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When Bradley Schwartz, a former M&A and IPO specialist at Los Angeles’ Gibson Dunn & Crutcher, decided to go solo, targeting the technology market made sense. It was 1997, the new economy was emerging in Southern California, and he had built an affinity for tech clients and their needs first at Gibson and then during a year in-house at an L.A. software company. And in July 1999, when he and James Baer — a former Gibson colleague who had also headed the L.A. corporate practice of Chicago-based Katten Muchin Zavis before going solo — decided to open Strategic Law Partners, things looked even better. Venture capital that had traditionally avoided Los Angeles finally began warming to the new-media and entertainment technology companies making the area buzz. The Internet explosion had created incredible opportunities for all kinds of startups and the lawyers who knew how to make them tick. Given last year’s near-complete reversal of that worldview, one might expect the principals in a tiny boutique focused on the tech market to feel a bit, well, depressed. But you won’t find two people more confident than Baer and Schwartz that theirs was the right decision, despite the timing. “What it’s meant for us is that our clients have slashed costs,” Schwartz says, admitting to doing fewer financing deals and occasionally having to assist companies in selling themselves, “not at a great price, frankly.” That said, he still paints a positive picture of the market as healthier with the weak players eliminated. “I think it means that we won’t have several startups knocking on our door,” with work the firm is too busy to handle. Maybe that’s whistling past the dot-com graveyard, but he and his colleagues have had a good early run. The firm has grown to six attorneys and four staffers. It’s attracted a ton of work from high-profile clients such as the still-chugging venture capital firm, Idealab Capital Partners Inc., and done a plethora of financing, M&A and securities deals for a list of new- and old-economy companies running the gamut from Petsmart.com to Lowermybills.com to AlliedSignal Inc. During 2000, a year that saw the Nasdaq tank and the subsequent hard squeeze on capital, Schwartz says Strategic Law Partners brought in about $2.5 million in revenues, a piddling sum compared to the firms the lawyers once worked for, but enough, Schwartz says, for a salary close to what he’d make if he were still a partner at Gibson. And that doesn’t include the one investment that’s paid off for their nascent investment fund so far, in which they realized an amount equal to about 20 percent of last year’s revenues. What they both like to point to, however, is that they have stuck to their business plan: shunning the encumbrances of the big-firm model they trained under. Specifically, that means keeping their fees at about 75 percent of big-firm levels, focusing on good service and offering alternative fee arrangements for the venture deals and startup representations that make up most of their business. On the income side, it means taking advantage of equity opportunities in promising clients. In general terms, it means doing whatever they can for their often inexperienced clients, acting as “outside general counsel” on employment and stock option plans and dispensing general advice at board meetings until the companies need their own lawyers. And, they insist, they’ve done all that while dedicated to a sane workload, which Baer puts at 1,800 hours, in contrast to the 2,200 hours a big-firm partnership would require. “Part of what I did when starting the firm was look at what I did and didn’t like as an in-house counsel,” says Schwartz, who spent about 15 months as a senior vice president and GC of Quarterdeck Corp., a now-defunct L.A. software firm. “We’re trying to avoid what really annoyed me,” he explained, citing the tendency of big firms to shuffle all but the biggest clients to junior attorneys, their lack of responsiveness, and inflexibility in fee arrangements. As Schwartz and Baer see it, the economic realities of the big-firm structure price startups out of market for most top-level lawyers, a problem the pair see their firm solving. “At the big firm, with the billing rates and the leverage they’re required to have to bring in the revenue they need, their billing structure is such that an initial billing of $10,000 to $15,000 is prohibitive to a startup; that’s our sweet spot,” says Baer, explaining that without huge overhead, SLP can partially defer fees until a deal is completed, all the while giving the CEO what he wants: the skills of a seasoned veteran. “In the last couple of years, in the 50 or so deals I’ve been involved in, I’m usually up against a second-year lawyer.” TECHNOLOGY’S SIREN SONG Schwartz, 41, first felt the tug toward tech early in his career, when he was toiling away on IPOs and M&A deals at then-strictly traditional Gibson Dunn. He tried as an associate and finally a partner to do more work with tech firms, an effort in which he says he was only marginally successful, largely because of the negative economies of scale. He maintains a good relationship with Gibson and says he still trades referrals with the firm. Kenneth Doran, co-head of Gibson’s corporate practice in L.A., says that in situations such as when Gibson represents a business