If you are a lawyer and haven’t read Richard’s book, you should.  And no, reading the reviews and the articles about the book won’t suffice.  Buy the book, sit in a quiet room and read deeply about his predictions of the future of the practice of law.

The title is provocative, for sure and he doesn’t really argue that lawyers are going away, but a central tenant is that much of the legal services we use today will soon be commoditized.  In other words, many lawyers’ practices are headed downward as outsourcing (both human and technological) is rapidly on it’s way.

I’ve written a lot of what I see are the changes going to occur in the legal world in my Law Firm 2.0 series.    I’d say that Richard is at least Law Firm 2.5 to my 2.0.  He has many interesting thoughts, but two really struck home to me.

One of his first propositions is that lawyers aren’t getting paid to give legal advice, so why are we paying them for it?  He says that if you ask a lawyer (especially a corporate lawyer) why they are "successful" not one of them will say "because I know the law."  In fact, most technical lawyers are shunned to back rooms while the "relationship managers" make the big bucks and bring in the clients. 

I’ve seen this and even made the statement myself.  I never thought that I got ahead by knowing the law better than anyone else, rather knowing enough law that I could then give good business advice.  In fact, I subconsciously have always considered my legal knowledge "my commodity" while I considered my judgment my "secret sauce."  So I can see where Richard feels that the practice of "core law" is going to become commoditized.

Secondly, Richard believes that innovation in the legal profession will occur in two areas.  First, there will be innovative technologies that will change the way that lawyers practice.  We’ve seen it first hand with companies like Stratify in the e-discovery space and believe that we’ll see it again (soon) in the document generation space and have made an investment in FirstDocs.  He also predicts that other innovation will occur at the highest level of the legal practice – new theories, new ways to apply law to fact, new ways to deal with new legal structures, etc… – the stuff that you are willing to pay big bucks to top partner level people.

The big issue is where does that leave the "middle class" of lawyers (defined either as by ability or by seniority) if the top parts of the practice are being innovative and valued and the bottom parts of the practice are being commoditized by technology and outsourcing. 

This short review doesn’t even scratch the surface of the book and like all books there are plenty of theories that I don’t see happening, but it’s the most in-depth look into the future of lawyers that I’ve seen and a must read for anyone who makes their living by the billable hour.

I just recently returned from a little respite in southern California and had a couple of dining experiences to share.  First up, San Diego.

JRDN – Mr. Sajak, please buy them a vowel, but nevertheless a strong showing.  JRDN is the hotel restaurant inside Tower23 hotel in San Diego.  Normally, I have a strong bias against hotel restaurants, but it was a late arrival and I was too lazy to really go anywhere else.

I’m glad that I was lazy.  The menu is really great – they essentially have three of them:  sushi, bar menu and regular table.  We sampled off of all three of them and were really impressed.  I particularly liked the ability to choose a protein, choose multiple preparations and then add sides.  The wine list was strong, too.  

A word on the bar – it’s really the "pretty person" bar, even more so than the Americano in San Francisco, but everyone seemed more mellow.  I’d suggest not dressing like a kid who grew up in Michigan. 

Next up in La Jolla was Zenbu – a local’s sushi joint. Great atmosphere and great sake surrounded by creative roll creations.  It was the first time in several years that I saw roll creations that I had not had before.  Best of all – they do half sized roll portions, so you can sample them all.  Bravo, that was cool.  Check out their menu, but my favorite was the Mexicali: Grilled Mexican white Shrimp, Crab, Cucumber, Avocado and Daikon Sprouts.  Topped with Spicy yellowtail, Chopped Cilantro, Jalapeno and Fresno Chilli Peppers and a Garlic Ponzu Sauce. 

There are a few tourist trap sushi places in La Jolla.  This was a little off the beaten path.  If you are in the area, make sure to stop by. 

It was then off to Santa Monica where the pilgrimage to Pizzeria Mozza had to occur (awesome as usual, try the pizza bianco). 

The next evening we gave the Border Grill a try.  It was founded by the Food Network’s "Two Hot Tamales" Chefs Mary Sue Milliken and Susan Feniger.  I’d give it a C+.  Nothing inspiring except for wonderful salsas, as everything else was competent, but not worth the hype and certainly not worth paying $40 for a signed cookbook.  (No, I didn’t buy one).

So bottom line, hit JRDN, Zenbu and always Mozza if you can.  Consider elsewhere besides Border Grill.

