Friday, January 24, 2020.
Top 1Ls,
We hope you’re quietly finding your path amid the chaos of fall grades coming out. We trust you have considered our advice and are on track with your plans. Once you have a clear goal and well-designed plans to achieve it, steadfastness in execution matters more than anything else. Don’t allow or enable triviality to enter your space.
We hope you enjoy this week’s issue.
Lawyering is an exercise in risk avoidance and management. So it’s fitting that we kick off our Top 1L newsletter with one of the worst things that could possibly happen to an attorney: getting laid off. As noted by a number of media outlets, legal startup Atrium is laying off most of its attorneys (TechCrunch, Bloomberg, San Francisco Chronicle) in what the firm is describing as a “pivot” to legal software technology.
First and foremost, our sympathies to the Atrium lawyers, many of whom left their secure jobs to build the startup’s law firm business, which is now getting shut down.
From the Top 1L vantage point - with our singular focus on your individual career - there are specific lessons to be learned here. For those uninitiated to the world of tech and high growth startups, we aim to show why, despite the riskiness of startups, you might want to consider a path that will eventually provide you with the option of joining one. Atrium’s continuing story is not just a cautionary tale, but a peek into the inner workings of Silicon Valley and the potential risks and rewards that are part and parcel of the world of technology.
What happened
Atrium, a startup led by serial entrepreneur Justin Kan, called itself “a law firm and software company” and aimed to disrupt Biglaw. It’s now laying off the majority of its attorneys in what insiders have described as a complete shutdown of the law firm side of its business and a “pivot” to focus on legal tech software.
The word “pivot” here is meaningful but we will come back to that. Let’s back up a bit and try to understand why successful attorneys joined Atrium and why generally speaking, you should NOT consider joining a startup when you kick off your legal career.
Atrium started in 2017 with about $10 million in capital. It then raised another $65 million in 2018, with tech media outlets cheering them on to disrupt the evil world of Biglaw. The idea was to use software to automate time-consuming mechanical work to free attorneys so they can focus on complex problem solving. If this approach doesn’t sound genius or unique, we’re in agreement. There was another company called Clearspire that said very similar things and then shut down after a few years.
But one of the things so different about Atrium was its founder, Kan, who is a proven entrepreneur that sold his previous startup Twitch to Amazon for a whopping $970 million. This provided him and Atrium with some serious legitimacy, which is reflected in the list of top VCs and celebrities that backed the venture: Kleiner Perkins, Founders Fund, Initialized, Andreeson Horowitz, Y Combinator’s Continuity Fund, General Catalyst and Ashton Kutcher’s Sound Ventures. The abnormally high amount of attention this legal startup received, combined with the inordinate amount of actual frustration every attorney experiences when trying to get stuff done (there has to be a better way!), was probably why many smart and successful lawyers jumped ship to disrupt law by joining Atrium.
Why this matters to you
The story highlights the uncertain fate of lawyers who join unproven, even if well-funded, tech companies. For every tech company that makes it big, there’s a corporate graveyard filled with the dissolution filings of tens if not hundreds of failed companies. Atrium’s story still continues, but the law firm part of it is done. It will have a very difficult time recruiting lawyers because people won’t easily forget these stories:
Biglaw’s the way to go
If you’re interested in emerging technology companies, the Biglaw firms that dominate this category are still your best bet as you start off your career. Cooley, Fenwick, Gunderson and Wilson Sonsini are among the top names. The appeal of getting a summer associate position at these firms is stronger than ever.
Biglaw endures while new entrants like Atrium retreat from law firm land.
But if tech is risky, why join a tech law firm?
To take a step back, many of our Top 1L readers - especially those based in locations far away from Silicon Valley - may not be very interested in tech to begin with.
To those Top 1L readers, we posit that despite the risks of the tech world, as a lawyer you should still seriously consider a path that includes an option to join it. We describe why:
Why, part 1: hypergrowth
As we noted earlier, Atrium’s change in business strategy was referred to as a “pivot.”
A pivot sounds like no big deal. But as Atrium lawyers now know, a “pivot” can have certain huge consequences that are antithetical to the innocuous nature of the term itself. In fact, the word '“pivot” is Silicon Valley’s way of describing crazy big changes in a way that makes them seem harmless and ordinary. It’s necessary for the industry to have a casual way of describing huge moments like these because of the regular frequency with which such changes occur. Startups are predictably unpredictable.
But Top 1L readers, what we want to highlight here is that the unpredictability and instability of a tech startup is a necessary component of a tech startup’s journey, where it aims to create a hypergrowth trajectory that will allow it to create, dominate and/or disrupt entire categories of businesses. Let us emphasize this again: unpredictability comes with the territory of trying achieve hypergrowth.
