If you are a regular reader of the this blog, you know that I don’t ascribe to much of the doom and gloom that everyone wants to wallow in.   

This isn’t to say that I have my head in the sand.  I realize that many people are losing their jobs and that companies need to run their businesses extra efficiently, but this isn’t exactly "R.I.P" for the good times, despite anything other venture firms may say.  The sky is not falling and it’s not "game over."  The economy will bounce back. 

Also, if you are a regular reader, it’s possible that you’ve picked up my issues with many law firms’ billing practices.

What do these two topics have in common?  Where there’s a crises, there is always a lawyer willing to make some money on it.  Today’s candidate:  Proskauer Rose. 

I just read that Proskauer has created an "Economic Crisis Response Group" to deal with the uncertainty we face.  I’m not sure who in the marketing department came up with this, but I about fell off my chair laughing.

According to the press release, the group:

- Includes lawyers from different practice groups;

- Who quickly respond to clients affected by the current turmoil; and

- Who monitor, analyze and disseminate information on new developments as they arise.

Uh, isn’t this what ALL law firms do?  In fact, if you weren’t doing this before, what exactly where you doing?  I’m sure that with all specialty groups, they’ve found a way to bump up their hourly rates for this elite group, but maybe this is just marketing gone really wrong.  

Do they get to wear cool super hero uniforms?  If so, I’m down with that. 

Sigh, just more noise being added to the system.  Not exactly what we need right now.

It’s been a while since I’ve posted about any recent dining experiences, but being on the east coast this week, I thought I’d give a couple of quick shout outs.  (Can one use the term "shout out" when referring to fine dining?  I’m going to try).

Troquet (Boston) – Troquet is quaint and cute little wine bar and restaurant that serves up French-inspired cuisine with a lighter touch than most.  The upstairs dining room overlooking Boyston street was a very comfortable room.  The little bar in the front is right out of movie and I was fortunate to meet a fellow Michigan Wolverine fan whose fiance is the pastry chef at the restaurant.  We tried the wild boar, halibut and salmon and each dish was very well done.  (For those of you who know me, I was good and kept to the salmon despite my boar proclivities).  The wine list was well priced and varied and my only issue was that all wines were paired to particular menu items – it wasn’t just a list.  I suppose that’s helpful to some and I felt a little silly getting a barbera with my salmon, but such is life.  We didn’t leave room for dessert.  All in all, a really solid and comfy place.   

Sushi Yasuda (New York) – Wow.  I’ve been to a lot of sushi places and consider myself somewhat of a sushi snob, but like… wow.  This isn’t Nobu, or even a Sushi Sasa (for those of you in Denver) that breaks any creative boundaries – this is all about the fish.  Four different toros, arctic char, three types of unagis, five types of mackerels, three shrimps, etc.  This is about fish on rice.  This is about simple rolls.  We just had the waitress bring us whatever the chef wanted to serve and after eating way more than two people should, we doubled down and said "bring more."  We could have kept going, but at some point, you know that you should just stop.  This was some of the most interesting and wonderful fish that I’ve ever had.  Bravo.  Don’t go there if you are looking for low lighting and great ambiance, but if you are there to eat some of the best product ever, you will be happy.

I’m full. 

Alright, it is a bit melodramatic, but this is funny stuff.  My friend Sarah Reed of Lowenstein Sandler PC. has a sardonic sense of humor and guest posted on Brad’s blog about the ABC’s of everything falling apart.  Sick, but very, very funny.  Two of my favorites are letters N and P.  Here’s a teaser:

N is for No: brace yourself for that response if you are looking for money – from LPs, from VCs, from customers, from venture debt lenders. Start thinking of creative ways of explaining why are different (cloud computing, on-demand services, disciplined deployment of capital, blah blah blah).

P is for Peace with Honor: it’s what you get when you sell the company for just enough so that all creditors are paid and the VCs get back some fraction of their money. Declare victory, go home.

I’ve always been a huge fan of Southwest Airlines.  Whether it was how they battled American Airline’s predatory pricing tactics in their early days to former CEO Herb Kelleher arm wrestling for the right to use a tag line, I’ve always found Southwest to be different than all other airlines.  They are what they are and they are usually on time.  And more often than not, their employees are friendly and highly competent. 

They’ve also done a great job weathering many economic storms.  They are by far the most consistently profitable airline in our country.  Some of this was based on the fact they locked up long term gas contracts (although I’ve heard these are no longer in operation), as well as flying only one type of aircraft.  And a lot of it is that they just seem to run more efficiently and less stupidly than the other airlines.  (Are you listening United?)

That being said, today was a ominous sign.  On the way to LAX from DEN, Brad and I were 2 of 15 people on the entire plane.  I really like flying empty planes and it was the most mellow flight that I’ve had in a long, long time, but not a good sign for my favorite carrier.  See the follow picture which I took from row 7 just after pulling to the gate.  These were all the people sitting behind me on the flight. 

Today, at the LAX airport, I finally got to use a Dyson Airblade.  I had heard about them earlier and we even inquired whether or not we could pay to have one installed in our building, as our bathrooms waste more paper products than any I’ve ever seen.  That being said, I hadn’t truly understood what all the fuss was about.

