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These days, big firms in Silicon Valley don’t need no stinkin’ rainmakers. The last thing they want to see is somebody with a big book of business because they already have way too much work. In fact, they have so much to do they’re even turning away a lot of new business brought to them by clients. This enviable problem of having too much on one’s plate is proving good news for small IP shops in the San Francisco area. Snapping up what falls off those heaping platters, they are enjoying a boom in billable hours. Call it the Crumbs Phenomenon. David R. Lee, managing partner of nine-lawyer White and Lee in Menlo Park, Calif., says his small firm is so booked up with valley companies that “we could easily add five more lawyers tomorrow — if we can find them — and we could keep them all busy. He says that he “can’t understand why there aren’t more firms like us out here.” The cherished Silicon Valley success myth is the story of the guy-in-the-garage inventor and his old college buddy, the ex-Stanford undergraduate-turned-lawyer. In the classic version, some computer scientist or software engineer would meander in off the street, hook up with one of the partners or associates at Palo Alto, Calif.’s 675-lawyer Wilson Sonsini Goodrich & Rosati and start a little technology business that grew and grew. The client list on Wilson’s Web site is a veritable Who’s Who of the technology revolution, including such giants as Sun Microsystems Inc., Applied Materials Inc., Hewlett-Packard Co., Silicon Graphics Inc., Sybase Inc., Inktomi Corp., Healtheon Corp., Webvan Group Inc., Pixar, Cell Genesys Inc., 3Com Corp. and Xilinx Inc. Additionally, Wilson represents many investment banking houses and the venture finance groups that provide the money muscle behind the high-tech deals. TRICKLE-DOWN WORKS But these days, despite a furious recruiting pace at big IP firms, the guys in the garage are having to look elsewhere for legal help with the basics of getting started as a small business and doing what’s necessary to ramp up to a startup’s Holy Grail, an initial public offering. As a result, smaller firms are growing rich and fat from the morsels — and more — that are dropping from the Big Guys’ tables. “They’re not crumbs; they’re chunks of meat, whole sides of beef,” says Robert Major, of the San Francisco-based legal search firm Major Hagen & Africa. “A lot of firms are picking up clients they would otherwise not have gotten.” In a few cases, that includes existing big-firm clients with new work that big firms don’t have the troops to handle. Wilson isn’t the only firm that is handing off clients. All of Silicon Valley’s “seven sisters” — Wilson; Palo Alto’s Fenwick & West; Cooley Godward; San Francisco’s Brobeck, Phleger & Harrison; Venture Law Group; Gray Cary Ware & Freidenrich; and Menlo Park’s Gunderson Dettmer Stough Villeneuve Franklin & Hachigan — are turning away business these days. Venture Law Group (VLG) and the Gunderson firm were founded by big-firm refugees who wanted to stay small and nimble, the better to work with those mythic garage-invented start-ups. “That was the whole VLG mantra,” says Major. But both firms are now in the 100-lawyer range. Gunderson has offices in Austin, Texas, and Waltham, Mass. VLG has opened a branch in Kirkland, Wash., not far from Microsoft Corp.’s headquarters. Wilson name partner Mario Rosati, who runs his firm’s multimillion-dollar investment partnership, says that he personally turns away at least three out of every four potential clients. For others, the percentage is even higher. “I get a lot of calls from entrepreneurs, but I can only take on so much,” he says. “I try to qualify what I take on, and it’s based on my quick estimate of potential clients’ chances for success.” Law firm recruiter Richard Matthews, of San Francisco’s Richard Matthews & Associates, says that many of those inventor-entrepreneurs will never find anyone who is willing to take them on as clients. “It’s very tough out there,” he says. “A lot of good ideas are going down the drain.” Meanwhile, clients lucky enough to have big firms to do their bidding may find that the quality of work they do in the present, overly busy environment is uneven, complains Joseph M. Barbeau, a corporate partner in the Palo Alto office of San Francisco’s Morrison & Foerster. “There is a shocking absence of adult supervision at a lot of firms in Silicon Valley,” he says. “That is a function of triage,” says Barbeau. “And there are companies that are quite frustrated by inattentiveness and unresponsiveness of their law firm. But they are afraid to fire their lawyers because they’re afraid they can’t find anybody else to do the work faster.” All this turmoil delights small IP firm lawyers such as Lee. “We get referrals every day from Wilson, Cooley, VLG and Gunderson,” he says. White & Lee represents between 375 and 400 clients, focusing on early- and middle-stage