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Just two years ago, they were all the rage and associates were demanding access. But like the stock market and the economy at large, law firm investment funds just aren’t as hot as they used to be. Consider the dramatic change in attitude among Wilson Sonsini Goodrich & Rosati associates. Early last year, they were demanding the chance to buy stock in Wilson clients. So under pressure to keep them happy, the Palo Alto, Calif.-based firm began the process of creating the same kind of formal investment fund for them that it has for partners. But when the deadline came this month for associates to ante up in an investment pool Wilson created just for them, fewer than 100 of the firm’s 500 associates did. As one third-year Wilson associate, who spoke on the condition of anonymity, put it, “Invest what funds? That’s the money I’ll need to live on if I get laid off.” The uncertainty isn’t limited to associates. Even Wilson partners are putting less capital into investment funds this year. That’s the story at many Silicon Valley law firms. Investment funds — the big perk that set Valley firms apart — have lost a great deal of their luster. While firms are still pushing ahead with investments, the amount of money funneled into them has declined. Recession talk, law firm layoffs and plummeting billables are contributing to much of the ambivalence toward investing. Nevertheless, for the few willing to put cash to work, there are bargains galore. The firm that would most likely be affected by the shift in attitude is Menlo Park, Calif.-based Venture Law Group. The firm’s business model is based on taking aggressive equity stakes in clients, and lawyers there derive a large chunk of their compensation from stock. With the market getting hammered, many longtime tech lawyers at competing firms have questioned the VLG’s approach. But Elias Blawie, a partner and head of the firm’s investment committee, said VLG remains committed to its business model. “We think it’s an attractive time to invest,” Blawie said. “The investments that are made today will reach maturity several years from now.” Plus, there are a lot of bargains in the market. Entrepreneurs are increasingly desperate for cash and are willing to let go of their stock at discount prices. That makes it the best time to be buying, said Brobeck Chairman Tower Snow Jr. “The first quarter of 2000 was the worst of all times — you were buying high — and today, we’re buying low,” Snow said. Despite the potential for discount deals, overall investment activity for firms is down. VCs are slow to put out their money, and law firms, which piggyback on VC deals, simply have fewer chances to invest. Valley firms say they will likely invest a fraction of the capital they put to work in 2000. So far this year, VLG has invested just $2 million. That’s down some 75 percent from last year but it’s in line with what the firm put out in 1998, before the Internet bubble, said Blawie. Wilson this year will likely invest one-third or a quarter of what the firm put into new companies in 1999, said Mario Rosati, the Wilson partner who manages WS Investments. The firm has set aside about $7.5 million for investments this year, he said. Cooley will also see a similar drop in activity. The firm put $12 million into some 240 companies last year but so far this year, the firm has invested just $5 million, partners said. So it’s not surprising that associates are pulling back as well. “If the [firm] had just let it drop, I don’t think anyone would have said a word, at least until the market picked up,” said a senior Cooley Godward associate, who spoke on the condition of anonymity. Both Wilson and Cooley applied to the Securities and Exchange Commission last year for permission to create investment pools for their associates. Smaller, partners-only funds don’t require federal oversight. But larger funds with a lot of unsophisticated investors do. The firms expect final SEC approval for the investment programs within days. And when the OK comes, it’s retroactive to the date the first application was made. Associates have already put money into investments through a loophole in the law that allows the firm to get a jump on setting up the program. More than 300 associates made investments at that time. But as the lackluster response to the most recent investment opportunity shows, confidence has waned considerably. Also, the deadline to invest was Sept. 14, a time when many were still focused on the terrorist attacks on the World Trade Center and the Pentagon. “There’s less interest in this kind of benefit,” said Donald Bradley, a Wilson partner who doubles as the firm’s general counsel. “Associates place a lot more value on the job than on the investment opportunity.” Bradley said that attitude will likely shift with the economy. “I think as the economic pundits are predicting — and I hope to hell they’re right — the latter half of 2002 will be better, and this will be a more interesting benefit.” At Cooley, associates are also lukewarm on investing. The deadline for Cooley’s associates to decide whether to invest is still a few days away so the firm doesn’t have a final tally on how many anted up. But Mark Tanoury, a Cooley partner who oversees the firm’s investment activities, said some associates are enthusiastic while others are less so. Not all associates at the two firms have lost faith in the firm-sponsored investment funds. A handful said they were willing to invest at least a few thousand dollars. The senior Cooley associate said he was considering investing $10,000. “It’s a long-term investment,” he said. “Partners have done well for themselves over a long period of time.”

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