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Venture capital lawyer Mike Dunn, who co-founded the Austin, Texas, office of the now defunct Brobeck, Phleger & Harrison in 1994, has a new gig working as in-house counsel on a part-time basis for various emerging Austin companies. Dunn, who left Brobeck in September 2002, before the firm folded, to join Gray Cary Ware & Freidenrich (now DLA Piper Rudnick Gray Cary) in Austin, charted a new direction for his career in January of this year when he became a senior attorney in the Austin office of Phillips & Reiter, the Outsourced General Counsel. “I worked in big firms for 17 years,” the 42-year-old Dunn says. “It just felt like the right time to do something different.” David Reiter, currently the full-time general counsel for Luminex Corp. in Austin, and Greg Phillips, a former associate general counsel at Compaq Computer Corp., formed the firm in the summer of 2003. Dunn says Reiter is responsible for firm administration, business development and marketing. “He’s not performing legal services for clients right now,” Dunn says. “We market ourselves as a general counsel to companies that have ongoing legal issues but don’t need a full-time in-house attorney,” says Craig Kaiser, managing partner for Phillips & Reiter in Houston. Peter Zeughauser of Newport Beach, Calif., a partner in the Zeughauser Group, which provides consulting services for firms and corporate clients, says outsourced general counsel firms provide flexibility for the companies that use them. “If you don’t have a full-time need for [a general counsel], you can outsource the position and pay as you go,” Zeughauser says. Zeughauser says another benefit of outsourcing the general counsel position is that the company usually obtains the services of a lawyer whose experience extends beyond the company and who can advise the client on how other companies might approach a situation. Unlike in-house legal departments, outsourced general counsel firms also usually have lawyers with expertise in a variety of practice areas, he says. Kaiser, who also was an associate general counsel at Compaq prior to joining Phillips & Reiter, says the seven-lawyer firm has about 55 clients, including a few very large companies. Some clients’ annual revenue is about $5 million but other clients generate revenue of $100 million or more a year, he says. Although Phillips & Reiter has an office in Houston, the firm operates without an office in Austin. Dunn says he works out of his home some of the time, but he also works out of office space that two Austin clients, Band Speed and Riverstone Financial Group, allow him to use. It’s the “no overhead model,” with no office, no secretaries, no librarians and no receptionist, he says. The firm’s lifeline is its high-speed connections to the Internet, Dunn says. This couldn’t have happened five years ago, when costs for technology were so high that only big firms could afford to go high tech, he says. But technology is so cheap today, he says, that a firm like Phillips & Reiter can afford all the resources online. By keeping its own costs at a minimum, Dunn says, the firm is able to offer lower billing rates than a client might find at larger firms. “Cost containment for early-stage companies is vital,” Dunn says. “Everyone has to watch the dime.” Kaiser says a senior-level attorney in a large firm charges at least $400 an hour. Phillips & Reiter bills clients either on a project-by-project basis or on a retainer. When clients choose the retainer model, which typically provides them a set number of hours of legal services per month, the cost is $250 an hour, he says. This provides the client a good idea of what its costs will be, he adds. But Kaiser says that what Phillips & Reiter really sells is a relationship with clients so that the usual concern that “the meter’s running is not the first thing on their minds.” Kaiser says lawyers with the firm get into ongoing relationships with clients and try to help the clients be more proactive. A lawyer tries to find out what the client is planning three years out, five years out and what that client will need to happen from a legal standpoint, he says. According to its Web site, the firm’s practice spans a full range of commercial matters, including asset acquisitions, ecommerce, corporate governance, and labor and employment issues. Phillips & Reiter also manages outside firms for its corporate clients. Dunn, who was a partner in the corporate and securities group at Gray Cary and a partner in the business and technology group at Brobeck, says that joining Phillips & Reiter has enabled him to do what he likes best — roll up his sleeves and work side-by-side with entrepreneurs in emerging companies. “I had come to Austin back in 1994 from Orange County really because I enjoyed working with entrepreneurs,” he says. But Dunn, a graduate of the University of Southern California School of Law, says his work in recent years took him away from entrepreneurs who are trying to build their companies. As big firms get bigger, Dunn says, the pressure is on for lawyers to have more billing hours and the focus is on larger companies that have bigger legal budgets. At Phillips & Reiter, where the emphasis isn’t on billing more hours, he is able to do the kind of work that he did as a young partner at Brobeck, Dunn says. One of Dunn’s clients is Phytel Inc., a Dallas-based corporation founded by a physician in 1996 to provide technology to support communications for physicians’ offices and clinics. Dunn says the privately held corporation, which has about 10 employees but no general counsel, is raising a couple of million dollars by selling preferred stock to a private fund. Neil Smiley, Phytel’s chief executive officer, says the company plans to use the money as working capital and to ramp up its sales and marketing. Smiley says he had interviews with lawyers from two traditional firms before hiring Dunn. An acquaintance had referred Dunn to him, Smiley says. “We were looking for somebody who had experience in venture capital documents,” Smiley says. Dunn and Smiley first met in January, not long after Dunn started work at Phillips & Reiter. “I went to Dallas on my own nickel, drove there,” Dunn says, noting that since he’s no longer a partner in a large firm, he can’t just hop on a plane to go meet a client at the firm’s expense. “The general policy of the firm is we don’t bill clients for travel time,” he says. Smiley says he is pleased with Dunn’s work. “I’m very impressed that Mike knows his stuff,” he says. “Basically, he and I are doing almost everything.” That includes preparing the stock purchase agreements, nondisclosure agreements, an employee stock option plan and other documents. “This deal involves a kazillion documents,” says Smiley, whose expertise is in computer science. More is involved than just preparing the documents. Dunn says he has to make sure there is a balance between the rights of the investors and the company’s interests. Smiley says he and Dunn have worked together chiefiy through e-mail or by phone. “Most all of the work has been done virtually,” he says. “If I were to rate it, I’d say about 80 percent was by e-mails and 20 percent was by telephone,” Dunn says. Smiley says Dunn’s role also has involved interfacing with lawyers for the private trust and the investors. “He’s done a good job by me,” Smiley says. “I would certainly use him again.” FEE APPROACH The concept for an outsourced general counsel firm is not unique to Phillips & Reiter. Dunn says he has seen this practice develop in California’s Silicon Valley. It’s also the focus of another Texas firm — Worsham, Lancaster, Helling & Rose, which has offices in Austin and Dallas. Chris Helling, a partner in Worsham, Lancaster’s Austin office, says he helped found the firm in 2001. Helling says he and his partners thought they could fill a niche for companies that are not large enough to hire a full-time general counsel but want a lawyer who will be interested in their business. “The majority of what we do is general counsel work,” says Helling, a former general counsel and chief privacy officer for AIM Technologies Inc. in Austin. “We also do traditional corporate work for clients.” Helling says the six-lawyer firm typically uses a monthly fixed-fee approach with the clients for which it serves as a general counsel. He says the firm and the client decide on a fixed fee, based on an hourly fee of $180 to $240. The hourly fee depends on the scope of services and the number of lawyers staffing a project, he says. The firm and the client agree on the number of hours of work that the firm will be required to do each month, Helling says. If the workload exceeds the number of hours for two consecutive months, the fee is adjusted prospectively, he says. Helling says clients like to know what their costs are going to be. “This eliminates the worry that the clock is always ticking when they call us,” he says.

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