companies. Many White & Lee lawyers have MBAs or undergraduate business degrees, or acquired actual business experience before they became lawyers, so “we know how to help clients flesh out their business plans,” he says. THE TIPPING POINT But once start-up companies reach a certain size — typically at the point of the IPO or acquisition by a larger company — White & Lee hands them off or back to a big firm. “We don’t have the capacity or the bandwidth to take three or four lawyers and put them on one transaction for three or four months,” says Lee. Handing off is not as painful because, just like big IP firms, White & Lee keeps a stake in such clients. “We believe equity is what motivates young partners,” says Lee. As for straight revenues, the firm bills $185 an hour for young associates and $335 an hour for partners, and discounts fees 25 percent up to the first $10,000. Over at Palo Alto’s 20-lawyer Ritchey, Fisher, Whitman & Klein, David A. Kays, a member of the firm’s executive committee, stresses that “what we are getting is not the crap work; it’s not the scut work.” Ritchey Fisher, he says, is getting “the really good clients that a few years ago were going to Wilson, the Venture Law Group and Gunderson.” He adds, “We’re getting people coming in the door, saying, ‘Oh God, can you help us?’ “A few years ago, we all worried about business development and marketing,” he says of his 35-year-old firm. “Now we have more work than we can handle. At the beginning of the year, we even had to turn down Intel Corp. We were just too busy.” The “exit point” for Ritchey Fisher clients is similar to White & Lee’s: IPOs or acquisition by larger companies. “We’ve never done an IPO here. An IPO is the point at which you need tons of bodies.” Other small California firms picking up what used to be Seven Sisters clients include 24-lawyer General Counsel Associates, of Mountain View, Calif.; Oakland, Calif.’s 14-lawyer Bay Venture Counsel; and Palo Alto’s 20-lawyer Tomlinson, Zisko, Morosoli & Maser. San Francisco’s 10-lawyer, Internet-savvy Britton Silberman & Cervantez fell into this category, but in June it was acquired by Thelen Reid & Priest. FORGET RAINMAKERS With referrals and walk-ins what they are, firm marketing efforts need only be minimal, say lawyers at the successful smaller firms. And forget about wooing a rainmaker. These days, Lee says, rainmakers are a problem. “We need people who can do the work,” he says. “If we were to go out and find a lateral partner, we would almost certainly want someone with no book of business.” Lee says that the demand for technology-lawyer services is so great that dropping 100 more qualified lawyers into the valley tomorrow “would barely make a dent. My understanding is that there are headhunters hunting for people in other markets beyond Silicon Valley,” he says. At MoFo, Palo Alto veteran partner Barbeau takes a more sanguine view; he keeps reminding himself of the cyclical nature of law practice. Since the first of the year, his firm has turned away 85 percent of all potential new clients. “I keep telling ‘the children’ this is not what real life is like,” says Barbeau. “But they don’t believe it yet because it’s the only one they’ve seen. They don’t know how much the clients will enjoy it when we return to the days of five firms bidding for one piece of business.” Big East Coast firms, such as Washington, D.C.’s Covington & Burling and New York’s Simpson Thacher & Bartlett and Davis Polk & Wardwell, are moving in to pick up some of the work overflow. “They may have been a little bit uneasy about establishing Bay Area offices, but because of the Silicon Valley phenomenon, their entry has been much easier,” says Major. Latham & Watkins got a major leg up with the recent hiring of longtime Cooley transactional partner Alan C. Mendelson. Finding the lawyers to do such work, however, remains difficult. “Every firm in the world down there is dying for lawyers,” says Matthews, the headhunter. “The big question is how much load can people carry. These people are working 3,000 hours.” Major’s search firm has many Silicon Valley openings listed on its Web site, but that hasn’t been enough to attract the needed talent. “It’s very frustrating because our clients are yelling at us for attention, and we don’t have the people to give them,” he says. The past few months have offered big firms a little breather because of the stock market’s downward impact on IPO and similar work. Jorge A. Del Calvo, who heads the business group in the Palo Alto office of Pillsbury Madison & Sutro, is encouraging his lawyers and staffers to take long-deferred vacations while they can because he expects the Federal Reserve Board will ease off on interest rates at the end of August. That could cause the valley economy to return to the white-hot levels of the first half of the year. “The signs are that the market is coming back,” he says.

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