Insights

Read the transcript below:

The following episode of Beyond Hourly was recorded before the merger of IMF Bentham and Omni Bridgeway.

Stephanie Southwick:
Thanks for tuning in to the Beyond Hourly podcast hosted by Bentham IMF (now known as Omni Bridgeway), one of the world's most experienced commercial litigation and arbitration funders. Our podcast focuses on advancements in legal services, to drive economic value for law firms and the clients they serve. Episodes of this podcast can be found on our website, www.BenthamIMF.com (now at www.omnibridgeway.com), iTunes and other podcast networks. We welcome you to subscribe to the podcast and leave us reviews.  

I'm your host, Stephanie Southwick. I'm an Investment Manager and Legal Counsel at Bentham's San Francisco office. Prior to joining Bentham, I was a litigator for over 15 years and I particularly loved my cases involving startups, tech companies, and their investors, which is how I met our guest. I was also the managing partner of Greenfield Southwick, a boutique business and intellectual property litigation firm in Silicon Valley. My role at Bentham involves assessing investment opportunities and serving as a strategic resource for the parties we fund throughout the funding relationship.

We are back again for the second half of my interview with Andre Gharakhanian, founder of the San Francisco based law firm Silicon Legal Strategy that represents some of the most exciting emerging technology companies and their venture investors. Andre and his colleagues advise emerging companies in many areas, often serving as outside general counsel, but have particular expertise in venture capital finance.

In the previous episode of Beyond Hourly, Andre and I discussed how he caught the bug, so to speak, and left big law to devote his practice to the representation of startups. He also talks about his philosophy about the representation of startups. He offered some advice to founders and companies looking for legal counsel. It's really good stuff. If you haven't listened to it, I encourage you to do so. Now let's jump back into my interview with Andre. What types of deals are you working on these days?

Andre Gharakhanian:
Oh, a lot's going on. It's all over. It's enterprise, sales and software, it's data. I think we're just on the tip of the iceberg right now. I think big data was a hot term, maybe four or five years ago. Now I think it's actually becoming just like mobile, now you don't talk about mobile as a focus because everything's mobile-

Stephanie Southwick:
Right.

Andre Gharakhanian:
Data, and big data, is along those lines, and it's branching into industries. You think about an industry that doesn't sound exciting like insurance, right? The old insurance model is basically based on actuarial tables of the probability of this age level driver, getting in an accident based on accident data. We're moving away from that. We're moving to a device in your car that has an accelerometer on it that measures your activity and can tell if you're a crazy driver or not. Data—although it's scary and we've seen scary things with data—data is infiltrating our lives in an incredible way. I think we're just scratching the surface on that. And so, a lot of fun startups are using data to harness everything from procurements, to team feedback, performance loops, to insurance, to everywhere. That's sort of been exciting for us. We're really seeing a lot of fun uses of data coming through both on the company side, and the companies that our investor clients are backing.

Stephanie Southwick:
What about trends you see in the venture investments space?

Andre Gharakhanian:
Still hot, still frothy.

Stephanie Southwick: 
There's still money out there?

Andre Gharakhanian: 
Oh, as an asset class, venture capital has evolved into less of an exotic alternative and has become a more mainstream class.

Stephanie Southwick: 
Right.

Andre Gharakhanian:  
There's so much money in the system. It's sort of feeding itself, that capital has to be deployed somewhere. I think that we still don't see a lot of IPO activity, and unlike an early 2000s recession, I think the next recession will be similar to '08 and '09, with respect to the venture community, which was less capital, like the early dot com bubble, there was a capital flight because the values were just disappearing, stock market, wealth … disappearing.  Now it's primarily still tied up in the private markets. If it does happen, more of a belt tightening, which is what the venture community was, in '08, '09, that's what we would see happening now. There's just a lot of activity. The valuations are not out of control. They were actually more out of control in like 2014, 2015. So, they've come down to earth, we think, but there's just so much capital that has to be deployed and so it's good times, a lot going on. M&A activity is also out there, not too frothy. Corp Dev at all the companies, there's a lot of cash in the balance sheets at public companies. They're out there looking to score new technologies.

