Three expert lawyers from tech-focused firm Orrick explain what it’s like to act for exciting new companies seeking investment; collaborate with first-time founders and serial entrepreneurs; and taste tests cakes for a potential expansion of a baking platform…
Chambers Student: What is covered in the venture capital and technology practices, and how do the two areas work together?
Aoife Casey, associate: Venture capital is the investment by a venture capital fund into an early stage company that the venture capital fund deems to have high growth potential, usually by a subscription for shares in that company. A venture capital practice involves representing either the venture capital fund or the company throughout the investment process, from the negotiation of the term sheet through to the signing of the final investment documents.
In a technology practice, you may act for a company throughout all stages of its life cycle – from initial incorporation and board appointments to later stage acquisitions or exits. At some point during the company's life cycle, it is highly likely that the company will seek investment from a venture capital firm and the two practices will overlap.
Alec Smith, associate: Our venture capital corporate practice predominantly advises investors and early-stage companies on debt and equity financings. Generally speaking, venture capital funds initially invest in a company at the beginning of its life cycle for a minority stake, and often participate in further financing 'rounds' (i.e. series 'seed' 'A', 'B', 'C' etc.) as a company grows and requires more investment.
“At some point during the company's life cycle, it is highly likely that the company will seek investment from a venture capital firm..”
Our technology practice offers a full-service of corporate and commercial assistance to tech-companies throughout a company's life-cycle on a stage agnostic basis. Our technology team advises on data protection, intellectual property, IT contracts, data privacy, software licences, consumer law and general commercial contracts. Following a VC financing, our clients will often seek the advice of our technology team to assist with such matters, and to work alongside the company in growing and developing a company and its business relationships.
Janine Suttie, senior associate: Unlike traditional law firms which tend to differentiate by practice group, we operate as one technology team made up of corporate, commercial, data protection, cyber security, tax, employee benefits and regulatory lawyers.
CS: Can you give us an idea of the type of clients you work with and why they need lawyers?
AS: About 60% of the clients in our VC practice are early stage companies (such as Revolut, Graphcore, TransferGo, Stripe), and 40% are VC investors (such as Atomico, Vitruvian, Salesforce, Amadeus, Kinnevik, LocalGlobe and others).
Whether we are acting for a VC investor or a company, our role will usually start at term sheet stage, negotiating the key terms of a transaction and the impact on a company's cap table. Once these elements are finalised, we will move on to drafting the investment documentation and managing the transaction over the course of six to ten weeks. When working with our investor-side clients, our role also involves conducting legal due diligence on the target company.
“One client even brought us some cakes to taste test because she wanted our opinion on whether to add a new baker to her cake platform.”
AC: The clients we work with are very diverse, from pure technology and AI companies to companies that produce tangible products or provide services that we all use on a day to day basis. The people we meet from those clients are also very diverse, from first time founders to serial entrepreneurs. The connecting factor between them all is the passion they have for their companies and the work that they do.
These clients need lawyers for a range of different reasons. Some are very hands off and only instruct us when there is a large transaction taking place. Others like to have more engagement with us and ask our advice about business, as well as legal, matters. One client even brought us some cakes to taste test because she wanted our opinion on whether to add a new baker to her cake platform.
JS: As a corporate lawyer, I work with both technology start-ups to get them the injection of cash they need to bring their product to market and also more established tech companies who need additional cash in order to continue growing their business. A variety of investors will invest in these companies by providing cash via equity or debt (and other quasi-instruments), which we help companies and their management teams to negotiate. Tech companies of various stages and sizes make up Orrick's core client base, however I also advise a number of high net worth individuals and larger financial institutions/venture capital houses on their investments into a variety of tech companies in order to get them the best possible protections for the cash they invest into high-risk businesses.
CS: Can you talk us through a transaction you’ve worked on and how you spent your days?
AS: I recently acted for a leading VC investor on the $60m Series B financing of a London-based digital-banking start-up. Once the term sheet was finalised and the due diligence report submitted, our work on the main transaction documents began, and an average day would consist of negotiating and drafting the key terms of the transaction documents, as well as the warranty suite. This particular transaction included multiple existing institutional investors, an $11 million loan note conversion and a $15 million share sale, meaning that a large proportion of our work revolved around managing the interests of our client and the expectations/demands of the existing shareholder base.
CS: What are the differences between a partner’s role, an associate’s role and a trainee’s role in the venture capital/technology space?
AC: Everyone is very hands on at Orrick, so while partners are involved in the strategic decision making in a transaction and the high-level negotiation of term sheets and investment documents, they are not afraid to get their hands dirty and do some proofreading with the trainee. It's a real team atmosphere, and everyone does what they can to help out with a transaction.
“A high of the practice is definitely the clients. They put their heart and souls into what they do and their passion is really inspiring to see.”
AS: We operate a relatively flat structure on most VC transactions at Orrick. To draw a distinction, however, the partner's role is typically more focused on the resolution of key – often controversial – negotiation points, advising on market norms, overseeing the legal drafting of key terms in the investment documents, and advising on general strategy. An associate's role is more focused on the 'heavy-lifting' of a transaction, such as the transaction management, client liaison and initial legal drafting. A trainee will usually assist with the drafting of ancillary documentation (board minutes, shareholder resolutions, etc.), managing a signing process, and generally assisting the associates.
