S11E9: A Law Firm for Founders with Agatha Kluk and Sonia Farber, Co-Founders of Kluk Farber Law, Now Part of Perkins Coie (Bonus Holiday Episode)

I represented huge companies, insurance companies, big pharma, oil and gas. It was also companies I didn't necessarily identify with. They weren't necessarily mission-driven the same way. So I, I started to realize this is not the type of client I'm interested in representing. I'm interested in representing founders who have a vision and who are mission-driven and who are innovative.

Welcome to The Room Podcast. I'm Claudia Laurie. And I'm Madison McIlwain.

I'm Madison McIlwain.

We are on a mission to open the door to the room where it happens, sharing the stories of some of the world's most iconic founders and funders. We're recording this introduction the week before our 11th season launch at the Forbes 30 Under 30 conference in Cincinnati. After making it onto the 2024 list for media, we've hit multiple milestones, including our 100th episode and our first ever all-day conference. Inside Summit with over 120 attendees July of this year.

Authentic storytelling is core to our community as Madison and I are both founder and funder. It all started as two best friends who met in the heart of San Francisco as product managers in 2018, then realized as we were making career transitions into myself founder and Madison funder, that we wanted to talk to the entrepreneurs that had built great companies. Since starting the podcast in 2020, I founded Pryve, a commerce payments startup raised venture capital, and faced a ton of challenges that I ask our guests. Madison became a partner at Defy VC and was the first institutional investor in my startup and is now at HBS and is a Pear VC fellow, bringing the funder perspective to the table.

Scroll back to find our conversations with the founder and CEO of Zillow, Spencer Raskoff, to Michelle Zatlin of Cloudflare, Grammy Award-winning artist Ciara, and the creator of Next.js and CEO of Vercel, Guillermo Rauch. Everything from consumer to enterprise, we've got you covered. The best way to get to know our community, both online and offline, is by subscribing to the podcast and our newsletter, which you can find at theroompodcast.com. Before we dive into today's story, we have a few short messages from our sponsors. Perkins Coie supports the most innovative entrepreneurs and investors in fast-moving and high-growth sectors, addressing their myriad of legal needs. But the firm doesn't just provide end-to-end legal and business counseling to its startup clients. It also facilitates introductions to key advisors and sources of capital. Perkins Coie's interactive website, Startup Percolator, offers access to programs, resources, and rich dynamic content designed to assist entrepreneurs on their startup journey. To learn more, go to startuppercolator.com and perkinscoie.com.

This podcast is brought to you by Mercury. The banking platform businesses like The Room Podcast use to simplify their finances. It's time banking did more than hold your money. Now it can. With Mercury, you can pay bills in seconds, close the books faster, and even send invoices. Not only does Mercury do away with a patchwork of tools, it eliminates guesswork, giving you complete and accurate visibility into your business's finances, all from one account. Apply in minutes at mercury.com.

To close out our year, we're delighted to be sitting down with Agatha Gluck and Sonia Nadumani, partners at Perkins Coie, to reflect on the market for 2024 and a look towards 2025. Agatha's journey began with a leap from prestigious traditional, quote, big law job, ultimately to meeting founders in a 5th floor Chinatown walk-up office where she laid the foundation for what would become a new kind of law firm. Agatha's superpower grew to intimately understanding the founder journey. As the founder herself of a startup law firm. Sonia joined a few years later as the team and vision of the firm to service the next generation of technology founders and venture firms became clear. This specialty is what brought them to be acquired by Perkins Coie and establishing their startup practice for the rapidly growing New York City tech ecosystem in 2022. Through it all, Agatha and Sonia have maintained a singular focus. Serving as strategic partners to founders, translating legal complexity into actionable clarity from your first check to exit. Key insights and themes from this episode include charting an untraditional founder path, entrepreneur's hidden superpower, an entrepreneur's hidden superpower, a great lawyer, and a market perspective on the regulation of AI. Let's open the door.

First of all, Sonia and Agatha, welcome to The Room.

Thank you. We're so excited to be here. Finally.

We are so excited to have you. Our partnership with Perkins this past season has been incredible. We've managed to host a summit together. We've hosted multiple other events and had a full slate of amazing guests, but we're excited to have both of you here today to tell your story. Before we get started though, we like to start at the beginning with all of our conversations, and we're curious about both of you, starting with you, Agatha, where did you grow up and how did that shape your view of the world?

So I grew up in New Jersey, South Jersey, outside of Philadelphia. Both of my parents were immigrants. That was a big narrative in our lives. My parents worked very hard. It was very much an immigrant to the US story. My mom and dad both have PhDs. My mom was working at a pizza shop when she first got to the US because she couldn't get a job in her industry. She then ended up being at DuPont, and I would say my childhood was shaped by two very hardworking parents. My dad started a business, which my mom ended up joining after about 10 years. So we did have the entrepreneurial bug in our genetics as well.