Edwin Miller of Sullivan and  Worcester recently published an article called Time to Reboot the Basic VC Deal Structure, in which he argues that we should radically change the way VC deals get done.  In his words:

"New York Times columnist Tom Friedman recently suggested that “It’s Time to Reboot America,” meaning that the financial crisis gives us a chance to fundamentally re-examine the way government and the private sector operate. Perhaps it is also time to re-examine the basic venture capital deal structure that has changed little since the 1970s.

A related issue is bloated legal documents. Simple forms that address only realistic scenarios are desirable. Sensible legal documents do not have to paper to death every one-in-a-thousand scenario. Simple, common-sense documents are easier for all parties to understand and be comfortable with, and they are cheaper and quicker to negotiate and sign. This approach may be a competitive advantage, or if broadly accepted, would promote a better outcome for all parties."

He had me at "bloated."  For those readers of my Law Firm 2.0 series, it should not come as a surprise that I think today’s legal documents are indeed, bloated.  Edwin’s thesis that many of the terms included and negotiated in today’s financing documents are unnecessary, irrelevant and / or just plane crazy is both thoughtful and correct. 

If you are interested, you should read the article.  He addresses many of the major deal points found in VC financings.  I agree with most of his assertions, but feel compelled to push back (quickly) on a few of them.

Registrations Rights:  I couldn’t agree more that any time spent negotiating reg rights is wasted time for entrepreneurs and venture capitalists and billable hours for lawyers.  However, I have been in situations that I’ve needed demand rights on a company that blew a filing and was no longer eligible for S-3 registrations.  I’m very far away from being a public company lawyer, so perhaps this doesn’t matter any more, but did then.

Anti-Dilution Rights: I am a VC, so I’m clearly biased, but I wouldn’t agree to the termination of Anti-dilution rights.  I think they are appropriate for two reasons.  One, there are large information asymmetries between a VC and a company and no amount of due diligence will ever put a VC into the same knowledge shoes as an investor.  Second, I’ve seen situations where a new potential VC to the company (who wants to invest in a lower priced round) teams up with management to try to squeeze out an early round VC.  They promise management an option refresh making them whole and the new VC would get an outsized share of the company.  For this reason, I want the protection to protect against such opportunist behavior.

Liquidation Preferences:  Alright Edwin!  I’ll take your new paradigm.  Problem is that I don’t think that I can find high quality entrepreneurs who will agree to this.

Founder Guarantee:  I think that I’d rather keep how we operate now in that there is no guarantee of ownership, as I think that properly incentivizes management.

That being said, I love the concept of dumbing down the NVCA model documents and making things easier.  Ediwn, nice job and keep the ideas coming. 

I (Jason) will be visiting the University of Michigan in a couple of weeks to speak to different campus constituencies about entrepreneurship and venture capital.

As part of that, I’m going to plant my butt in a conference room on campus for a couple of hours and talk to anyone that wants to come by and chat, pitch me, talk about venture capital, etc.

Location:  Lorch Hall (Economics Building) Room 171, 611 Tappan, Ann Arbor

Time: 3pm to 5pm

Date: Friday, April 3rd, 2009

Students, professors, members of the community all invited.

In case you haven’t heard, lawyers and legal professionals are being laid off at a rate never seen before. According to Law Shucks, one of my favorite blogs, over the past twelve months 3,489 lawyers have been laid off. This doesn’t include the 4,890 staff (paralegals and assistants) laid off, nor does it include “stealth” layoffs or layoffs from smaller firms. Law Shucks has been all over the carnage and if you want to see detailed information by date and firm check out their Layoff Tracker.

Yes, this is somewhat due to the current economic climate, but also indicative of what’s wrong with the current big firm business model that I’ve been critiquing in my Law Firm 2.0 Series. I won’t belabor those points today; rather provide an opinion on what the layoffs might mean to you.

It depends who you are: client or lawyer. And for that matter, let’s look at the law student perspective, too.

Layoffs are bad for clients. If you note, few partners have lost their jobs, rather associates, paralegals and other staff have been let go. This inevitably will lead to what a colleague of mine refers to as “billing creep.” To paraphrase him:

What has been really noteworthy to me with all the announced law firm cuts is their focus on associates and staff. Partners seem to be saved for the time being. If the slumps of the early 90′s and 2001 are any guide, work will now move up the chain. Associates will hold on to work previously delegated to paralegals in response to less work and partners will do work they would previously hand off to associates. Add to this the natural tendency for overkill and inefficiency when you are struggling to meet billable hour targets (ignoring the increased likelihood of flat out padding) and you have the recipe for many billing disputes and billing creep.

I couldn’t say it any better. The irony is thick that law is one of few industries that can tighten the corporate belt and its customers end up paying more in the end.

