Startup guru Andre Gharakhanian on Silicon Valley, emerging companies, and litigation finance
Back in October 2007, not long after the first dot-com bubble had burst and just ahead of the Great Recession, Andre Gharakhanian took a big risk—not unlike the ones usually reserved for his startup company clients. He left the relative safety of a Big Law job at Orrick, Herrington & Sutcliffe to launch his own firm focusing on emerging companies and their venture investors.
More than a dozen years later, Gharakhanian’s firm, Silicon Legal Strategy, is a fixture of the startup scene in Silicon Valley and employs a team of approximately 50. The focus remains squarely on startups, advising on a full range of corporate matters and often serving as the general counsel for their client’s companies.
Bentham IMF investment manager and legal counsel Stephanie Southwick, herself a former Silicon Valley law firm partner, recently sat down with Gharakhanian for a wide-ranging, two-part interview for our Beyond Hourly podcast. They discussed his move from Big Law to a startup practice, his philosophy about representing early-stage companies, and his expert advice to company founders on everything from the search for legal counsel to the value of litigation finance as a tool for resource-challenged startups.
Following are a few takeaways from their discussion:
- When Hiring Counsel, Startups Should Look for Firms that Understand Their Experience. It’s “mission critical,” Gharakhanian says, for a startup “to work with a law firm that is super-focused on startups and that not only speaks the language but that has the market data and understands how things are done here.” A firm that doesn’t have the experience in working with a startup may generate “a level of friction,” he says, “because we’re speaking totally different languages.” The firm should also be thoughtful about how they staff teams and the number of engagements they are taking on to ensure the client is going to receive the proper level of focus.
- Moving Away from the Billable Hour May Be More Complex for Startups. For late-stage private or public companies with established legal budgets, moving toward fixed-fee arrangements may be an easier sell than for emerging-growth players. Many startups are operating without a general counsel, and it is difficult to accurately create fixed fee arrangements for them because the level of services they require vary wildly. “We have clients that spend as little as $500 a month, and we have clients that spend $50,000 a month,” Gharakhanian says.
- Venture Capital Activity Remains Robust. Gharakhanian says the climate for venture investment is “still hot, still frothy.” VCs are still sitting on a large reservoir of investable cash, he says, “so these are good times, and there’s a lot going on.” Meanwhile, venture funds are attracting new investors – including Hollywood celebrities who are being guided into VC funding as a fresh category of private equity investment. (Gharakhanian was recently involved in a venture deal that included investments from Orlando Bloom, Will Smith, Justin Timberlake, Katy Perry, and Kevin Durant.) “The money managers and attorneys on the celebrity side now have more of a fluency in these kinds of investments,” he says.
- Lawyers Should Remember: For Startups, Every Matter is Bet-the-Company. Lawyers should demonstrate they understand that from the client’s standpoint, each issue they face might mean life or death for the enterprise. Even matters that may seem relatively mundane in legal terms, may be critically important to the life of a business. For instance, counseling the company on hiring a junior software engineer might not seem like a major legal task—but for the business, it might mean a crucial acceleration of product development. From a customer service standpoint, says Gharakhanian “it is just as important, if not more important” than technical legal skills for lawyers to share the “sense of urgency and anxiety” that their clients feel.
- Even with Advancing Tech, Lawyers Will Thrive. Gharakhanian works with cutting-edge tech companies and acknowledges advances are being made in legal technology. Still, he sees a bright future for lawyers. “You can't just throw up the intricacies of a client interaction into an algorithm,” he says. While “many things we do are being automated” and venture capital is pouring into legal tech, law is “still a relationship business” and will remain so, he says.
- Resource-strapped Startups Can Use Litigation Finance to Protect Their Assets. Gharakhanian says his clients often shy away from even highly meritorious claims because they lack resources. More often than not, they have been wronged by larger players, particularly over intellectual property and trade secrets issues. “When companies are stepping into your space with regard to some patented technology, and you would like to set the tone in the market and say that’s unacceptable, with startups like ours, the resources are very limited,” he says.
As we’ve noted in the past, litigation financing allows the startup and its counsel to access non-recourse funding to pursue highly meritorious claims. Funding helps the startup even the playing field with well-financed adversaries. This includes allowing the startup to engage top-notch legal representation and competent expert witnesses and also withstand protracted litigation without having to accept an early settlement that is not tethered to the merits of the case. Unlike being on a contingency fee arrangement, a funder can provide a company with operating capital needed to keep it afloat for the lifespan of the litigation.
To learn more about the benefits of litigation finance for startups and other enterprises, visit our Company Insights. There, you can also listen to both of Southwick’s Beyond Hourly podcasts with Gharakhanian. The Insights also offers CLE seminars to companies interested in working with funders and our recent client podcasts, blog posts and videos. To learn more about the ways litigation finance can help you pursue meritorious claims, contact us for a consultation.