The technology bubble may have burst more than 15 years ago, but large law firms are still taking equity stakes in startup companies that they help bring to market.

When Cooley took the lead last month on an initial public offering for Snap Inc. valuing the ephemeral messaging service at $33 billion, documents filed with the U.S. Securities and Exchange Commission showed that the firm owned shares in the company worth $11.7 million.

The Snapchat owner’s IPO marked nearly two decades of Cooley taking stakes in its clients—a practice that proved wildly profitable for the firm and other Silicon Valley stalwarts during the dot-com era. Although firms today are not nearly as aggressive in pursuing stakes in emerging companies, many are still scooping up sizeable portions of stock in certain clients through affiliated investment entities. Snapchat wasn’t Cooley’s only recent client investment.

Earlier this month, New York-based business software startup Yext Inc. announced plans to raise $105 million through an IPO. While Wilson Sonsini Goodrich & Rosati is advising Yext on that proposed listing, which securities filings show will generate some $1.8 million in legal fees and expenses, Cooley is representing underwriters on the future float.

GC&H Investments LLC, an investment entity comprised of Cooley partners and associates, disclosed in securities filings its ownership of 21,684 shares in Yext. At roughly $9 per share, a valuation that Yext is shooting for, Cooley’s slice of the company would be worth almost $200,000. And the firm isn’t alone in seeking equity from startup clients.

Last month Wilson Sonsini advised MuleSoft Inc. on a $221 million IPO that yielded $1.4 million in legal fees and expenses. But securities filings also show that an investment fund affiliated with Wilson Sonsini walked away with 110,584 shares in the San Francisco-based enterprise software company. MuleSoft’s stock price stood at $23.30 late Friday, meaning that Wilson Sonsini’s stake in the company was worth nearly $2.6 million.

In October, Wilson Sonsini represented Quantenna Communications Inc. on a $107 million IPO that generated $1.5 million in legal fees and expenses. Securities filings by the Fremont, California-based WiFi chip manufacturer show that investment partnerships controlled by Wilson Sonsini owned a small stake in Quantenna, which now trades at $19.29 per share.

While Wilson Sonsini and Cooley declined to comment for this story, some Big Law veterans of the dot-com bubble note that law firms have become less aggressive in pursuing stakes in the emerging companies they represent. The reasons that some firms have changed their strategies often has less to do with the aftermath of the tech bubble’s implosion than a tightening of the market for high-end legal services in Silicon Valley.

“The demand was so great that if someone called you, you could say that for me to get engaged, this has to be part of the engagement, and the companies were willing to do that,” said Andrews Kurth Kenyon partner Carmelo Gordian, who led the business and technology group at now-defunct Brobeck, Phleger & Harrison during the height of the tech boom. “I don’t know that the companies now feel that they have to bend over backwards to get a good lawyer.”

Tracing the Trail of Equity

Silicon Valley firms have been investing in their clients since at least 1978, when Wilson Sonsini formed its first fund. The firm took Apple Inc. public more than two years later in an IPO that instantly created 300 millionaires.

Another pioneer in the practice was the Venture Law Group, which typically requested equity as a condition for taking on tech clients. By 1999, Brobeck, Cooley, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian and Perkins Coie had joined VLG and Wilson Sonsini in launching investment arms. Details about how investment funds operate vary from firm to firm.

Wilson Sonsini’s WS Investment Co. opens one or two funds each year in which it requires its partners to contribute. A committee led by Wilson Sonsini name partner Mario Rosati puts forth an investment budget to be approved by the firm’s partnership, according to a 2009 story by The Recorder. Partners receive cash or stake when companies in which Wilson Sonsini invests go public or are purchased by other companies.

Wilson Sonsini’s prominence taking companies public in Silicon Valley during the first tech boom helped it earn the most spectacular returns on its investments. Thanks to prescient moves like taking a $72,000 stake in a small Internet company called Google Inc., which soared in value to $28 million a year after the company went public, Wilson Sonsini was able to dole out an average of $1.3 million in stock to its equity partners in 2000.

Other firms enjoyed equal success. Brobeck’s investments in companies like Broadcom Corp., NetZero Inc. and other tech ventures helped some of its partners add more than $1 million to their annual compensation in 1999 and 2000.