Love to hear that. And really cool to hear how their own entrepreneurial journey has probably shaped part of who you are, and we'll talk about that soon. Sonia, what about yourself?

Great question. So I'm from Minnesota, the Midwest. It's amazing place, but very traditional place. A lot of families have been there for generations and generations, and I wanted the opposite when I was growing up. I wanted more adventure and more of a diversity of experiences. That led me to basically seek as much outside of Minnesota as I could. I learned 4 different languages. I traveled around the world. I studied in Argentina and France, and I spent part of law school in the Netherlands. Always on the lookout for the next adventure and going off the beaten path. And I think that desire to create my own path is really what led me down my career to where I am now. And I always wanted to push past the traditional, which would've been going to a major law firm, staying at the firm, or going in-house to a large company. And instead, Agatha and I did something very different. And I think my childhood was really foundational to the direction I ultimately took.

We're gonna talk about that founding journey, and we almost always ask this question through the lens of being a founder, but I guess in this case, because you guys are both founders and lawyers. We'd love to know, did you grow up thinking you were always gonna become a founder and lawyer?

Definitely a lawyer. It's a funny story. So in 5th grade, you have to be like, when I'm 25, I will be— so mine was, I will be a Supreme Court Justice, which, yeah, impossible just given my age, but obviously had the legal gene in me from an early age. I did not necessarily think I was gonna be a founder. Actually, I was reading a diary and I did say someday I hope to be a CEO, so maybe that's like founder CEO, maybe that's the title I was shooting for.

That's amazing.

Sonya, what about yourself?

Yeah, similar. I knew I was gonna be a lawyer from a really early age. I was known for my toddler cross-examinations. I thought I would be more of a litigator and I, I ultimately was, but I'll get into that later. I definitely didn't know I would be a founder, but when I think back on it, I had a, um, catering service in high school called Sonia's Snacks, S-N-A-X. Very cute. And so I had, I had sort of already taken a foray into the entrepreneurial world, and I think it was a little bit less daunting because I had already done something.

That's amazing. I mean, both of you had a clear vision of where your life was gonna take you from a young age and felt that in your gut, and then transitioned that into actually pursuing your law career. First, that was you going to Berkeley Law, Agatha, that was NYU, and I'm sitting currently on a university campus where some of my friends are at the law school here at Harvard, and everyone talks about the different types of law. And I'm curious how you guys uniquely found yourself in this intersection of law and technology, where Agatha, as you alluded to, the more like traditional path, I feel like sometimes you think about is like the political route, the Supreme Court route. How is that balance and kind of a personal journey for each of you?

I didn't start representing tech companies. I actually did quite a bit of stuff. So I clerked for a judge. I worked at an IP boutique. I worked at the I thought maybe I want to be like a TV criminal law lawyer. So, the nice thing about going to school in the city at NYU is that you do have all of those opportunities and kind of test out what you think fits and what you don't think fits. Ultimately, I found the litigation side of things was a little bit too contentious for me. And then on the criminal side, I just was like, I really— there's like victims and criminal defendants here. It was just not— I think you just need to have a certain type of personality. And I wanted to be a little bit more removed from my client base. I ended up doing the traditional law school thing where I worked at a big firm over the summer after your 2L year and started working on corporate matters then, mostly M&A, and just liked the people that I worked with. I thought they were really smart. I thought they were thoughtful. The deals sounded really exciting, which we can get into in a little bit. It just felt like it was a good fit for my personality. I'm very detail-oriented. I like to work on aggressive timelines and directly, all the makings of a good M&A lawyer.

So I went to law school at Berkeley near Silicon Valley, and I was exposed to venture early on, but I would say it took me a long time and it was a very circuitous path to get back to working in tech and venture. I started out as a litigator at a firm. I represented huge companies, insurance companies, big pharma, oil and gas. Very contentious. It was also companies I didn't necessarily identify with. They weren't necessarily mission-driven the same way. So I, I started to realize this is not the type of client I'm interested in representing. I'm interested in representing founders who have a vision and who are mission-driven and who are innovative. And I was doing a little bit of the opposite. And then I also realized just from a practice perspective that When you're a litigator, it's a zero-sum game. Like somebody's always, somebody always loses every time. And what I liked about being a corporate lawyer is that it's more of an advisory role and it also allows for negotiation and a negotiated outcome. And it's not a zero-sum game the same way. It's, you're actually looking for a resolution together. I mean, you still have adversaries. It still can be very contentious, don't get me wrong. But it's not a zero-sum game the same way. So ultimately, I found my way to working with founders in tech years after I was first exposed to it in law school. And I would say, I think it's really hard to know in law school what you wanna do, and you're really only exposed to so little. It's very much litigation-oriented. And exploring as much as you can and not being afraid to say, hey, maybe I took the wrong path and I'm gonna actually start over. It's not admitting failure. It's actually really courageous to do that.

