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Foley & Lardner has launched a $4 million venture capital fund to invest in its client companies and client funds. Two Boston partners are spearheading the attorney-funded investment vehicle: Gabor Garai, who chairs the firm’s private equity and venture capital practice, and Susan Pravda, the firm’s Boston managing partner and chairwoman of the firm’s emerging technologies industry team. Garai said the fund would target technology, life sciences and other emerging-market companies or venture capital funds. The firm will invest only in companies that have collected funding from a legitimate venture capital fund or an angel investor, i.e., an individual or group that funds early-stage companies, usually in exchange for an equity stake. “[The firm's] fund doesn’t make its own independent investment decisions because we lawyers don’t think we’re any good at that,” Garai said. “We rely on the expertise of professional venture capitalists to make the investment decisions, and then we piggyback on them.” Foley & Lardner views the fund as a moneymaking venture, not a marketing one, Garai said. It also views the fund as a selling point in the lateral hiring market, he said. Partners, of counsel and retired partners were eligible to invest in the fund, Garai said. “There are financial and psychological motivations when firms are looking to compete for talent and lateral partners,” Garai said. Entrepreneurial clients will also appreciate that the firm has skin in the game, he said. “It’s also a way of showing…clients that you’re sort of on the leading edge that goes beyond simply representing them in the technical legal issues that they encounter,” Garai said. There are potential conflicts when a firm represents a company that it also invests in, said Christine Hurt, the co-director of the University of Illinois College of Law’s business law and policy program, who has studied law firm investment funds. If it’s in the company’s best interest to postpone an initial public offering (IPO), for example, the firm’s duty to the client could conflict with its investment interest of maximizing the return on investment by selling shares through an IPO, Hurt said. “That could create a conflict because it might be in my client’s interest to not do an IPO. It might be that your job is to tell them we need to postpone the IPO.” In situations in which Foley & Lardner both invests in and represents a venture capital fund, the interests of both parties “are pretty much aligned,” Hurt said. As a practical matter, Foley & Lardner’s investments are likely to be relatively small, and “most clients who are involved in this [size of a] transaction don’t see that as a practical conflict,” Garai said. Also, the “deal terms are dictated by the lead venture capital or angel group,” he said. If the lead investors press for a decision contrary to the interests of the firm’s client company, “we would argue very strongly against doing it,” Garai said.”We have much longer and deeper interests in representing the company and making a decision that’s in their long-term interests.” Aside from the conflict question, Foley & Lardner’s move could be a sign of a better investment climate, Hurt said. “It is really interesting and perhaps a harbinger of a different economic climate than we’ve seen in a while — or, at least, a different investment climate than we’ve seen in a while,” Hurt said. Other law firms have rolled out investment funds, notably in the dot-com boom in the Silicon Valley. WS Investment Co., launched by the Palo Alto, Calif.-based Wilson Sonsini Goodrich & Rosati’s in 1978, is one of the oldest and most lucrative. Sheri Qualters can be contacted at [email protected].

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