How Austin (and not Silicon Valley) is Changing VC/Tech Law

In the startup community, it’s very well understood that bigger does not always mean better. In fact, bigger can often mean slower, more bureaucratic, and in many cases overly complex and expensive. Yet for all their focus on new business models and disruption, Silicon Valley startups are extremely conservative in their choices of law firms. Pick a random VC-funded startup in Silicon Valley, and there’s a 95 percent chance it uses one of a very short list of law firms. And more peculiarly, every firm on that list is large, very expensive, and decades old.

There are a lot of reasons for this strange phenomenon, and they go deep into valley economics, culture, and history. Occasionally a few lawyers will break away and build a respectable boutique practice there, but the general presence of newer, more nimble firms is barely a blip relative to the overall economy in Silicon Valley. The same can be said for other tech ecosystems like NYC and Seattle.

New Technology, New Firms

Not so in Austin. Here, pick a random VC-backed startup, and more likely than not it doesn’t use large law firms, and isn’t planning to for the foreseeable future. Of course ‘BigLaw’ still dominates IPOs and very very large deals, as it should (big firms are good for big deals), but the opposite is true for Austin’s tech companies that can truly be called startups. To people not very familiar with the history of technology law, this shift to boutique firm dominance may not seem like a big deal. But to those who work in the tech legal market, it’s monumental.

Ask Jose Ancer, a senior VC lawyer at Miller Egan Molter & Nelson (MEMN) and blogger at Silicon Hills Lawyer, and he’ll tell you that three factors explain why Austin is breaking down BigLaw’s dominance in technology law: (1) New technology, (2) Entrepreneurial lawyers, and (3) a focus on capital efficiency.

“Everyone knows that SaaS and the Cloud have dropped the cost of starting a startup by 90 percent. Many don’t know that they’ve done the same for law firms. If I’m a great lawyer in a large firm that is eating as much as 80 percent of what I bill to support its institutional structure, I’m absolutely running numbers on whether I can and should break free,” says Ancer. Over the past 5 years there’s been an explosion in cloud-based services and outsourced service providers that dramatically simplify the infrastructure needed to start and scale a law firm.

Trimming the Fat

Many clients of large, traditional firms don’t realize that the senior associate charging them $625 an hour is probably getting paid 20-25 percent of that rate; leaving a good deal of fat for more nimble firms to trim. Put the right resources in place to completely redesign the firm delivering that lawyer, and her rate can drop hundreds of dollars an hour without her taking much of a pay cut. That’s effectively what is happening in Austin.

But those economics apply across the country. Why is Austin driving this change? Ancer says the city’s legal culture and its focus on capital efficiency are key. Much like the rest of Austin’s professional culture, top lawyers in Austin have historically pushed against the “bill, bill, sleep, bill, and bill some more” culture of traditional large firms. They want to build great careers and get paid well, but they’re more willing to fight for balance than their counterparts in other cities. That has historically meant that (i) the Austin offices of large firms often have better work-life balance, but more importantly, (ii) Austin lawyers are more likely to build their own firms to work on their own terms.

A Growing Ecosystem

To Ancer, “If a top corporate, patent, trademark, whatever lawyer in Austin has found a viable path (thanks to new technology) to drop his rate from $650 per hour to $400, while actually having a personal life and without taking a pay cut, good luck stopping him.” The end-result is a growing ‘ecosystem’ of top lawyers in all kinds of specialties that is collaborating to rival the ‘one stop shop’ model of large firms.

And in a capital-strapped town like Austin, where financings generally have 1 or 2 fewer zeros than their Silicon Valley counterparts, paying $250 less per hour for great counsel is impossible to ignore. “If my Series A is $1 million (in Austin) instead of $10 million (on the West Coast), you better believe I’m going to care if I’m overpaying by hundreds of dollars an hour on legal,” says Ancer. The legal ecosystem here has evolved and thrived out of economic necessity.

With a growing client base that stretches across Texas and the South, and reaches the coasts, Ancer sees a significant market opportunity for the emergence of new top-tier technology law brands that challenge the old players in the early-stage and middle markets. Like MEMN, they’re leveraging technology to be leaner, more focused, and because they aren’t going after billion-dollar deals that BigLaw is designed for, more responsive to startups.

If you’re going IPO or selling your unicorn for $750 million, you may look to a Silicon Valley law firm. But for the rest of the VC-backed market that needs great technology lawyers whose rates are closer to earth, Austin is increasingly the place to look.

This is a sponsored post.