The fast fast track – meet the clients of tomorrow
07 April 2017 09:30
by James Wood
Fast-growth, tech-driven companies are reshaping the economy. But what's it like to be their general counsel?
As the old joke goes, if you want to make a million from a start-up, start with three million. It is a market-dominated by founders' visions rather than revenue-generating products. That typically means a lot of money is burned through before investors can expect returns. But, as recent high-value initial public offerings have shown, the rewards on offer can be enormous. Start-ups are also becoming hugely important to the wider economy. In the UK alone, they are worth nearly £200bn a year, according to a recent report by Virgin StartUp.
Fast-growing businesses are also creating a lot of opportunities for aspiring in-house lawyers. Roger Bickerstaff of Bird & Bird comments: 'We're finding that our mid-tier associates are being called all the time with really attractive offers from a whole variety of [fintech] players.'
When Metro Bank launched in 2010, it was the first new high street bank in the UK to be granted a licence for over 150 years. Since that time, a number of new banks – many of them online only – have been granted licences, and hired GCs. The same pattern is being seen in a range of industries, with regulatory thresholds to new entrants being reduced. As Hiroshi Sheraton, life sciences and biotech partner at Baker McKenzie, points out: 'The landscape is changing in the sense that with the technology aspects of medical device technology or apps, the barrier to entry is fairly low. It is possible for very small businesses to come up with ideas and develop them to a point of commercialisation. That is a sea change. If you look at the old-fashioned pharma industry, to develop a prototype drug, you need millions, if not billions, of dollars. These innovations are much quicker, much smaller and much cheaper to do.'
For lawyers, the chance of working in a fast-growing business where the rules have yet to be established is an increasingly attractive proposition. Paul Massey joined equity crowdfunder Crowdcube as general counsel (GC) in early 2014. Having previously worked in-house at SEGA and eBay, and on secondment at Warner Music Group, he had already been involved in a number of high-value matters and was on a path to a senior role. Even so, the opportunity to join a start-up was irresistible. 'I was pretty senior. There was no glass ceiling that I needed to break. But when the Crowdcube job came up I saw what a great opportunity it was. The idea of it was incredibly exciting. When I met with them I became even more convinced that it was the place for me. From day one you're doing everything. It is very different to more established company – there's no strict delineation of roles in this type of place. Everyone is there to make the business succeed.'
The freedom to operate outside the parameters of the traditional GC role also appealed to Simon Coles, who joined supply-chain financing start-up MarketInvoice in March 2016. 'I had worked for a number of years in law firms and have spent a lot of time working at and with large financial institutions, so I knew the financial services world very well. What I didn't know was how to run a business. Lawyers talk about the need to be commercially astute, but when you go into a company like this, the reality of what that means hits you in the face. You simply don't have established processes and hierarchies to rely on, which means you have to get it right every time.'
Paul Peake, head of legal for Europe at online ticket exchange StubHub, agrees: 'In terms of risk appetite within the business, it is entirely different to a FTSE 100 or FTSE 250 company. I have worked in multinational companies like eBay or adidas and they have set corporate governance structures, [but] you always have to put on a different hat when you are dealing with a growth company. If you apply the same corporate governance structure and risk profiles as you would with a traditional multinational company, [the business] will never grow.'
Taking the leap into the unknown might be a risk, but it can also be a fantastic career development experience. It can also make the job far more rewarding, as Skyscanner chief legal officer Carolyn Jameson asserts: 'The role I have is hugely varied because of the evolving nature of the online travel space. A lot of the things we're doing fall into areas where the law isn't well established, or hasn't been applied in an internet environment. It ranges from dealing with Competition and Markets Authority investigations into price comparison websites to reviewing airline pricing and distribution models, from handling commercial relationships with companies to which we provide search-engine technology, to looking at issues surrounding ownership of data. I get to see and play a part in shaping legal change, which is fantastic.'
‘The things we’re doing fall into areas where the law isn’t well established. I get to see and play a part in shaping legal change.’