Layoffs are bad for the lawyers, too. Duh, Mendelson, they lost their jobs. But it’s actually much worse than that. I don’t think that any economic recovery will create enough big-firm jobs to absorb those who were laid off. I think that most of the lawyers laid off will be permanently dislocated from the big firm profession.

This doesn’t mean that they won’t continue to be lawyers, but they most likely will get jobs at smaller firms and make less money. They certainly won’t be on partner track at an AmLaw 100 entity.

The junior lawyers laid off are going to have to compete with the 1000s of law student graduating each year and vice versa. If you are a law firm that decides to hire a junior lawyer, would you rather have a laid off 1^st through 3^rd year attorney or a newbie direct from law school? Well, it depends…

If you are a mid-sized or smaller firm, you probably hire the more experienced lawyer. Your business model doesn’t work so well to take on direct from law school folks. If you are the large firm, you are wary of hiring a big-firm layoff (prestige and all), but also you need to re-create the pipeline of associates from the law schools which you’ve effectively shut off today. So you begin to hire again directly from law schools to fill your junior ranks instead of reabsorbing those left behind today.

Then again, the big firm is probably never going to hire law students at historical rates given they’ve experienced two sets of layoffs in the past 8 years and from what I see are the certain changes coming their way in the future. All in all, it’s a scary time to be in law school. What seemed like a reasonable expectation to go to school, do well and come out making $150,000+ a year now seems like the exception, not the norm.

Whatever may happen, I’m fairly certain that the situation is completely different from the last few instances of layoffs and it’s not because of the unusual economic circumstances that we are facing, rather I think it’s a permanent change in the legal ecosystem.

Well, I’m back. I took some time off blogging about Law Firm 2.0, as I wanted to “take in” all the layoffs and such – a blog on that is coming soon. But without further delay, here are my thoughts on outsourcing as a critical change coming soon to a law firm near you.

As a venture capitalist, I’ve seen the advantages of outsourcing. One of our largest success stories, Stratify, controlled costs and provided 24/7 support through a well-managed outsourcing strategy. Most professions are outsourcing at least part of their work, why not lawyers?

I can see two potential ways outsourcing can work in the legal setting .

The first way is simply outsourcing outside of metropolitan areas that are expensive to live in. Why make all of your lawyers commute to New York City or the Silicon Valley to work in an office where they never see their clients? In fact, many of these lawyers would prefer to live outside the city centers to avoid the higher costs of living. I would posit that after some type of apprenticeship program at the law firm, well-trained associates could move anywhere in the country and work effectively. I know for a fact that most law firms have some lawyers working from home in locations where offices aren’t located and no one knows the difference. Maybe now it’s time to do that wide scale. Law offices could start to look like consulting offices in that most of their now smaller and cheaper office space is for visiting professionals. Salaries could be adjusted on cost of living analysis. The law firm could increase margins and pass some of the savings onto their clients. As an example of one firm thinking outside the box, Orrick has outsourced its entire back office to West Virginia. Why not some of the lawyers? Wouldn’t many Silicon Valley lawyer prefer to practice from home in San Francisco or Marin? Who says all the good lawyer want to live in expensive places to live? Who says that good lawyers don’t exists in secondary or tertiary markets today?

The second way would be to actually outsource work to other countries. This clearly works better for some practice areas than others, but if it works for processes as complicated as software development, it will work for the legal process. I think patent drafting, licensing / contract drafting, diligence and some other non-client facing tasks can easily be outsourced. I’m sure most lawyers reading this will brush it off saying it’s too hard, but nearly every other industry has figured out outsourcing. One reader of this blog suggested the following:

Although the model did not work well in the airline industry, I think that smart law firms should develop “budget line” practices for routine work.  These could be staffed with Indian attorneys, part-time stay at home attorneys and maybe attorneys in smaller markets with lower costs of living – in all cases, non partnership track attorneys.   They would be supervised by the higher paid, partnership track attorneys with a roughly 10%/90% split of time between the supervising attorney and these lower cost attorneys.  These groups would not handle things like general client counseling,  high stakes litigations or large scale M&A.  The managing attorney would manage the allocation of work between the value line and the main line of the firm.  Given the lower cost of labor and the increased possibility of leverage, assuming a reasonable mark-up, this proposal still might maintain per-partner profits

I actually think he’s got a good point.

Something to consider. As always, fire away…

Thanks to my friends at Kendall Media Group, here is the video of my recent Venture Capital Crash Course at the Silicon Flatirons.

Venture Capital Crash Course with Jason Mendelson from Andrew on Vimeo.
I give a 25 minute presentation and then hold an hour town-hall question and answer session.  Great questions were asked, so if you are interested in what goes through a VC’s head, take a gander.