JS: Our partners are very hands on and we expect all team members to be fully immersed in and up to speed on any given transaction. Of course, our partners have a huge wealth of market knowledge given their tenure in the sector and are therefore often best placed to guide our clients through the commercial elements of any transaction. All team members will get involved in drafting, negotiation of documents and correspondence with clients, opposing counsel and intermediaries.
CS: What are the highs and lows of the practice?
JS: Highs include working in a collaborative team environment with lots of exciting new companies in a huge growth space for London and the rest of the UK, Europe and beyond.
Given the number of transactions we work on at any one time (we completed 216 venture capital financings across a five-partner team in 2018), it can be difficult to keep all the plates spinning and manage a number of different client expectations at the same time – this is a skill which is definitely developed over the course of your career!
AC: A high of the practice is definitely the clients. They put their heart and souls into what they do and their passion is really inspiring to see. It's really heartening when the client's passion and hard work is rewarded, and they become successful and achieve what they set out to do.
A low is probably the tight timescales in which some investment rounds take place. On occasion, the company will tell us that they are about to run out of money unless the investment takes place very quickly, and that can be stressful to implement because we know that delays may result in employees not getting paid and real hardships occurring as a consequence.
CS: What are the current trends in these areas?
JS: Big data, AI and cryptocurrency remain as significant growth areas. Disruption in the travel sector is coming next, alongside a clearer focus on the environment and how technology can improve the way we treat our planet – think pooling of driverless cars and beyond!
AC: FinTech and regtech are two areas that are currently trending. Many challengers to the traditional banking sector are entering the market and that combined with increasing governmental scrutiny on financial institutions has led to an increase in financial regulations, and therefore an increase in technology active in this area.
“Disruption in the travel sector is coming next, alongside a clearer focus on the environment and how technology can improve the way we treat our planet – think pooling of driverless cars and beyond!”
AS: FinTech and artificial intelligence companies continue to dominate our client base, particularly in the e-money and AI-marketing spaces. We have also seen an increasing number of institutional venture capital funds enter the market recently, as well as a handful of private equity funds looking to invest in early-stage companies at Series B stage, where they would typically hold out until a company is more mature.
CS: How much of your work is domestic versus international?
JS: Unlike many US law firms in London, the clear majority of our work is home grown in the UK and across Europe, with almost no time spent working on the UK aspects of US transactions, which would often involve limited client exposure and interaction. We do of course work collaboratively with our teams in the US on joint transactions, to refer work appropriately and to share market knowledge.
AC: The vast majority of my work is international, with complex cross-border transactions representing 80% of the work within the team.
CS: What would you say the future of venture capital and technology holds?
AC: The future of venture capital and technology is very bright. Technology is developing at an increasingly fast pace and the entrepreneurial spirit is alive; people have the confidence to take a chance and start a company.
Further, recent IPOs such as that of Uber, have demonstrated how much a venture capital fund can gain from investing in a technology company in its early stages and these funds are continually on the lookout for new and promising companies. It's a really exciting time in this sphere and I can't wait to see what happens next.
“Technology is developing at an increasingly fast pace and the entrepreneurial spirit is alive; people have the confidence to take a chance and start a company.”
JS: VCs have huge amounts of funds to put to work, with more typical private equity houses turning their attention to the sector and getting in on the action given the significant opportunities for returns in the venture capital space. Who knows where technology will go next, but start-ups will always rely on the VCs to bring their innovative products to market and to fund future growth.
CS: What is unique about Orrick’s venture capital and technology teams?
AS: Our technology companies group comprises five broad teams, which work together to provide the best possible service to our clients: a corporate VC team, a commercial/tech team, a US-qualified VC team, a share-options team and a company secretary department.
In practice, this means Orrick is able to provide full-service, stage-agnostic, assistance to its tech clients across its life cycle, often working with a company from its incorporation right through to its sale or IPO from both an English and US perspective.
Orrick's London team alone worked on more than 218 financing rounds last year for its technology clients, working for both companies and investors on a 60:40 basis. The constant exposure to both sides of a transaction allows our team to properly understand each party's perspective in a negotiation and the pressure points/priorities of both sides, as well as market standards.
JS: Orrick was one of the first law firms to focus on this area and remains the pre-eminent firm to advise clients in this space. Across the worldwide teams, we have a vast amount of practical and commercial knowledge of the sector in addition to our legal expertise, which is invaluable in providing the best advice to our clients. We also love tech!
CS: What advice do you have for law students who may be interested in these areas?
AC: Keep abreast of developments in technology – newspapers such as the FT usually have great technology sections. If possible, choose subjects like IP and company law in university to get a good background in the area.
AS: The VC and tech world is an exciting and fast-paced one. In terms of our technology team, a genuine interest in tech companies is key – in order to properly understand a client and provide thorough, focused advice, a tech-lawyer will need to first understand the operations of the company and its tech.