“[Equity] was something that you as a partner in the firm were taught that you should discuss with clients,” recalled Gordian (pictured right), who in 1994 founded Brobeck’s office in Austin, Texas.

Cooley, which had initially pursued a more passive investment strategy, began asking clients for pre-IPO stock as a matter of course in mid-1999. The firm sometimes even rejected clients who would not comply with its request. At the time, dozens of Cooley lawyers had jumped ship for potentially lucrative in-house positions at startups, and the firm needed something it could offer those that remained to keep them from leaving. By the end of 1999, Cooley partners had amassed $45 million in equity, according to a feature story by The American Lawyer.

“One percent is not piggish at all these day,” said Mark Tanoury, then head of Cooley’s business department, when an associate at the firm consulted with him about how to negotiate for a client’s equity. “You can ask for more.” (Tanoury, now listed on securities filings for Cooley’s GC&H, declined to comment for this story.)

But then the tech bubble burst, the stock market tanked and many of the Bay Area’s biggest firms sought to stabilize their operations.

Rounds of layoffs at Brobeck occurred before the firm finally dissolved with $90 million in debt. VLG stumbled and was absorbed in 2003 by Heller Ehrman, which itself would collapse just a few years later. Wilson Sonsini’s investment budget shrank from $25 million in 2000 to $5 million in subsequent years. And in a 2002 profile by Fortune, Cooley’s Tanoury (pictured right) found himself ruing having once turned away paying clients and suggesting that his firm could eventually be absorbed by a larger rival.

Equity After the Bust

Cooley, of course, rebounded from the dot-com disaster.

The firm’s venture capital, tech and life sciences clients helped buoy Cooley’s finances to new highs in 2016. The abrupt rise and fall of the first tech boom also wasn’t the end of law firm investments in client, though it hasn’t reached the same heights since.

Gordian, now leader of Andrews Kurth Kenyon’s Texas venture capital and private equity group, said that although firms no longer have the leverage to demand shares from their clients, startups are unlikely to say no if their lawyers ask for a stake.

“Clients welcome it because they like that their lawyers believe in them,” he said.

Gabor Garai, the Boston-based chair of Foley & Lardner’s private equity and venture capital practice, said building rapport with clients was one reason why his firm launched an investment arm in 2011. Foley Ventures typically invests $50,000 to $100,000 per client and opens a fund every two years. Its most recent fund raised $2.1 million.

Garai said another motive for establishing Foley & Lardner’s venture vehicle was to give the firm’s partners more direct insight into the world of early-stage companies they might represent.

“When I used to talk to litigators about what we do, they really had no clue, because it’s just so remote from what they work on every day,” Garai said. “Now I think all the litigators have a pretty good idea what it means to have a Series A financing or a Series B financing.”

In order to avoid internal conflicts about which companies to support, Foley & Lardner invests in any client that’s willing to take its money. Garai said there are certain exceptions, such as companies “that we don’t consider to be socially correct, like porn or drugs.” (Foley & Lardner advised San Diego-based Innovative Industrial Properties Inc. on a $67 million IPO late last year that generated roughly $900,000 in legal fees for the firm, which did not take a stake in the cannabis-focused real estate investment trust.)

Foley & Lardner also won’t lead funding rounds, and its Foley Ventures will only take a stake in a client if a top-quality investment firm has also agreed to put in money. “Frankly, we don’t think we’re better than venture capitalists at deciding who to invest in,” said Garai (pictured right).

He added that cashing out of a client is also not usually an issue, since the stakes his firm takes tend to be relatively small. Unlike the Silicon Valley firms of the early nineties, Foley Ventures isn’t going to be making its partners’ fortunes anytime soon.

Foley & Lardner has seen several clients in which it took stakes go public—such as Kythera Biopharmaceuticals Inc. in 2012 and NantKwest Inc. in 2016—but overall the firm’s returns have not been huge. (Securities filings show that investment funds affiliated with Latham & Watkins, which advised Kythera on its IPO and $2.1 billion sale in 2015 to Allergan Inc., owned 5,393 shares in the company at the time it went public. Wilson Sonsini also invested in Kythera.)

“For every home run, we have six or seven that aren’t terribly successful,” said Garai, declining to provide specific financial numbers on Foley Ventures’ investments. “We’re ahead, but it’s certainly not a path for partners to retire early or anything.”

Contact Rebecca Cohen at rcohen2@alm.com