SharkJumping

Since the new year has passed, the top tier Silicon Valley law firms have handed down their annual rate increases (similar to cable bills and private school tuition, they always seem to exceed inflation), which now means that many partners at these firms appear to be charging $550-$600+ an hour.  I had to pull out the calculator for this one since there were so many zeros, but the resulting annual payment for a 40 hour work week would be almost $1.2M!  For some reason, $400 an hour used to seem expensive, but not outrageous, while this latest number seems to me to be totally over the top.

Given that bandwidth and hardware continue to drop in price/increase in performance, and that commercial rents are still much lower than what took place in the last bubble, we're left primarily with personnel costs as the only increasing cost for any start up company.  It's true that general hiring and employment costs continue to go up in general, at least in the Bay Area, but we're able to outsource or offshore activities to lower a lot of those operating costs, including 1/3 of our personnel here at Donnerwood - but not in the legal field...

Now I understand that there is specialized expertise involved here (but not that specialized - they're not doing brain surgery), and that the effects of mistakes due to poor judgment or representation can involve a penalty far higher than the measly $300 one pays for a 30 minute phone call, but doesn't it seem like there should be alternatives in today's World is Flat scenario?  And yes, we all try not to use the partners very much unless we really need them so that it's not really that big a bill each month, but wow, it's still a mind boggling number for a start up when you're buying used furniture and sub-leasing office space to save money.

So what can you do?  You can switch to a less prestigious firm where the prices are probably in the low $400 range, but the VC's aren't always comfortable with that.   You can bring it in-house as soon as possible, where a General Counsel can not only handle much of the work formerly sent out to the firm, but he/she can also manage the outside firm with presumably greater expertise - but that's not always possible with earlier stage companies, especially since many lawyers are not known for their risk tolerance.  And you can do much of the work yourself and pray that you got it right, but that can seem a little scary sometimes. 

Or you can just stick with the deal you have with the big firm (no one ever got fired for choosing Wilson, Gunderson, Fenwick, Pillsbury, etc), attempt not to use them too much, and find other cheaper lawyers to help with deals while you grow enough to eventually bring it in-house.  But why isn't there a firm hammering home the mantra - "same quality as the big guys, but lower price"?  Or one which is aggressively using technology and/or outsourcing to lower the costs?  There must be some way to reign in the constant increases in outside legal fees, just as new Internet start ups are finally starting to reign in the 5-6% standard fee paid to sell a house - but I haven't seen it yet.