Lawyers find role in high technology
By John Duchemin
Advertiser Staff Writer
You're a hot-shot programmer six months out of engineering college. You just invented something that will ruin Bill Gates' sleep. Now all you need is some money to make it happen, a few good salespeople to make everyone buy it, an accountant to keep you honest ...
Richard Ambo • The Honolulu Advertiser
And a lawyer?
From left, Jeffrey Au, Keith Mattson, John Dean, Greg Kim talked during a break Thursday at the venture capital workshop on technology law at Goodsill Anderson Quinn & Stifel in downtown Honolulu.
It may sound strange, given the role reversals of the new millennium, in which geeks in T-shirts and laboratory denizens are often the real economic engines. But Hawai'i entrepreneurs and law firms are both learning, observers say, that lawyers often can help Hawai'i companies figure out how to compete against the Silicon Valley big boys.
"We can actually be useful instead of screwing everything up," said Greg Kim, a corporate attorney at Goodsill Anderson Quinn & Stifel, speaking last week at a conference on technology law at Goodsill's downtown Honolulu offices.
Law firms can not only provide technical support — legal mechanics like corporate set-up, stock sales, public offerings, mergers, intellectual property protection — but can also hook up brain-rich but business-challenged entrepreneurs with investors, mentors and managers, legal experts said. Lawyers played a part in such events as Digital Island's initial public offering in 1999, Pihana Pacific's $190 million venture funding round last year, and Aqua-search's defense of a crucial patent against rival Kailua-Kona biotech firm Cyanotech.
Hawai'i's legal community, however, has yet to develop a cutting-edge reputation. Despite some initial forays into technology law, including several new "technology teams" at local firms, the profession in Hawai'i is more focused on real estate, tourism and finance. As such, it's fee-based, conservative, conventional and somewhat inflexible, several lawyers said.
Start-up technology firms defy convention, and thus make strange clients. They are usually strapped for cash and under pressure to get to market before seed money dries up. They often need to move extremely quickly, turning on a dime as market conditions change.
The conservatism ingrained in many Hawai'i law practices is thus ill-suited to deal with start-ups' needs, several Hawai'i lawyers said. This has led some venture capitalists to refer Isle entrepreneurs to mainland firms more often than they would prefer.
"I hate to say it, but in the past, if I was going to refer a Hawai'i company to a law firm, I would have picked a Bay Area firm," said Jeffrey Au, managing director of the Honolulu and Silicon Valley venture firm PacifiCap Group, speaking at the conference.
That's something that has to change before technology can truly take off in Hawai'i, said several venture capitalists, lawyers and entrepreneurs with Silicon Valley experience.
"A lawyer plays a big role in nurturing greatness," said Craig Johnson, chairman and founder of Venture Law Group, a Silicon Valley firm that helped start Internet stars including Yahoo!, Hotmail, Garage.com and Drugstore.com.
Johnson was also speaking at the Thursday seminar. "They can be critical midwives, guiding a firm all the way down the path from start-up to initial public offering. They're not there just for the legal matters, but also for their contacts, advice and experience."
Hawai'i law firms should heed the example of Silicon Valley, which has become a source not only of scientific geniuses, but corporate people — lawyers, venture capitalists, accountants — with the correct combination of vision, training, and intellect to construct solid companies, Johnson said.
The best Bay-area law firms don't treat technology start-ups like typical paying clients, Johnson said. In the name of long-term relationships, good tech lawyers are flexible with fees, and act like mentors and counselors in addition to doing the legal legwork, he said.
"If you're a lawyer looking for immediate billable clients, you won't find them, but in Silicon Valley, people realized the value of compounding, that these startups can turn into your biggest clients," Johnson said.
Many local law firms are trying to adopt such methods. Some are luring specialists from the Mainland to help them understand the unusual requirements of science-based start-up companies.
For example, Carlsmith Ball has hired Charlie Sweet, a corporate lawyer with high-tech law experience in the Washington, D.C., area, one of the nation's hottest technology centers. And Goodsill has brought on Dick Sherman, a biotechnology consultant and venture capitalist from Philadelphia who in the 1980s was the No. 2 lawyer at pharmaceutical company Smith-Kline.
"People who really have knowledge in a particular field can help a company develop its strategy, rather than just doing all the typical mechanical stuff," Sherman said.
Besides hiring new people, law firms are trying to improve what they've got. Firms including Damon Key Leong Kupchak Hastert and Carlsmith Ball now field technology teams. Many lawyers are involved in technology-promoting organizations including the E-list, the Hawaii Technology Trade Association, University Connections and HiBeam.
The Thursday tech-law conference at Goodsill drew more than 60 entrepreneurs and lawyers, who packed a conference room to hear speakers including Johnson, Au, Kim, Silicon Valley Bank Chairman John Dean and other venture capitalists and executives.
Given their interest, Hawai'i lawyers may become a key part of the state's tech scene, several speakers said.
"When we funded our first couple of companies, we always went to California for the legal side, because there really wasn't anything here locally," said Bill Richardson, managing partner of HMS Hawai'i Management Partners, a local venture capital firm. "Now, six or seven years later, we see some of the firms here have taken the time, and spent the money, to learn to understand what West Coast venture capitalists look for when they want to deal with a lawyer."