Stephanie Southwick:
Well, I just read this spotlight on you in the Daily Journal last week. It's announcing a closing for a financing round with your client, Sandbox VR. One of the things that caught my eye is some of the investors are celebrities. Orlando Bloom, Will Smith, Justin Timberlake, Katy Perry, Kevin Durant. Is that a trend you're seeing?

Andre Gharakhanian:
Definitely. I think it's moved beyond the sexiness of the class where, “oh, I want to get in on that” was a thing. Now given this whole, the point of view around the asset class itself becoming a little less exotic, and more quote unquote normal, this is my sort of conspiracy theory philosophy. You're seeing money managers for wealthy celebrities, entertainers, etc., change the viewpoint on this as a class of where to allocate private equity investment.

Then also there's a sort of a consumer angle that's going on as well. It's not always on point based on the investors, but there is an ability for these celebrities not just to be a famous name, but to serve as influencers, to promote products.

Stephanie Southwick: 
Right.

Andre Gharakhanian: 
It's not just about X, Y, Z investor backing this company. It's about having them go on Instagram using the product or playing it at a Sandbox VR location or whatever. Everyone's recognizing that there's incredible value in that too. It's getting the companies more excited that it's almost a self-fulfilling prophecy where now that the celebrities are doing more of this, they're more accustomed to the deal terms. They understand how these investments work. You know back to that point, you know you need someone who does this all the time. Their money managers and their attorneys on the celebrity side now have more of a fluency in these kinds of investments that also make them not a pain in the ass to invest. They know what they know, what the deal is. Okay, here we go.

Stephanie Southwick:
Yes, well it's really interesting. I have two really important questions for you. Briefcase or backpack?

Andre Gharakhanian:
A briefcase. Some of my friends call it a man purse but I have two. One is for black hued outfits, one is for brown and blue hued outfits.

Stephanie Southwick:
Perfect.

Andre Gharakhanian:
I tease my colleagues that have backpacks.

Stephanie Southwick:
Okay. And suit or more casual?

Andre Gharakhanian: 
Oh casual. My clients would freak out if I showed up in a suit. I don't even wear a sport coat anymore. There was one of those e-commerce Instagram company feeds about some company. Beause now I wear a ton of Lululemon pants and there's some company that has a suit that's essentially made out of that material. I was getting so excited to show it to my wife. She was like, "you don't even ... What? When are you going to wear that, once a year? You don't even wear this stuff!"

Stephanie Southwick: 
Right. You don't feel like in any of your business meetings you have to wear a suit?

Andre Gharakhanian: 
No, not at all-.

Stephanie Southwick: 
No? Alright.

Andre Gharakhanian: 
Not at all. Definitely a change from back in the day in Chicago.

Stephanie Southwick: 
Oh I imagine.

Andre Gharakhanian: 
I remember distinctly showing up on a Saturday for a meeting, a client meeting in Chicago that was not super intense or anything. I decided to go crazy and wear slacks and a sport coat and a shirt, no tie. I was the only one with no tie. The GC of the company made a comment about it, like these kids are …

Stephanie Southwick:
These kids today …

Andre Gharakhanian: 
Yes, yes.

Stephanie Southwick: 
Not wearing a tie. Yes, alright. Well times have changed. You can pass on this if you'd like. I'm curious as to your kind of thoughts on the fake it ‘til you make it founder archetype that we hear about so much in Silicon Valley these days.

Andre Gharakhanian: 
Well, I'm a founder myself. There is an extent to which you have to project something. I mentioned before, I worked out of my home in the Marina.

Stephanie Southwick: 
But then had a Palo Alto address-.

Andre Gharakhanian: 
I had a Palo Alto address.

