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Everyone wants to know the secrets of a successful venture capitalist. And Mike Powell, general partner at Sofinnova Ventures, has a surprising one that he’s not afraid to share: Get a general counsel. Historically, few venture firms have hired in-house attorneys. But after hearing from veteran VC David Leathers that bringing on a general counsel “changed his life,” Powell mounted a three-year campaign to convince his partners at Sofinnova, which has about $1 billion under management, to get their own lawyer. It culminated last year in the hiring of the fund’s first in-house attorney: Hooman Shahlavi, former counsel at O’Melveny & Myers in Menlo Park, Calif. “He knows exactly what we want in every document,” Powell, a busy dealmaker, said by cell phone between meetings. “It literally saves me one day a week.” It appears that Powell’s secret is getting out. Since 2007, about half a dozen venture funds in the San Francisco Bay Area have hired their first general counsel. Aside from Sofinnova, they include DCM, Venrock and BlueRun Ventures. The latest was Technology Crossover Ventures in Palo Alto, Calif., which hired Ric Fenton, a Simpson Thacher & Bartlett senior associate, in February. Venture fund leaders have often viewed in-house counsel as an unnecessary cost, often without enough legal work to justify it. Plus, it’s money that comes out of the venture partners’ management fees. “Traditionally, in a more partner-oriented setting, whatever’s left over is what you get, so you want to keep the operating costs down,” said Andrew Luter, managing partner of BaseCamp Capital in Denver, which has about $55 million under management. Smaller funds like that find it even more difficult to justify hiring a full-time attorney. “We don’t have enough transaction volume to make it make sense,” Luter said. A few of the larger venture firms, like VantagePoint Venture Partners and Trident Capital, began hiring in-house lawyers at the beginning of the decade. Now, as funds continue to grow in size and geography, in-house lawyers are becoming more popular. All of the funds that The Recorder found had hired GCs since last year have more than $1 billion under management. “As the venture industry has matured, you have seen an increasing trend to expand investment teams — you’ve got more funds and portfolio companies, you just have more stuff to manage,” said Rodi Guidero, chief counsel at Velocity Interactive Group and formerly Vantage Point’s first GC. “The idea with someone like a GC is to let the investment professionals source deals and let those that can execute them go get ‘em done.” A NEW BREED The VC GC is a brand-new role, and it’s being defined by the lawyers who take the job. When Sofinnova was talking with Shahlavi about the job, Shahlavi was asked to put together a memo detailing exactly what he would be doing if he were hired. He described the potential scope of the position, including working on follow-on investments (where VCs normally don’t call on outside lawyers) and exits, like public offerings or acquisitions. Sofinnova, a 30-year-old fund whose investments include Genentech Inc. and InterMune Inc., was apparently impressed with the memo, Shahlavi said. “It came back as an attachment to the offer letter.” Lawyers like Shahlavi work on financing deals and also deal with outside counsel. They even answer questions for the companies funded by their firm. They also spend time doing the garden variety of legal work that comes with any in-house gig, from employment matters to litigation. But on the whole, the role is very different than that of a typical in-house lawyer. There’s much more of an emphasis on deals and making sure the investors are well-represented once a company decides to go public or be acquired. “It’s really being able to be here all the time, so we can proactively address any legal issues that come up,” observed Matt Bonner, a former Gunderson Dettmer Stough Villeneuve Franklin & Hachigian senior associate who joined Menlo Park, Calif.’s DCM last November. DCM co-founder Dixon Doll said that the international flavor of venture funds with investments all over the world also makes “a compelling case to have an in-house counsel” to make sure the firm is complying with the multitude of overseas regulations. DCM, which has $1.6 billion under management, has an office in China. Because it’s such a new role, it’s hard to find in-house lawyers who have experience at a venture fund. The recruiting ground turns out to be law firms, countering the recent trend of companies recruiting experienced in-house lawyers over law firm partners or associates. “I think the role, at least the majority, is a transaction focus,” said Velocity’s Guidero, who joined VantagePoint from a law firm in 2000. “Where do you get that experience? Not in-house, but in a firm.” Nearly every in-house lawyer at a venture fund comes directly from a law firm, most often one that was doing work for the fund. Shahlavi had done work for Sofinnova at O’Melveny. DCM’s Bonner had done work for the fund at Gunderson. INSIDE-OUTSIDE RELATIONS While an in-house lawyer can limit the use of high-priced outside lawyers a little, most say the goal is not to replace outside counsel or even to save a lot of money. In fact, a GC is more of a hit to the firm’s profits than outside counsel, since law firm bills are paid by the company with the money from the fund’s investment, while a GC is paid out of the fund’s profits. As far as salaries go, going in-house to a venture fund is very different than going in-house to a company. Lawyers leaving a firm will often take a pay cut going to a company. But venture funds, several lawyers report, generally pay at the same level as a law firm. At Sofinnova, general partner Powell said he’s pleased about how hiring Shahlavi has worked out. “With the hindsight that I have now, I wish that we’d done this years ago,” he said.

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