Legal. Law. Law firm. Jurisprudence.
It’s understood in venture capital circles that start-ups’ founding teams are often seeking more than cash and will choose one fund manager over another based on the value-added platform services they offer. Most valued has been support for a company to hone its go-to-market strategy or recruit top technical talent to build out its product lines, as we wrote about here.
Some VCs have gone so far as to offer to mental health services to their portfolio company founders, as we previously reported.
Anzu Partners is raising the ante by backing a new law firm, Lex Generalis, which will give founders access to legal counsel for corporate matters and intellectual property issues for a flat fee. Cathryn Paine, who is chief executive officer of Lex Generalis and a partner at Anzu, says she isn’t aware of any other VCs launching their own law firms.
Affordable legal advice on IP matters is particularly relevant for the Boston-based VC’s portfolio companies, most of which are developing life sciences, edge computing and other deeptech solutions.
“We do a lot of services for the portfolio companies at lower cost, and legal was always this one kind of pain,” Paine tells Venture Capital Journal. “It’s very expensive, and a lot of our firms just work with excellent lawyers that cost a ton of money. One of our companies with a big IP portfolio can spend half a million dollars a year in IP [legal services].”
Start-ups typically connect with law firms during a funding round, usually with help from venture investors who work with the major law firms like Pillsbury, Cooley and others. These companies then tend to continue to use those attorneys.
“Even if they’re a stage A company, we find it’s overkill and it’s a bit too much money for the stage that they’re at. So we were always trying to figure out how to work with boutique firms or to work with an associate, not a senior associate,” Paine says.
Hearing that Arizona had launched a program to enable non-lawyers to own law firms, Anzu applied for a license 18 months ago, undergoing a long, thorough process before getting approval in January to practice law.
Lex Generalis has hired two IP attorneys, two corporate lawyers, a general counsel, a paralegal and a director of operations. It began by servicing several of Anzu’s portfolio companies and has now expanded to work with 10 companies outside of Anzu’s portfolio. All 10 are using Lex for IP and have worked with Lex’s IP attorneys previously. Those attorneys, John and Carin Sears, have PhDs in chemistry and biology, making them better equipped to provide IP support to scientific and high-tech companies.
Lex has posted jobs for more attorneys and would like to hire an electronic engineering IP attorney, “because we have a lot of companies that do robotics and chip design,” Paine tells VCJ.
Another customer base for Lex is university tech transfer offices, which have similar IP needs and “are good sources of pipeline for companies,” she says.
Lex’s narrowly focused legal services are well-suited to younger and smaller companies, which, in the science and technology context, need IP support and corporate advice.
By offering only two practice areas for now, Lex is able to focus on hiring specific types of attorneys offering specific services. No other boutique law firm in the US offers only those two services combined, Paine says.
Don’t fix it yourself
The flat-fee arrangement “fixes the problem of not knowing what your invoice is going to be and getting these chunky invoices” all of a sudden after months of not getting billed, she notes. It provides an open door for CEOs to be able to have a quick call with a lawyer without being billed for it.
“A lot of times, we see CEOs try to fix things by themselves because they’re afraid of a big bill. And that’s a bad idea because they don’t know what they’re doing in the legal world, and they’re better off [putting their time towards something related to] their mechanical engineering skills,” she says.
Lex is currently working with seven of Anzu’s 35 active portfolio companies. Xendee, a developer of a microgrid analysis platform, hired Lex for a flat fee to represent it in a recent funding round. Another portfolio company, BioFlyte, a bio/chemical aerosol threat detection company, pays Lex a couple of thousand dollars per month to ask questions and get service for an agreed-upon list of tasks.
She has also heard from partners at major law firms that they are excited about what Lex is doing because their firms would prefer to “be the firm you call when you have a $30 million Series B.”
Paine is hopeful that Lex will eventually service hundreds of companies across the US and that the law firm will play a role in founders choosing to work with Anzu instead of another VC. In the near term, she’d like to double the number of attorneys on staff and be able to support up to 25 outside companies.
She is balancing her role as CEO at Lex with her ongoing responsibilities as a partner in Anzu’s Washington, DC office, where she continues to oversee the recruitment of science and engineering talent for portfolio companies.
Just six months into her role at Lex, Paine says it has already been an eye-opening experience. “We work with CEOs all the time and now that I’ve been one and lost sleep over making payroll, that’s acute pain,” she says. “I’m glad I’m feeling it, and it’s good for investors to be humbled in that way. It’s certainly helping us build empathy for our portfolio companies.”
Anzu isn’t in a hurry to cut its financial backing of Lex, but Paine wants the law firm to be cashflow positive and have clients covering its expenses.
“I’ve also learned a lot through all these years of investing that cash is king and having money in the bank is the most important thing,” Paine notes.