Stephanie Southwick: 
Yes.

Andre Gharakhanian: 
I think that you have to play the game a little bit and project a level of confidence, a level of competence, a little bit of a level of success in order to get people to buy into what you are doing.

In the early days of the firm I was like screaming at the top of the mountain who we were representing. Now we're more of a known quantity and we have people with a known background, and we've been fortunate to have a great track record. In the beginning you're asking people to take a risk on your company. It's no different for us than it is for our clients. At the end of the day it gets weird and can go down a fraudulent path and that can be a lot of bad behavior.

Stephanie Southwick: 
Would you say that's the exception, not the norm?

Andre Gharakhanian: 
I think the vast majority? Yes.

Stephanie Southwick: 
Yes.

Andre Gharakhanian:
Overwhelmingly that's the exception. I think most of the time is just a little bit of puffery and the hard sell but it also creates magical things. We live in this bubble and by the suspension of disbelief that investors have here, it's a huge driver of growth and innovation.

I grew up in St. Louis, right? They don't have the kind of vibrant ecosystem. Maybe they will one day it'd be great if they do, where some crazy person is really onto an idea, it's more difficult to get funding. Here you can, or you can go out and tinker and try new things. I think it's really important. Again, it has its downfalls, we've seen it, but on balance, I think it's been extremely helpful to mankind. It's a bold statement, but I really think it has.

Stephanie Southwick: 
I want to talk a little bit about your thoughts on the future of the practice of law. There's a lot of discussion these days about what the practice will look like in 10 years, 20 years. Just curious to get your thoughts on that. First question, do you think that lawyers will still be humans in 10-20 years?

Andre Gharakhanian:  
No. You know, it's definitely top of mind. There's a lot of venture capital going into legal tech right now. I think our position is that the current discussion on legal technology is very well meaning. It still misses the mark right now, that it's overly focused on gimmicks, slick client-facing UI, maniacally trying to drive down fees. We're a startup and so we need to leverage technology as well, it's deeply important. So is the client interaction and you can't just throw up the intricacies of a client interaction into an algorithm. There has to be sort of more thought around it. I think that's where the current discussion has missed the mark. Just not spending enough time understanding that part of it. It's still a relationship business. There are many things that we do that are automated or pushing paper and that's true, but it's a relationship business.

Stephanie Southwick: 
Do you think it will always be a relationship business?

Andre Gharakhanian: 
I do, I do.

Stephanie Southwick: 
That's what I'm hearing. Yes, I agree with you by the way, 100%.

Andre Gharakhanian:
There are things that we can do on the backend. We are focused really on how can we be more productive on the backend—meaning internal communication, knowledge sharing, document creation. There are definitely areas where we're looking at it.

What I don't like is that it's not a battle between lawyers and technology because I'm confident in the relationship side of it. I actually don't view the tech solution as an enemy to our revenue. I just think they're misplaced and clunky and that they don't deliver a client service experience that you want. We think of the backend as really where a lot of the other great things that happen. The other thing around that is creating a culture of innovation and tinkering.

Stephanie Southwick: 
You mean within the firm?

Andre Gharakhanian: 
Within the firm.

Stephanie Southwick:
Okay.

Andre Gharakhanian: 
We use Slack and Notion and Zoom X One Search, Diff Checker, Good Reader, a lot of different resources and software we use. We're not a firm that clamps down on their team's computers and won't let you install software. It's a tinkering kind of culture, a lot of grassroots organic activity that we think will also push us to innovate more.

Stephanie Southwick: 
This podcast is called Beyond Hourly. I think it's appropriate to ask what you see as the future of the billable hour?

Andre Gharakhanian:
It's really tough. Not to make this about Silicon Valley startups, but I think it's even tougher for the very earlier stage companies.

Stephanie Southwick:
To pay an hourly rate?

Andre Gharakhanian:
No, the overall discussion itself.

Stephanie Southwick:
Oh, I see.

