Should start-ups shun shares-for-fee deals?
The practice of accepting shares for fees in start-up companies has proved popular in the US and is making headway in the UK. But, says Mary Mullally, it is not neccessarily popular with the start-ups themselves who feel it compromises their independence
Lastminute.com and drParsley.com may both be well-known dotcom companies, but they have different opinions about the wisdom of inviting external legal advisers to take shares in their clients instead of fees.In one corner is Lastminute.com, whose advisers are Bird & Bird and Linklaters & Alliance. The company has grave reservations about the trend, and has not invited the firms it instructs to take its shares instead of fees.DrParsley.com, on the other hand, thinks it is a good idea. It willingly gave its lawyers, Field Fisher Waterhouse, a stake in the company in lieu of fees.So far, more law firms have come out in favour of the shares-for-fees option than have publicly rejected the option.The reasoning behind this is that as fledgling clients are short of cash in the early stages of their development – it is a good idea to give their legal advisers shares instead of fees, thereby allowing them to reap the rewards for their patience at a later stage when these clients ‘grow up’ into a multi-million pound company.In a volatile market with senior associates and partners enticed away to start-ups with the promise of large stakes in them, firms are also keen to take shares in an effort to hold on to their e-commerce stars.Unthinkable 10 years ago, the pace of change in the e-commerce market has forced a rethink of the traditional lawyer-client relationship.
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