that wants to do a deal with another Gibson client, he looks for an outside firm, and Schawartz’s is one of the few small firms he can fully trust. “I would be comfortable referring any kind of financial deal, private placement or venture capital deal and he would do a spectacular job.” Doran acknowledges that at the time Schwartz left Gibson, the firm’s philosophy on the tech sector was probably frustrating to Schwartz, but says, “Had he stayed, he would have done a lot more in the tech arena.” At the time, however, Quarterdeck was one of the few software firms Gibson was willing to take on. “They were public but their stock had been beaten down,” Schwartz says. “New management came in, focused on the Internet vision, poured some money into it,” he says, adding that when the company offered him the in-house post, he saw it as a good move toward the tech industry that had hooked him. It didn’t last. “Things started to crumble, the stock crashed. It was great vision, not so great execution.” But the experience left him more convinced than ever that a market existed for lawyers with big-firm skills who could feed the needs of emerging growth companies. More importantly, he established contacts among companies that had done business with Quarterdeck and among its former executives, who had started spinning off their own tech startups — crucial connections that sent the referrals that became Strategic Law Partners’ clients. Typical among those clients is Melinda Moore, the vice president of THEY Inc., a company that creates Web sites and wireless and Internet-branding strategies for its customers and hired Strategic Law Partners as its main counsel soon after going into business. In addition to doing well on corporate documents and general legal advice, SLP introduced her to an IP lawyer — Kenneth Linzer, a former Paul, Hastings, Janofsky & Walker attorney who in February became the third Strategic partner. Moore says the firm’s collective experience is crucial when she’s negotiating with clients and prospective partners on the fly. “A lot of times, people are like, ‘We have to have this done in six weeks,’ and so a [particular] deal has to be done in a week,” Moore says. While the lawyers have cleared their decks to meet deadlines “that have not been realistic,” Moore says more importantly, their high-level experience improves her comfort level. “It’s knowing that they are making sure we’re legally protected and extracting all the legal rights that we are entitled to.” Another key to Strategic Law Partners’ success is its relationship with Idealab Capital Partners Inc., one of the main venture capital firms fueling tech startups in the Los Angeles area. (ICP is affiliated with, but separate from, the tech incubator Idealab, which Strategic Law Partners also has represented, along with various of its portfolio companies). William Elkus is a co-founder and one of four managing directors of ICP, which has nearly $500 million under management in its Pasadena and Palo Alto, Calif., offices. Elkus, who is a lawyer with experience in several funds, says he knew of Baer’s work at Katten Muchin, hired him when ICP opened three years ago, and has sent most of its venture financing deals to him. “I’ve met some lawyers who are na�ve at business and some businessmen who are na�ve in the law,” Elkus says. “It’s good to find someone who is good at both of those.” He says he has found the firm’s services excellent for its size, pointing to the number and kind of deals the 42-year-old Baer has done in his 16 years as a lawyer. “There are not a lot of people in L.A. who have that much experience in venture financing,” he says. Bradley Serwin, general counsel of Pasadena’s Ticketmaster Online-CitySearch Inc. sums up the appeal of the firm. “Brad can substitute in for me,” he says. “He is an experienced corporate lawyer, with big-firm training and was a GC at a technology company. He is me. Granted, he doesn’t have the intimate knowledge of my company since he works with us less than I do, but he can certainly make the same judgment calls that I would make once he understands what I need out of my deals. All that at three-quarters the rate of Gibson or Latham. Such a deal.” FUTURE TIED TO MARKET And while Strategic Law Partners puts great stock in the referrals it attracts, not only from former clients but from powerhouses it’s met across the deal table, such as Fenwick & West, Gibson and Latham & Watkins, the principals concede the market is largely going to dictate its future. For his part, Schwartz says he’d be happy staying relatively small, maybe 15 lawyers focusing on emerging growth companies. He says he and Baer have so far resisted several offers from Silicon Valley players to merge and head up a Southern California office. Baer is a bit more reluctant to set a cap on growth, preferring to roll with the economy. “I think we have identified a very underserved part of the market in L.A.,” he says. “As that industry grows, and as we continue to get good referrals, we’ll grow to the extent necessary.” But for now they seem to like where they are, working for clients like Idealab Capital Partners, which Elkus says is well positioned, especially in an uncertain market. “We have a couple hundred million dollars in cash,” he says. “It’s a good time to have cash.”

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