Andre Gharakhanian:
Of hourly versus flat fee or fixed fee, etc. There are so many things involved. I mean there are definitely ways in which there are inefficiencies from the billable hour. There are also times when the introduction of third parties creates such a level of uncertainty that someone is taking a humongous risk that's very difficult to quantify.

I always say this to clients "the paper is easy." You know, if we're negotiating a contract with some big enterprise customer, the document itself is very easy. The disposition and level of annoyingness of the in-house counsel and how they're going to negotiate this deal is a complete wild card. So, it becomes difficult to fix fee different things. Then on an ongoing basis, I think it becomes difficult because our clients do not have legal budgets. In other words, until they have a dedicated in-house GC, there is no one internally that owns a part of the P&L about legal spend. Their budget, their aspiration, is just spend less, right?

Stephanie Southwick:
Right.

Andre Gharakhanian:
I have colleagues and other litigators and specialists that we work with who also work with very large companies who have legal budgets.

There's a former Fenwick litigator that I know that only works with super late stage private or public companies that have monthly legal budgets. He can go in and say, "alright, flat fee, $90,000 a month, done. Whatever you need." Or have you a couple of different flavors based on the level of service. I think that our work in sort of very early stage emerging companies, it's incredibly difficult to handicap that and the deal flow, it's crazy. We have clients that spend as little as $500 a month and we have clients that spend $50,000 a month. It varies so much. That's my convoluted way of saying that I think it's still a difficult discussion. I think at very early stage we're getting ripped off or they're getting ripped off with a lot of fixed fee arrangements.  We may move more and more that way, but it's not an easy discussion.

Stephanie Southwick:
On this same topic of the future of the practice of Law, do you think that your clients can benefit from litigation funding? If so, how?

Andre Gharakhanian: 
I do because I think that there's one area of the litigation experience that—due to the lack of resources, lack of funds—our clients just shy away from. That is protecting their IP, protecting their trade secrets. The way I put it is sort of standing up for themselves when they've been wronged by larger players. When a potential buyer comes in essentially for purposes of opening up the hood and seeing what your IP is really all about and then takes that and does something with it.

When a large retail chain completely violates the NDA that they have in place with you. When a couple of companies are stepping into your space with regard to some patented technology and you would like to set the tone in the market that that's unacceptable. With startups like ours, resources are very limited.

Stephanie Southwick: 
The legal budget is not there.

Andre Gharakhanian: 
There is no legal budget.

Stephanie Southwick:
There is none.

Andre Gharakhanian:
There isn't. There isn't this preexisting, “Hey you know what, we have $45,000 we can spend on litigation this month.” It's not there. The conversation quickly just goes to, okay, what are we going to do here? We probably can't do anything we need to just power through. It sucks that they're writing on top of our patent. Let's just keep powering through, let's win in the market.

There are times when that's not necessarily the right idea. Or it's like, “Hey, if there was an ability to be able to protect your IP to send a message to the market and if there's an ability to obtain resources for that,” I think that's huge because that's really where it is. There is a need for sort of an education around resources for that and if it's there, you'll see a lot more support. You'll see a movement away from that “avoid litigation at all costs” kind of mindset.

Stephanie Southwick:
Right. Right, well good. Andre, I want to thank you again for talking to us today on Bentham's Beyond Hourly podcast and sharing your insight. As I mentioned at the outset, episodes of Beyond Hourly podcast can be found on website, www.BenthamIMF.com (now at www.omnibridgeway.com), iTunes, and other podcast networks. We'll be back soon with another episode focused on advancements in legal services that drive economic value for law firms and the clients they serve. Until then, I'd like to thank our audience for listening in and invite you to subscribe to the podcast and leave us reviews.

Please feel free to follow up with me. Stephanie Southwick at [email protected] (now at [email protected]) for any feedback, ideas, or insights you have on topics we should cover on the podcast. Thank you and be well.