City interest fades for equity in lieu of fees

Enthusiasm for taking equity in lieu of fees is on the wane following the downturn in the new economy symbolised by the collapse of

Where firms at one point viewed the policy as a good selling point to attract the then fashionable dotcom companies, firms are now realising that it pays to be more cautious.

Tarlo Lyons managing partner Nigel McEwen has revealed that the firm now rarely takes on any party that approaches him offering that method of payment, preferring to pick and choose who he offers it to.

McEwen says: “If someone comes to us and says ‘we want you to take equity instead of fees’, then we may not take the client. It’s a question to see whether what they are offering is a viable business proposition for us.”

Linklaters is also now more cautious. “It is becoming harder and harder for start-ups to get funding,” says Chris Kelly, co-head of internet and e-commerce. “The IPO market is not what it was. You have really got to have a unique proposition as a start-up to get anywhere.”

But Kelly adds that one of the benefits of the dotcom bubble burst is that the quality of prospective clients is now better.

But the rising feeling among law firms is that if dotcoms do not have the cash to pay for legal fees then they do not have a viable business foundation.

CMS Cameron McKenna, a firm that once saw its decision to offer equity in lieu of fees as a strong selling point, is now a lot more cautious of anybody who chooses to pay this way.

A spokesperson says: “The events of recent months have underlined the point that you do need to choose those companies from which you are taking equity with great care. But I think it’s a matter of good judgement rather than good luck that we haven’t felt ourselves exposed.”

Shearman & Sterling recently revealed that it is considering offering the option on a global scale. Up until now, the policy has only ever been adopted in the UK by firms such as Rowe & Maw, Field Fisher Waterhouse and Taylor Joynson Garrett.

A Shearman & Sterling spokesperson says: “This is the influence of the market in general. There are a lot of clients asking us if this is possible, so we are asking the question ‘can we do this or not?'”

The firm, which has set up a committee to examine the proposition, is concerned with the difficulties and risks involved with going global with the decision.

The spokesperson says: “We wanted to spearhead this development. And so we set up the committee to ask ‘what are the rules in France, the UK, the US’ and so on?”