I’m here to report that they are awesome machines.  It emits warm air and my hands felt completely dry and free of "gross airport bacteria."  I hope that more building owners convert to them.  It’s a great way to help the environment and more healthy than paper products.  Here is a picture of the machine, followed by a fellow happy and good looking user.

I spent some good quality time with Rock Band 2 this past weekend in between naps.  (Something about cold weather and traveling a lot has turned me into a 50 year old man, apparently). 

This was my first time actually taking Rock Band "seriously."  Previously, I’d get together with folks and usually play bass or guitar and not my native instrument of drums, as I really never found the drumming compelling in Rock Band. 

For whatever reason, this changed this past weekend.  I decided to really try to play and what I found was interesting. 

Being a drummer is a detriment to playing Rock Band drums in many instances.  The easier the setting, the harder it became for me, as I couldn’t divorce my limbs from playing the "real" part of the song. 

As I moved onto the hard / expert settings, I found playing easier, although reading the notes in real time became exponentially more difficult.  Clearly, sight reading on expert is challenging.  (Especially Boston’s Foreplay / Long Time).

In the end, I can say that on expert settings, you really do have to play all the notes, although I’d say I’d still find it easier if I had a "real" drum kit than trying to hit the drum controller.  Thankfully, Brad bought me a gift. 

One other interesting factoid.  You can find plenty of YouTube videos with folks playing perfectly the drum parts on expert, but they aren’t drummers.  You can tell when they go to fill and they aren’t any good.  But it’s incredibly impressive that they can train their limbs to cover the parts. 

All in all, I’m a larger fan than ever.  I’m going to have to buy a setup.

It’s been a while, but continuing on my Law Firm 2.0 series and having discussed ways to more efficiently bill, keep associate retention issues better at bay and how to better deal with legacy cost structures, today’s topic is compensation.

I’ve gotten a ton of comments on my blog and on various other online forums where my articles have either been posted or summarized. Despite this high volume, it pales in comparison to the amount of direct emails that I have gotten. Most of the adverse communications have a variation of the same argument: but other people make more money than I do! Why are you after me?

For a whole bunch of lawyers mad at me, you sure provide a crummy response. Objection, your honor on grounds of relevance.

I’ve never understood why lawyers think they deserve to make the same as other lawyers at other firms or lawyers who practice in different areas of law. “Legal services” are not commodities. Rather, different specialties are valued more and less by society, just as they are in other fields like medicine and investment banking. In fact, even in the legal profession there are outliers, whether they are public defenders, or class-action plaintiff’s lawyers; each of them are on the ends of the respective legal compensation bell curve.

For this reason, I’ve always thought it was silly that folks who want to provide a particular set of services think they should get paid the same as other radically different practice fields. But this is the general attitude that you get inside a large law firm.

For instance, does it make sense that a lawyer working for a cash-constrained startup company on transaction documents between the company and its returning venture backers should make the same hourly rate as a litigator who is engaged in “bet the company” litigation for the same company? No.

And before you say that there are billing differences between types of work in forms of discounts to startups and billing premiums with M&A and IPOs, I would still posit two points: one, that these billing differences aren’t that meaningful and two, that the partners in these different practice areas judge their compensation across all practice groups and have expectations of equality.

It would seem to me that choosing a practice area could include not only the type of work, but also the amount of compensation that the practice would generate. I would have been very happy to give up some compensation in exchange for avoiding litigation and public company work.

The following is a direct quote from a well-known partner at a well-known Silicon Valley Law firm in an email that he sent to me (name redacted as his request). “You can’t run a large firm practice these days on $50K a deal unless you are just cranking them out. The expectations for partners at most major firms are simply too great to permit them to handle VC deals.”

To summarize, my point is that by only looking at cash as what a lawyer’s compensation is, rates are artificially high in some practice areas and those are the fees that are impacting startup companies. Lawyers receive “other” compensation in performing the types of services they want to and hours associated with those services.

One thing to discuss quickly is startup company equity held by the law firm (including directed shares). In the “old” days the shares were allocated to the team members performing the services. Other partners, however, got jealous and now most firms allocate equity across the entire attorney pool, whether directly or through a firm-run investment vehicle.

I have an idea. Why not allocate these equity pools only to lawyers who work on startups? They may charge less, perhaps make less, but like the startup, world would see nice returns when things go well.

All of this, of course is part of the competition for law firms to make as much money as the next firm. I’m always surprised when I find some lawyer at a competent, but not extraordinary law firm charge the same rates as a lawyer at a clearly superior firm.

I’ve heard the argument for years now that partner compensation isn’t just about what the lawyers take home pay is, but metrics like “Profits Per Partner” (PPP) affect attorney retention and hiring. I’ve never really understood if that is true, or is just ego. While in the Silicon Valley, I found this argument more compelling, but out here in Boulder, I see law students taking less salary for better quality of life. My bet is that even in the Silicon Valley, many lawyers would trade some compensation for better quality of life and therefore the PPP statistic isn’t as important as the law firms and magazines hold it out to me. Then again, perhaps this is akin to the U.S. World and News Report law school surveys that have caused a whole bunch of weird behavior on the educational side.