Carolyn Jameson, Skyscanner
Start-up, take-off, scale-up, exit
Just as a growing number of lawyers are interested in exploring life at a start-up, fast-growing businesses are becoming more aware of the value GCs can bring. As Martin Nolan, GC of Edinburgh-based cyber security start-up Payfont, puts it: 'Five years ago it was unheard of to have in-house lawyers at a tech start-up, but the economic case for it is becoming stronger by the day. Start-ups are subject to an enormous amount of due diligence as they go through their journey, and it's important to be on the front foot with that and make sure you're doing things properly.' At 33 years of age, Nolan is among the younger GCs featured in this section. While disrupter companies are often staffed by younger people, that often changes – at least in terms of senior management – when they reach the take-off phase in their growth cycle. MarketInvoice's Coles comments: 'Once you reach a certain size you need experienced people to get you to the next stage and form solid, credible leadership teams.' Looking across the companies profiled in this year's GC Powerlist as a whole, the typical profile of a start-up GC is someone with around seven years of experience at a major law firm, with a tendency to be a generalist (though this varies by sector and in life sciences companies a strong background in intellectual property (IP) is important).
While some companies take the decision to bring a GC in themselves, the call is often made for them by investors, according to John Salmon of Hogan Lovells: 'The founders and boards of these companies tend to know a lot about legal issues. They're incredibly smart people who will go to conferences and address points of law in an astonishingly competent way. That means they will engage in legally-complex matters without having in-house representation. But once they hit a certain size, particularly if there are investment funds with strong legal advisers behind them, they are told to bring in a lawyer.'
Being told to bring in a lawyer can go against the grain of the start-up culture. This was Ahmed Badr's experience when he joined GoCardless as head of legal in 2015. 'I was essentially told: "We don't need a lawyer. Why are we hiring you?" It's a valid question if you've not worked with an in-house lawyer before. The company wanted to know what in-house lawyers actually do.'
Part of the problem, says Badr, is the perception that lawyers will not fit in with a fast-growth company's culture. To say they look for legal risk-takers would be putting it too strongly, but many are looking for a different mentality in their advisers. Badr adds: 'Start-ups are built by entrepreneurial people who value the ability to find solutions more than they value accumulated knowledge. They are looking for very different skills when they interview for a GC role. It's a hugely different experience and a very exciting one for a lawyer.'
RPC commercial partner Oliver Bray says: 'Stepping into the fast-paced, dynamic environment of a tech start-up is a huge challenge for any lawyer, even for those with strong in-house experience. It's a long way from more established institutions and a place where traditional lawyering will be far less valued than the ability to react quickly, keep focused and be seen to be totally commercial at all times. I'm full of admiration for those who make the leap, especially those who successfully manage to wear so many different hats at the same time, while juggling the demands of a board that (more often than not) will be full of young dynamos with minimal prior exposure to the rigours of what is an increasingly regulated corporate world.'
For lawyers who have made the move in-house at a start-up, finding external advisers who understand their world is a challenge. 'Law firm partners know the technical and regulatory issues we face,' says Massey, 'but many of them still approach us as they would approach a large multinational bank. They're still applying a paper-based approach to an online world, which doesn't work. We want to comply with all requirements but also to present things easily and clearly to people using our site.'
Badr has a similar take: 'Very few private practice lawyers seem to feel comfortable with issuing short, usable advice documents, which is exactly what we need in a business like this. Far from feeling threatened, law firms should realise that fast-growth companies are even more dependent on the old-fashioned "trusted adviser" model than large corporates. We do very little rote work and that makes relationships with outside counsel especially important.'
‘Five years ago it was unheard of to have in-house lawyers at a tech start-up, but the economic case is becoming stronger by the day.’
Martin Nolan, Payfont
The challenges lawyers who do make the move will face is the scope of the job.
Peake understands the pressures only too well: 'The biggest difficulty is navigating a regulatory minefield that is either restrictive to your industry or just doesn't exist because of the nature of the new business model. StubHub operates in markets that are either highly regulated or it is so novel and new, the law has not yet grappled with that new business model. If I look at my role here compared to multinationals, I spend 50% of my time dealing with regulatory matters across all jurisdictions.'
