When Gunderson Dettmer moved to its current Silicon Valley headquarters in early 2009, the venture capital industry was experiencing its most traumatic moment since the dot-com bust as venture firms hit the pause button after Wall Street’s implosion.
Venture funding would fall 31% in 2009 to the lowest level since 2003, and Gunderson Dettmer like most law firms servicing start-ups watched deal flow substantially drop, too, by 18%.
The industry seemed to be spiraling downward with the economy. But like the building Gunderson Dettmer revived in Redwood City — a desolate office complex built by a symbol of the dot-com bubble, Excite@Home, just before it went under — venture capital investment rebounded and start-ups are buzzy again.
And business is picking up at law firms, including one of the fastest-growing, Gunderson Dettmer, which saw the number of venture capital deals it represented rise 14% to 815 in 2010.
“2008 and 2009 was life or death in the financial world,” said Robert Gunderson, who started the firm in 1995. “In 2010, we wouldn’t have predicted we’d be as busy as we were.”
According to data published in the April issue of Dow Jones Private Equity Analyst, Gunderson Dettmer, whose full name is Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, took over the top spot in 2010 as the most active law firm in venture capital, supplanting influential Silicon Valley firm Wilson Sonsini Goodrich & Rosati, which ranked No. 1 for years. (See chart below.)
While 83% of the 58 law firms in the Private Equity Analyst survey saw an uptick in global deals last year, Wilson Sonsini has gone in the opposite direction–with VC deals falling 22% in 2009 and another 4% in 2010–as it has gravitated somewhat toward representing bigger tech companies and away from start-ups.
Of the top 10 most active firms on this list, No. 7 Orrick Herrington & Sutcliffe showed the greatest gains in 2010, with VC deals more than doubling to 250 from 114. Another firm, No. 9 Lowenstein Sandler, saw deal flow rise 69%, while No. 5 Goodwin Procter recorded a 62% increase in deals.
Most of the firms on the list also represent private-equity deals — No. 3 DLA Piper (representing Paul Ceglia in his claim versus Zuck and Facebook), for instance, saw 541 VC deals and 435 private equity deals, making it the top-ranked in the private equity industry. (Note: This ranking only includes firms that willingly provided information–so at least one well-known firm in the start-up community, Fenwick & West, wasn’t listed.)
But Gunderson Dettmer, which represented some big M&A deals in 2010 including Google Inc.’s $700 million purchase of ITA Software Inc., is uniquely focused on start-ups, doing just four PE deals in 2010 versus 815 in VC. That goes back to the firm’s roots, when Gunderson recruited a number of big-firm attorneys and pledged to encourage an entrepreneurial culture from the start.
“We don’t really toil in the private equity vineyard by choice,” Gunderson said. “Venture capital is a very distinct marketplace with a very vibrant element.”
As the cost to build certain Internet and software start-ups has come down, law firms have become more competitive in trying to entice cash-strapped companies by offering creative financing plans. Gunderson Dettmer isn’t as public about doing this as other firms like Cooley (Represents Facebook), DLA Piper and Wilson Sonsini, but it does selectively offer fixed and deferred payment plans for its best bets, and sometimes makes investments itself alongside venture firms.
Gunderson remains optimistic about 2011, saying his firm is seeing more deal activity this year over last. The firm, which also has offices in Boston, New York and San Diego, is also in hiring mode, and is expanding into China.
“We’re busier across all sectors–investments, venture fund formation, IPOs, cross-border deals, strategic alliances. It’s gratifying but surprising given how fragile the rest of the world is right now.”
There’s also a bit of caution. Asked whether he believes the consumer Internet sector is bubbly, he said: “If it isn’t already, it’s close. A lot of great things are coming out of the sector, but there is far more capital flowing into these companies than ideas to warrant this capital flow.”
Law firms like Gunderson Dettmer can benefit from bubbles, generating big fees from investments, M&A deals and IPOs, but they lose out if there’s a crash.
“We lived through the dot-com meltdown,” Gunderson said, “and some people didn’t survive. But we’re pretty cognizant when things are overheated, and thoughtful of the twists and turns the economy can take.”
- COMMENTARY: The word lawyer or attorney is a bad word in my vocabulary. I've never had a contract or agreement that they didn't tear apart with the skill of a surgeon. I am actually pleased to hear that another law firm, other than Wilson Sonsini is NO 1 among business startups.
- Gunderson Dettmer's mission statement says it all:
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- Courtesy of an article dated May 3, 2011 appearing in The Wall Street Journal's Venture Capital Dispatch
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