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Every Wednesday morning at eight, the business and technology partners in Shaw Pittman’s Tysons Corner, Va., office sit down with a list of potential clients and try to figure out which ones to bet on. Picking tomorrow’s success story in today’s fickle investment climate, says partner Steven Meltzer, is like aiming at a moving target. In the shadow of what looks like an industry shakeout, taking a more discriminating approach to screening dot-com businesses has never been more crucial to the Virginia-area law firms. But even among those firms with the most industry experience, methods for evaluating new clients run the gamut — from near scientific exercises to gut-level reactions. “We talk to the venture capital community about their level of interest in certain sectors and basically try to identify clients that we think will be successful,” says Meltzer, co-chairman of Shaw Pittman’s corporate technology group. For Shaw Pittman as well as other firms courting business along Northern Virginia’s high-tech corridor, the Nasdaq’s recent volatility is a sobering reminder of the risk involved in choosing poorly. Deferring payment and taking equity in clients is one part of building a start-up practice. But when an early-stage company runs out of cash before securing additional financing, it’s unlikely the lawyers will ever collect full fees. So while in most practice areas it is the client who interviews the lawyers, for attorneys specializing in emerging technology companies it works both ways. “It’s going to be like any other shakeout,” says Paul Rogers, a corporate partner at D.C.’s Covington & Burling. “The really successful companies will continue to do well. The people who are representing the best companies are going to be fine.” Of course, there is no fail-proof formula for picking out a future Lycos or Lucent from the flock of hopefuls. GROUP THERAPY At the scientific end of the spectrum is the Reston, Va., office of Palo Alto, Calif.’s Cooley Godward. With nearly 60 lawyers focused exclusively on the high-tech sector, Cooley’s local partners have a lot to lose should the economic tide turn away from the tech sector. Concerns about “quality control” led partner Joseph Conroy to form a committee for evaluating potential business. Committee members — three partners and two associates — must jointly sign off on all new matters. “All along, we’ve had the notion that we really needed to engineer our client base,” Conroy says. “Part of the screening process is actually down on a form.” Among the key points on Cooley’s checklist: whether the company has already secured venture capital funding and whether there will be an opportunity for Cooley to purchase equity in the company. The committee also considers the company’s management team, industry sector, existing business competitors, and long-term viability. “Frankly, we don’t think we’re all that qualified to screen potential clients in terms of their idea. We’re more comfortable using objective and quantitative indicators of success,” Conroy says. Lately, Conroy adds, having a term sheet spelling out a venture capitalist’s interest has become a practical prerequisite to retaining representation. “Our model is not to take huge risks.” Other lawyers are more willing to don a VC hat themselves and review prospective clients on the merits of their ideas. “We’ll take a start-up in when they’re just one or two people, but we do the same due diligence that a VC does.” says Harry Glazer, co-managing partner of Greenberg Traurig’s Tysons Corner office. “We don’t get involved unless we think we can get them funded in a relatively short period.” STOCKING THE PIPELINE In the Washington, D.C. office of San Francisco’s Brobeck, Phleger & Harrison, partner Stephen Riddick guesses that more than two-thirds of the firm’s local start-up clients come to the firm without institutional backing. “Our business model calls for us to align ourselves early on with the companies that we hope will be the webMethods of 2001 or 2003,” Riddick says. “Basically, we look at it as a pipeline, and the pipeline needs to be stocked.” At Brobeck, intake decisions are made by individual partners, not a formal committee. The firm’s practice of deferring billing until client companies secure financing puts an added pressure on partners to make wise choices, Riddick notes. “You have to guess right because there’s a financial risk.” Not all firms pursuing Northern Virginia clients are willing to assume that risk. New York’s Skadden, Arps, Slate, Meagher & Flom, for instance, which opened a small Reston office in February, is sticking with a fee-for-services model, says managing partner Ronald Barusch. For those willing to accommodate cash-poor start-ups, determining where to invest time and resources often comes down not to the nature of the company itself, but to who is pitching it. “If we get a referral from someone like John Burton [former chief executive officer of the Legent Corp.] with a track record for identifying successful companies, there’s a much larger chance we’ll represent that client,” says David Sylvester, head of the corporate group in the D.C. office of Boston’s Hale and Dorr. A-GRADE MANAGEMENT Entrepreneurs with previous industry experience are also viewed as less risky clients. John Sullivan, chairman of the technology group at Baltimore’s Venable, says he considers the experience of a company’s management his No. 1 priority when appraising potential clients. “When I was an early lawyer, I would get very excited about some of the technology I would see. I would take on clients believing their product or software or gadget was going to change the way we do things,” Sullivan says. “Now, a B-grade idea with A-grade management wins every time.” “I would much rather represent a company with management who know what the hell they’re doing,” he adds. Partner Kenneth Hautman, of McLean, Va.’s Hogan & Hartson, agrees. “I’ve never really been out to invent college kids with a good idea,” says Hautman, who heads the firm’s technology group. “If I can find clients who have had successful careers and are now taking that expertise and applying it to the Internet, the likelihood they’ll make it is much greater.” Still, despite the odds, there will always be lawyers that relish getting in on the ground floor with first-time entrepreneurs, regardless of the risk. At Piper Marbury Rudnick & Wolfe’s D.C. office, senior partner Edwin Martin continues to counsel very early stage companies. In recent weeks, Martin has seen two nascent clients unravel, including D.C.’s Transparent Technologies. But he says that won’t stop him from taking on others. His commitment is based on experience. In 1987 Martin recalls devoting more than 100 hours to Douglas Smith, an entrepreneur starting a wireless technology company that stalled after the market plunged. “We probably didn’t get paid,” Martin says. But two years later, Smith reappeared. His company, the Omnipoint Corp., went public in 1996 and became one of the firm’s best clients for years. In February, Omnipoint was acquired by Bellevue, Wash.-based VoiceStream Wireless for $6 billion. “That’s part of the validation for my philosophical approach,” Martin says. “You’ve got to play for the long term.”

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