Lately, I’m being asked this question several times a day.  Sometimes its from nervous entrepreneurs looking for funding, sometimes it’s from our investors wanting to know what I’m seeing and yesterday, from my father who is evidently worried that things are so bad that I might have to move back home and into his attic.  (No worries Dad, I’m good).

Frankly, we haven’t seen any affect on our business (caveat: so far – see below).  Our investors are still making their capital calls and our insurance policies seem to still be worth something due to the government’s bailout of AIG. 

Furthermore, all our Foundry Group portfolio companies are too young to pay much attention to macro economics and are heads down building their businesses.  This isn’t to say that they are spending money as if it were 24 months ago, as each are certainly being as cash efficient as reasonable, but in general our expectations for our companies have been met or exceeded despite the meltdown.

We are still seeing interest from prospective co-investors in funding our deals and, for the moment, everything seems quite "normal" if one can ever use that word in early-stage investing. 

So what might happen if the meltdown continues "indefinitely?"  Well, since I keep getting asked, here are the doomsday predictions, although I believe we are far from that day.

1.  Angel investors will disappear.  We saw this in 2001-2003 whereas individuals, either nervous, or more cash strapped than before, exited the angel investing market.  My partner Brad likes to use the "flipping of the switch" analogy when describing this market.  Of all my predictions, this one is the most likely to happen.  This could have a material impact on startups who rely on angel funding to bridge the gap between company formation and venture investment:

2.  VCs could just stop investing.  We also saw this phenomenon after the dotcom bust and it never made that much sense to me, especially in the early-stage ecosystem, but it could happen.  Certainly the late-stage investors have slowed / stopped, but my opinion is that early-stage investors should continue to deploy capital at a roughly equivalent rate each year.   

3.  Investors in VC firms, short on cash, could default on their obligations.  This is less likely if your VC firm has institutional investors, but for VC firms with many high net worth investors (who may not longer be high net worth folks), this could happen if the liquidity crises and stock market crash continue.  In this case, suddenly VCs are either unable to invest in new companies or support their current ones. 

I think the key is for entrepreneurs to realize that fundraising will be either a little or a lot tougher for the foreseeable future.  Conserve your cash, if you have it. It’s not all doom and gloom.  Stay steady and don’t freak out like Bill Murray did in Ghostbusters (great clip, if you haven’t seen the movie in a while).

This past weekend, I went back to Ann Arbor, Mi to attend my 10th law school reunion.  Normally, I get hives when I’m around too many lawyers, but it was a fun event and reconnecting with old friends was pleasant.  

There were three big takeaways from the weekend:

1.  Ten years out, it was surprising how few of my former classmates stayed at their big firm jobs out of school.  (hmmm, maybe my theories of what ails the legal profession are true…);

2.  Going to a University of Michigan football game is still one of the best ways to spend a Saturday that I can think of (even if my Wolverines stunk up the joint and lost 45-20 to Illinois); and

3.  Despite everyone saying that we don’t look any different than we did 10 years ago, those are just self serving statements.  It doesn’t mean that many of us don’t still look good, rather ten years is really ten years.  I, for one, am definitely worse for wear. 

For those of you interested, I present a photographic journal of the football experience and some reunion pictures as well for those of you unable to attend.

Football:

- Everyone needs a good tailgate.  This fine gentleman gave us each a hotdog as we walked up the street.  Thanks random grill dude!

Everyone also needs a two floor beer bong.  Yippie!

And the stadium avec le marching band

Reunion:

Dave Davis, me and Drew Worseck.  This was before the football team decided defense was optional.

Me "reunited" with my law school house

David Bouman, Tanya and Paul Hunter and Dave and (committeewoman) Lynne Davis

Matt Drake, "Mr. Classy" pouring generic whisky into a bottle of coke to "tune up" prior to the game.  In hindsight, maybe he was the smart one.

The law school

We’ll see y’all in another 5 to 10 (sounds like a prison sentence).  Thanks to Carrie Newton and Jeff King for setting this all up us. 

While at my 10 year Law School Reunion this weekend, I happened up a truck parked alongside the University of Michigan Student Union:

This is a great idea.  The truck parks outside the union, is open until at least 3am and they deliver as well!  Or you can order online and have the cookies ready when you show up.

They make many types of cookies from standards like peanut butter and chocolate chip, but also M&M cookies and even a Smores varietal.  There are brownies and even and raw cookie dough, as well.  They are baked fresh to order and are awesome.  This isn’t simply a case of a good business plan, but wonderful execution.  I was at the truck both Friday and Saturday nights and tried many different styles.  I must go on a diet immediately.

Better yet?  They have whole, 2% and skim milk.  Ah…

The story of their beginnings can be found here.  It Sounds like some smart undergrads wanted cookies late night, started making cookies late night and the rest is history.  I only wish they’d come to Boulder.

Great job.