While start-ups look set to host an increasingly important part of the GC community, it is also likely that the distinction between incumbent and challenger will become less relevant. Google is less than 20 years old, Facebook less than 15 years old, Uber less than ten years old and Snapchat just over five years old. Their rough valuations, respectively, are: $560bn, $350bn, $66bn and $25bn. And, as CMS Cameron McKenna partner Chris Watson points out: 'Every company is a technology company and every company is a data company. There is no longer a pure technology sector – everything is a service and every service is technology.'
In this year's GC Powerlist, we highlight 45 fast-growth companies across four separate sectors and the lawyers that have hitched their fortunes to them. It's a path that looks to become increasingly common for ambitious in-house counsel.
Methodology and criteria
The research process for the GC Powerlist has grown substantially since the first report was published in 2013 and now encompasses online nominations as well as substantial interviews with senior general counsel (GCs) and private practitioners.
The first stage for the 2017 report began in early December with the launch of an online survey to canvass recommendations on two distinct classes under the unifying theme of 'The Clients of Tomorrow'.
The first class was 'Rising Stars', which we defined as outstanding in-house counsel working in major companies operating in the UK under the age of 45 and working below firm-wide general counsel or chief legal officer level.
The second category we researched was outstanding growth companies across the four following target sectors:
- Fintech and Alternative Finance: covering technology-driven finance providers and sponsors applying new models to finance.
- Technology and Digital Business: covering businesses making substantive use of technology to develop or carve out new market positions.
- Life Sciences and Biotech: covering outstanding growth companies working the life sciences field.
- Trailblazers: covering companies with a track record of innovation and carving out distinctive niches or applying fresh approaches.
Because of the dramatic swings in valuations on fast-growth tech-driven businesses that often have relatively small revenues and staff compared to established plcs, we did include some high-profile businesses in the unicorn class (with valuations of over $1bn). In essence we were looking for businesses of some substance but with huge potential to be the world-beaters of tomorrow.
The online survey posed the following questions:
Section one – Rising star in-house counsel at major companies
1. Which individual in-house lawyer would you highlight as an outstanding performer?
2. What qualities would you say make this lawyer outstanding?
3. What career achievements would you highlight that illustrate their abilities and potential?
Section two - Emerging companies
1. Which companies would you highlight as highly-promising performers based on track record, development and ambition?
2. What qualities would you say make this company outstanding and signal its exceptional prospects?
3. Which in-house counsel or other significant internal decision-maker would you highlight as relevant in terms of handling legal matters and buying legal services at this company?
Respondents could highlight up to three individuals and companies each.
Separately, a team of five journalists in December began researching the report via interviews with senior lawyers in-house and private practice to canvass nominations. The core team comprised research editor James Wood, senior reporter Kathryn McCann and Sarah Downey, who have all regularly covered in-house and deal with GCs for Legal Business and The In-House Lawyer.
Legal Business's reporting team, including Matthew Field and Madeleine Farman, provided additional support on canvassing private practice for their input on both rising stars and growth companies. The research period continued into late February, with the final names reviewed by Legal Business editor-in-chief Alex Novarese.
The criteria for rising stars was relatively simple: we were looking for outstanding individuals at GC level at major companies operating in the UK who are already taking on leadership roles and demonstrating exceptional qualities. Evidence of leadership roles beyond the legal function, progressive thinking and strong interpersonal skills were also cited as key factors. Primarily we were focusing on lawyers in their 30s through to their mid-40s.
Weight was given to the candidates that received multiple recommendations or those that could demonstrate commercial qualities beyond legal skills. Even more weight was given to the seniority and credibility of those nominating or vouching for individual candidates.
The criteria for the growth companies was necessarily more interpretative. Though we deliberately included a handful of bellwether firms that have already become prominent brands, we were primarily looking for growth potential and impact on their industries, and avoided companies that had revenues in excess of £250m. At the other end of the spectrum, we also avoided 'pure' start-ups that had too little track record for us to judge or had yet to reach the phase of building at least a small legal team. This was due to the credibility of the research and also reflected the focus of this report on legal decision-makers. We in addition often looked for credible third-party citations for our selected growth companies.
Please click to return to the menu of the GC Powerlist 2017: The Clients of Tomorrow