And when they get it right, a tech startup can really hit the jackpot. It can grow so fast and be so good at what they do, that very few companies can possibly even be considered legitimate competitors. Amazon, Facebook, Google all started as startups.
So how is a startup’s hypergrowth relevant to you?
Why, part 2: equity
As a lawyer, you’re generally a salaried employee. Whether you work at a law firm or make the jump to inhouse, the growth of your employer impacts you only indirectly and with a long time lag. This is because as a junior or mid-level lawyer, you are usually not given equity, an ownership stake in the value of the business. Typically, it’s only when you get to the very senior levels that equity is included as a major part of your compensation.
Equity is precisely why lawyers gun to join the partnership ranks. Because when your compensation includes equity, your wealth accumulation will depend less on your individual labor. You start getting financial credit, sometimes more than you deserve, for the value of work provided by others or the products your firm makes and sells to people you’ve never met. If your firm is able to make and sell something very well - whether it be legal services or a consumer-facing software product - your wealth, your net worth will go in one direction: up, up and up.
But only if you have equity in the business.
Now Top 1L readers, consider that:
It’s really only in the startup world where a high-growth business will give junior and mid-level lawyers, not only a salary, but also a meaningful chunk of equity.
Equity in a startup entering hypergrowth can be extremely rewarding from a personal finance and career standpoint, because startups are fast, and the speed with which it is successful will be the speed with which you will be wealthier and more successful from a career standpoint.
From a financial standpoint, equity is really the foundation of wealth generation. It’s not a cash salary that makes you rich, but equity in a business that does. As Ashvin Chhabra, who manages investments for billionaire James H. Simons, notes in his book, The Aspirational Investor, the main source of wealth of 60% of the world’s wealthiest individuals is business ownership interests - equity.
Wealth isn’t the only thing that is important. But if you’re doing what you love, it’s good to maximize the returns on your work and involvement in a business. Getting equity is one of the best ways to accomplish that.
And from a career standpoint, you will stand out because, according to veteran VC and founder of Wealthfront Andy Rachcleff, you will be deemed to know something proprietary about hypergrowth that others will want very much for their company. This two minute video, while intended more for pending college graduates than law students, discusses some of these aspects:
Now the positive career and finance implications only kick in, if you can somehow land a job at one of these high growth startups. For most, it won’t be an option to join as a software engineer. You’ll likely need to join as a lawyer.
You can have cake and eat it
And this is why people flock to firms like Cooley.
When you’re at a Biglaw firm that specializes in working for promising startups, you can enjoy the unique combination of having the security afforded by a fat paycheck and also have a front row seat to the world of unpredictable but potentially lucrative startups. Because the work of attorneys is often secret work and many of your conversations will be attorney-client privileged, you will quickly become an industry insider.
When one of those startups starts to grow rapidly, you’ll be one of the first to know. And when they need to hire their first inhouse lawyer, you’ll be the best candidate for the job. And if you get an offer, you can totally expect that a sizeable chunk of equity will be part of your compensation arrangement.
The lure of associate positions at Biglaw tech-focused law firms is that you can have your cake and eat it. Without having to risk it all, you’ll be able to see how risk evolves into opportunity at high growth startups and pounce on it at the right time. In the meantime, you’ll enjoy the automatic deposits of $190,000 into your bank account during your first year, and more during later years.
Key takeaway & implications for you
The startup world is risky, but joining a law firm that handles much of the high growth startup work is a good way to achieve the dual goals of achieving immediate financial security and getting insider knowledge on employment opportunities at hypergrowth startups.
If this post has piqued an interest in tech for you, you should consider doing some research on the tech focused law firms we listed above (Cooley, Fenwick, Gunderson and Wilson Sonsini), in addition to larger law firms like Latham, Orrick and MoFo that have specific offices with a tech-heavy focus (typically located on the west coast). The Chambers and Partners list here can also be a good starting point. The questions you should be trying to answer in this process should include:
What is the degree to which this firm or this office represents high profile tech startups? What names do I recognize?
Where do associates of these firms go if they leave the law firm (what kind of exit opportunities)?
What current and former associates or partners are alums of my law school or undergraduate school?
While doing this research, make sure you summarize your findings in an online excel spreadsheet or some other method of capturing your effort for later use. This can be the critical difference between you and other candidates (we plan to address this in detail in a later issue) if you’re able to secure an interview spot at one of these firms.
For the attorneys who are alums, you can reach out to them to see if they might be willing to schedule a quick call with you to answer some questions. You should only do this if you have done sufficient research on the firm and the attorney’s background and can prepare nuanced but honest questions that display a clear and genuine interest in their world. If you do this, don’t forget to note the details of who you reached out to, who you spoke with, who didn’t respond in your spreadsheet or file. You will thank us profusely later.
We hope you enjoyed this week’s issue. We welcome any and all feedback, questions or concerns. You can send them to jack@top1l.com.