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 test 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?
Alec Smith, managing 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.
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, share incentives, 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.
Stephen Tallon, senior associate: The VC practice is focussed on advising some of the most exciting companies, and the investors that back them, on all aspects of the fundraising process. We consider the size and stage of the company, the market in which it operates, the commercial drivers for a transaction and numerous other elements of a deal in order toprovide tailored and pragmatic legal advice.
Given the overlaps between VC and tech companies, this leads to excellent synergies with our Technology practice – which is focussed on the key issues that tech companies encounter including data privacy, cyber security, intellectual property and much more.
Orrick's focus on these areas allows us to interlink our expertise and provide market-leading advice to our clients.
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 Graphcore, TransferGo, Stripe and Dogmates), and 40% are VC investors (such as Atomico, Vitruvian, Salesforce, Shard Credit Partners 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.
Rachel Conder, Associate: We work with both companies and investors advising them on range of matters including an equity financing, an exit or general corporate matters, such as the exercise of options. Clients, whether a company or investor, need lawyers to guide them through unfamiliar areas on both larger transactions such as a fundraising round but also, in respect of companies, with the day-to-day running of a company such as director appointments or resignations.
ST: At Orrick, we have a balanced client portfolio and advise both companies and investors. This gives us excellent insight across the market and provides the opportunity for our lawyers to gain in depth experience of both sides of a transaction.
On the company side, one thing I love is that we are stage agnostic – meaning we work with startups through to global unicorn companies. The early stage companies look to us as trusted advisors to help them with all of the initial challenges such as incorporation, seed funding, first hires, incentive plans and so on. With the later stage companies, the fundraising advise remains a key area, but we develop into more complex issues such as group structuring, tax advice and dispute resolution.
On the investor side, as a truly global law firm we can offer unique reach and coverage for our clients. Investors may not be limited to a single jurisdiction and want a law firm that can work with them in any major market where they find the next great company and opportunity. With our expansive and ever-growing network of offices around the world, Orrick can assist with investments and due diligence wherever it may arise.
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.
RC: I recently acted for a London-based software-platform company on its £3m series seed financing round. Although the founders, a husband and wife, were extremely successful in their chosen careers prior to founding this company, raising VC funds was a new area. We guided them at each step of the way, including assisting them early on with negotiations surrounding the term sheet and subsequently drafting the main investment documents. Although originally this was to be a simple series seed financing round, due to a time delay on an investor’s end, we needed to implement a last minute advance subscription from this investor to enable the company to have an injection of cash prior to the closing of the round. Once negotiations had finished on the investment documents, I assisted with the signing and closing process which included sending out signatures via DocuSign and managing the collection of signatures. Since the close of this financing round, we have continued to advise this company including in relation to its intellectual property rights and the incorporation of a US subsidiary.
ST: A friend from university recently took up an exciting role as Head of Legal in a tech company. One of the first projects for them was to raise capital and we had the excellent opportunity to help them in doing so. We were involved at every stage of the transaction – from term sheet negotiations, to drafting the definitive investment documents and ancillaries, to co-ordinating the signing and closing process.
My days were extremely varied on that deal and it depended on the stage of the process. Initially, time was spent on calls discussing term sheets from various investors and weighing up the competing terms. As we progressed into deal documents, there was the drafting and exchange of emails – making sure we summarised key issues in clear and understandable ways. Finally, as we moved into signing I worked closely with the trainees and juniors in the team to collect signatures and keep the client updated every step of the way.
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?
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.
RC: I recently acted for a London-based software-platform company on its £3m series seed financing round. Although the founders, a husband and wife, were extremely successful in their chosen careers prior to founding this company, raising VC funds was a new area. We guided them at each step of the way, including assisting them early on with negotiations surrounding the term sheet and subsequently drafting the main investment documents. Although originally this was to be a simple series seed financing round, due to a time delay on an investor’s end, we needed to implement a last minute advance subscription from this investor to enable the company to have an injection of cash prior to the closing of the round. Once negotiations had finished on the investment documents, I assisted with the signing and closing process which included sending out signatures via DocuSign and managing the collection of signatures. Since the close of this financing round, we have continued to advise this company including in relation to its intellectual property rights and the incorporation of a US subsidiary.
