategic alliances. Next year iii will be working on the development of new platforms such as a Wireless Application Protocol (WAP) service with BT’s Genie Internet, as well as developing an interactive television option in connection with Cable & Wireless and NTL.

All of which, in relation to the growing areas of IP and IT, have necessitated increasingly specialised skills, both on the part of the in-house lawyers and the external firms.

Raval is keen to point out that the legal department keeps a substantial amount of work in-house, but he says that the department is also keen to get involved in the actual running of the company. “We’re more than just lawyers in iii,” he says. “Our various businesses see us as integral in helping to develop new strategic alliances. The reality of working here is that we’re more akin to business managers than lawyers.”

The company likes to think of itself as a people business. And no matter how ‘new age’ that may sound, in iii’s case it actually seems to be true. It has been aggressively recruiting from some of the largest investment banks and companies in the UK and Europe. Staff have come from a variety of groups, including Sun Microsystems, Ascent Management, Interleaf, European Telecom and Citibank.

Raval believes that the reputation and expertise of his management team has stopped iii following in the notorious footsteps of defunct internet companies. He says: “The effect we’ve seen on the dotcom market has been a combination of reality with increasing pessimism. When the market reaches equilibrium we’ll continue to see players with executable business models, with high-calibre management and innovation leading the way. There will inevitably be further consolidation in this sector, as with any other, and the strongest players will win.”

But only time will be able to prove this assertion or otherwise. And with the year 2001 just two weeks away, what do the next 12 months hold for the cyberspace group?

First, the legal department will be hoping to finalise its US advisers. But more importantly, the business will continue to diversify, leading inevitably to a varied pot of work.

In 2001 iii will relaunch its subscription service, which will include broker research, financial web newswire AFX News and the real-time streaming of data on London stocks. The company is already working with big names such as Standard Life, Norwich Union and Investec, but is also hoping to broaden its customer base.

There are also plans well under way for a major website redesign and a personalised direct-selling programme.

But the main focus will be turning its users into money-making transactors. Much of iii’s future success depends on its ability to convince the people who visit its site to take the next step and use its service.
Anil Raval
Head of legal and compliance
Interactive Investor International

Organisation Interactive Investor International
Sector Online personal finance
techMARK All Share ranking 186
Market capitalisation £53m
Employees 130
Legal capability Four lawyers and one compliance manager
Head of legal and compliancey Anil Raval
Reporting to Tomás Carruthers, chief executive officer
Main location for lawyers London
Main law firms Barlow Lyde & Gilbert, Bird & Bird, Herbert Smith, Shearman & Sterling and Stephenson Harwood