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San Francisco-The Silicon Valley corporate boutique Venture Law Group (VLG) has announced that it will merge with San Francisco’s Heller Ehrman White & McAuliffe. Partners at both firms are expected to vote to make the merger final by Sept. 9. If that occurs as planned, it will take effect on Oct. 1. The decision, which has been expected for weeks, would create a firm with 720 lawyers and professionals and 12 offices in the United States and abroad. The new firm will use the Heller Ehrman name. However, it will use the Venture Law Group name and mark for its global emerging growth company practice. The merger ends the solo run of one of the touchstones of Silicon Valley law. VLG was founded in 1993 specifically to take equity in startup technology clients and share in their stock market successes. But as the technology market morphed from boom to bust, VLG saw a sharp decline in its bread-and-butter work-incorporating startups, helping companies do deals and representing them in venture capital financings. Nonetheless, VLG partner Mark Medearis, speaking on behalf of his firm, portrayed the decision to pull the plug less as a Darwinian result of a tough economy and more as a logical phase in the evolution of the VLG model. “Our goal has been to be on the cutting edge of providing superior client service,” Medearis said. The deal with Heller gives VLG “an increasingly enhanced platform for providing higher levels of client service.” For his part, Barry Levin, the chairman of Heller Ehrman, said the merger would give Heller access to a team of experienced corporate lawyers to help the firm expand its reach among technology companies. The 660-lawyer Heller Ehrman, powered in large part by its 358-attorney litigation team, has thrived as tech players like VLG have been roasted by the economic downturn. Heller has increased revenue by 35 percent since 2000, grossing $354 million in 2002. Peter Zeughauser, a principal of law firm consultant Zeughauser Group, said a merger with VLG is seen as a shrewd move on Heller Ehrman’s part to swell its corporate group with a block of solid, technology-savvy talent. “Heller has been trying for a long time to build its corporate practice,” Zeughauser said. “VLG is a nice way to pick up venture capital work.” As for the VLG partners, Zeughauser said the merger signals the flaws of a business model that emphasized just one aspect of corporate law and shows just how slow emerging growth company practices have become in Silicon Valley. VLG was one of two corporate boutiques in Silicon Valley founded in the last decade to cater to startups and venture capitalists. The disappearance of one has raised speculation about the fate of the other firm-Gunderson Dettmer Stough Villeneuve Franklin & Hachigian of Menlo Park, Calif. Robert Gunderson Jr., who co-founded his firm in 1995 to cater to technology companies, said his firm is very different from VLG. He said his firm has focused primarily on giving legal advice instead of also trying to be a business adviser. “We’ve thought of ourselves as a law firm focused on emerging growth companies,” Gunderson said. “They [VLG] were trying to be a lot of different things in addition to being a law firm.” Rainmaker founded firm VLG was founded 10 years ago by Craig Johnson, at the time the second-biggest rainmaker at Wilson Sonsini Goodrich & Rosati of Palo Alto, Calif. Within months, more than a dozen Wilson lawyers had followed him. Though forming a new firm is risky, Johnson had made his name as go-to lawyer for Silicon Valley venture capitalists. At Wilson, only Larry Sonsini-the firm’s chairman and a name partner-billed more. Johnson envisioned a lawyer-counselor role for VLG in which the partners had a hands-on relationship with just a few key clients and therefore acted almost like a member of a company’s management team. In exchange for the hand holding, VLG got in on the ground floor of the startups, taking common stock for virtually pennies that would turn into millions if the companies were acquired or went public. And as Silicon Valley experienced explosive growth in the 1990s, the formula appeared to be working beautifully. By the end of its first year, VLG had 14 lawyers and grossed $3 million, according to figures VLG provided for a Harvard Business School case study on the firm. By 2000, the firm had reached its peak, grossing $64 million and employing 110 lawyers. The take was so high that the small firm just missed landing among the 200 highest-grossing U.S. law firms for that year. In addition to the fee income, investment returns were said to generate millions more for partners during the boom. Some of the firm’s credits include representing familiar tech names like Yahoo! Inc., WebTV Networks Inc. and Cerent Corp. After having to resort to salary cuts, demotions, layoffs and a capital call among partners, the firm today stands at 57 lawyers. VLG partners refuse to divulge current financial data, but lawyers with comparable practices in the Valley estimate the firm’s business must be half what it was at its peak.

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