The video is really well done.  The slides are integrated into the presentation.  I’d highly recommend Craig Kendall if you need any video creation or editing work.  Thanks Craig for putting all the time into the video.  Here’s a bit about Craig:

Founded on 13 years web and video experience and a passion for top quality video, Craig Kendall is the founder of Kendall Media Group and eventon.tv. Currently partnering with many Boulder area technology programs including IgniteBoulder, the Boulder Denver New Tech Meetup, and Silicon Flatiron’s Crash Course for Entrepreneurs, eventon.tv is helping provide video recording and production for the web. Having recently returned to Colorado after 13 years in Tennessee, Craig is thrilled to be part of the technology community in Colorado.”There’s some really amazing things happening in the Boulder/Denver area as far as technology and entrepreneurship and Kendall Media Group is excited to be a part of it,” says Craig. Reach out to Craig at craig at kendallmediagroup dot com.

For those of you unfamiliar, the VCIC (Venture Capital Investment Competition) is an international competition pitting the best and brightest graduate business school students against each other.

I had the pleasure of being a judge this year in the Mountain regional qualifier and was really impressed with the program.  Each region contains six top schools competing against each other.  Each team has five students who must interview three real companies seeking venture funding, do diligence and then offer and negotiate a term sheet to what they consider the best team.

Oh yeah, and unlike me, they have 15 minutes or so to interview each company and about an hour to prepare a term sheet including return metrics.  In other words, it’s much harder than what I have to do.

I’m very happy to report that the University of Colorado team won their regional this year and will be heading to the University of North Carolina (the creators of the program) to compete with all the winners April 16-18.

I’ve gotten to know each of the team members, as they are either current or former students in my venture capital course and despite my miscellaneous ramblings, they seemed to have learned enough on their own to really impress.  Here’s to an outstanding result in the finals!

For more coverage and a nice picture of the winners, check out Julie Penner’s writeup.

One, bet Ryan McIntyre on cards.  I’ve played cards with him twice now, each time he has to ask for instructions and each time the guy pulls good cards.  Ryan, you win.  I give up.  As you can see, Ryan was mature and didn’t gloat. 

Two, you can listen to CNBC for your financial guidance.  Jon Stewart absolutely destroys CNBC for their talking crap and pretending to know all about the economy.  Best line is "If only I had followed CNBC’s advice, I’d have a million dollars… provided I had started with a hundred million dollars."

The folks over at Boulder.me are soliciting folks to write about what living in Boulder means to them.  They are going to be collecting them and posting on their site.

In case you haven’t seen the site, Boulder.me is for folks that are interested in the Boulder startup ecosystem with a bent toward wooing great folks to move here.  Having lived here just under three years after 10 years in the San Francisco Bay Area and way too many years outside of Detroit, I thought it might be a good time to reflect on my life in Boulder.

Last April, Ryan and I posted a blog on the Foundry Group website about "What We Learned By Moving To Boulder" which was a venture capitalist’s perspective on the advantages of being located in Boulder.  In short, we found Boulder to be a vibrant, supportive and well-located geography for a national investing platform.  Furthermore, we thought being away from the Silicon Valley actually sharpened our focus on the region.

Today’s post is more a personal nature that I didn’t feel qualified to write a year ago.  For whatever reason, it was quite apparent (quickly) that Boulder was great location for business, but how about life?

Pretty simply – Boulder rocks.  I’ve never lived anywhere that has such a strong amount of intellect (Boulder was recently ranked the smartest city in the country) that is focused not only on professional endeavors, but hobbies, sports, outdoor activities and life in a way that I’ve not had the pleasure of previously experiencing in my other hometowns.  In other words, it’s really nice to see people’s energy and passions allocated to things outside of work.

Furthermore, the supportive community on the business end also trickles over into the personal end.  After less than 3 years here, I feel a closer sense of community than I ever did back in California.  My neighbors actually seem genuinely interested in what is going on in their community and the people who live there.  Maybe it’s a little too Wisteria Lane, but I like it.  Of course, nothing is perfect, there are a few who I wish were a little less concerned, but overall it’s a positive.

Lastly, I would say the ability to walk out my front door and either:

1. Go for a hike;

2. Walk to work;

3. Walk on over to TechStars and hang out with the next generation of great entrepreneurs;

4. Walk to the Boulder Theatre and see a world class show; or

5. A combination of all of the above couple with a great Belgium Brew from The Kitchen

means that while my world is a bit smaller than was before, most everything I want is within a short non-motorized commute.  It’s highly addictive.

So, that’s a short post on what Boulder means to me.  Thanks Boulder for having me.