ST: As a trainee I worked on private equity transactions, where the role was largely focussed on process and due diligence and it was difficult for the juniors to get exposure to the higher end and more exciting work. However, in the VC / tech space there isn't the same delineation of roles. You get involved at all levels and in all elements of the transaction – so juniors get in front of clients as much as partners and are integral throughout the transaction. Of course there are elements that require partner input (e.g. strategic decisions or market insight) and elements that require associate or trainee input (e.g. drafting ancillaries, due diligence, etc) but it is a world in which you get exposure at a much earlier stage in your career.
CS: What are the highs and lows of the practice?
RC: A particular high for me is to be able to watch the success of our clients, particularly those that we have advised from their first financing round who are now going on to raise their series A/B/C financing round. Each founder has an exciting company which they are passionate about and it is great to see these companies develop and grow over time. The high volume of transactions which each of us work on at one time can be a challenge, particularly to manage clients' expectations, but this also provides an opportunity to work with a large number and variety of companies and investors. A low of the practice is that the VC market is impacted by a significant number of external factors which makes it unpredictable with peaks and troughs throughout the year. This makes it difficult for companies to predict their potential fundraising opportunities and future growth, as seen this year particularly with a significant drop in the number of investors willing to invest and a decrease in the investment amount.
ST: For me, one of the best "highs" of working in the VC / tech space has to be the exciting clients that we work with. In recent times the most influential and fast growing companies in the world have been technology companies – for some, it is hard to remember a world before Apple, Facebook, Stripe and others. At Orrick, we get to be the trusted advisors to these companies and go on the rollercoaster journey with them. I always enjoying closing a deal and seeing it talked about online and in the papers, knowing we were part of that success.
But there are of course "lows" that come with that and for me one of the hardest parts is when it doesn't work out for these companies. In recent years, fundraising has become much harder and not all tech companies survive. When a client faces insolvency or distressed financing situations it is really difficult but we are there to provide the expert advice needed to mitigate any issues and hopefully get the company through it in the best position possible.
CS: What are the current trends in these areas?
ST: Artificial Intelligence must be the buzz word of the moment in tech! It is a hugely exciting area which is leading to incredible innovation and excitement. Another trend in the market currently is the increased scrutiny on the fundraising process – coming down from the peak market in 2020-21, many investors are now pushing harder valuations and increasing the level of due diligence required before making an investment.
CS: How much of your work is domestic versus international?
RC: The majority of our transactions involve an international element and it is common to have either the company being invested into, or the investor themselves, being based in another jurisdiction. Orrick's global presence ensures this is not a barrier to our advice and we are able to assist clients in multiple jurisdictions. In order toassist with US elements of VC transactions, the London office recently hired a fantastic team of US qualified lawyers to be part of the VC/tech team based in London.
ST: Orrick is a global law firm when it comes to VC and technology, with offices in all major markets including across the US and Europe. This mirrors the global nature of technology in the modern world. We are set up to work with companies as they expand and investors as they find exciting opportunities, no matter the jurisdiction. We do that with expert teams in each jurisdiction that really know the market and can provide insightful advice in a cohesive manner.
CS: What would you say the future of venture capital and technology holds?
ST: More innovation and an endless stream of exciting companies solving problems, with investors who want to back those companies and make it all possible. The large global tech companies instil a sense of entrepreneurship and expert skills in generations of people, who then have the confidence to start their own business (as we are seeing with the latest group of AI startups) – and that is a potentially evergreen ecosystem that will continue to produce exciting prospects.
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 300 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.
CS: What advice do you have for law students who may be interested in these areas?
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.
RC: Although it is important to show that you have a genuine interest in the VC and tech space, this does not mean you need to have prior legal experience in this area or have worked at tech company, as this interest can be demonstrated in many different ways. There are great events held all over the country for anyone to join so definitely find and attend any you think you might like – you never know who you will meet!
ST: Just dive in. VC and tech is an exciting area and the people involved are usually closer to students (in terms of age, interests, etc) than you might think. This openness means that you can get involved in a meaningful and engaged way at a much earlier stage in your career. So start reading widely, get out to events and meet-ups for whatever area you might be interested in and enjoy it!