Thank you for sharing that insight. And Sonia and Agatha, the two of you started helping visionary founders negotiate positive outcomes when the two of you paired up. So fast forwarding a little bit, you both started at Kluck Farber Law in 2017. Super impressive as it was just 7 years after you both graduated from law school. But before we dive into the founding story, Sonia, Agatha, how did you two meet?

So, we met at our prior firm, Debevoise Plimpton, and our offices were next to each other, actually. So, this was pre-COVID. You spend a lot of time in the office when you're doing big stakes litigation and M&A, a lot of weekend time, and it's an environment where you naturally get to know your peers, and we just met each other in the hallway, frankly, all the time.

Going down in the elevator to get Dinner at 10:00 PM, you're in the trenches together.

Oh my gosh.

That's incredible. And from 10:00 PM dinners to crossing each other in the hallway, what gave you two conviction to maybe start working together and bet on yourself to start your own firm? Sonia, maybe if you want to take that first.

Actually, Agatha went out on her own first, which I think was incredibly brave. And so she should start with the question, I think.

Yeah, I was the first defector from the big law firm. And I didn't necessarily go out with the intention of starting a law firm. I went out with the intention of wanting something more. I just, I felt like I had it all right. And I was told that my next step up was an even bigger glass box on the top of the tower where we were and working with the same clients. I'm doing the same deals, which is really fantastic and amazing. And so few people actually get opportunities like that. So I knew that I was in a really privileged position, but there just was something missing. So I left. I would not recommend this strategy to basically anyone and was like, I'm gonna figure it out. And I assumed that I would find an in-house position through my network. Like, the Debevoise's clients are some of the most esteemed private equity funds in the world. So we were doing the biggest, best deals that you can think of, but it wasn't necessarily a place where you would meet a lot of startup founders or, or people like at a Series A stage, for example. So I knew it wasn't necessarily the right network for me to find the kind of in-house position that I was looking for. This was really when also the venture ecosystem really started in New York, and it was like a very small community at the time. And I got enmeshed in it through people that Sonia and I know, both of us know, just personally. And it was just such an invigorating and energizing community. And I was like, these are the types of people that I wanna work with. These are the types of companies that I want to be a part of. I actually got one of my first clients was a junior associate at one of the private equity funds, had left to go to business school, and he was starting a company with his friend. And he was like, I loved working with you. Will you put together a Delaware C corp for me? I don't even know how to explain how far removed we were from that, doing like a $15 billion cross-border public merger, right? So I was like, I guess I get— I'll figure it out. We had like paralegals who had paralegals who did work like this, right? At Zeppel Boys. So I was like, but I, I, I'll try, right? Like, I'm sure it's on the website. And so I was like Googling how to like file a Delaware C corp. And then he's, I'm raising money on a convertible note. I want you to work with us. And I'm like, I've done convertible notes, but again, massive amounts. I've never done a $500,000. He's like, you'll figure it out. It's all forms. But frankly, because I was so worried about messing it up, I got very deep in the open source literature around legal terms for startups, because I think that's one of the best and most unique qualities of startups and legal is that it's all open source. Like you go on Reddit and you can read about a lot of people, their failures, like good lawyers, bad lawyers, bad legal advice they got, terms that you shouldn't agree to, obviously not with a legal lens on it, but a founder lens. But I learned market terms by following the founders, frankly. And so the firm sort of built itself from there. It's been 100% referral-based. I hear founders say this all the time. It was very true for the law firm. Your first, like, 10 hires or people that join you are really critical. I convinced a woman from Sullivan Cromwell, which is like a very white shoe firm in New York, to join. I took her out to a restaurant in New York and I was like, we're gonna build this thing. I need an associate. So she joined. Still to this day, I'm like, I don't know what I said there, but it really changed the trajectory of the firm because we were able to start taking on more clients. So we got to a place, she brought in a friend of hers from S&C. We got to a place where I finally took Sonya out and I was like, let's do this thing. I built this firm, we de-risked it to a certain place. Like you can come and join and build this with me. And I remember it was like afternoon drinks and I had been asking Sonya for years to join. And then finally she was like, okay. And I was like, oh my God, we're doing this. So Sonya, I'll let you give your perspective on the conversation.

Okay, absolutely. So to go back, for me it was 8 years out. Agatha, you know, went out there, did this like really bold, amazing thing. I came, I joined up with her in 2018. This is about 8 years out of law school. I do remember people being like, that's crazy, you're only 8 years out. But the funny thing is you're usually up for partner in a big law firm. Starting when you're an 8th or 9th year associate. So, I was, I kept telling people, it's the same time you're up for partner anyway. What is so surprising about this? And you just got the question over and over, but I felt like I needed to believe in myself. It was really scary. I have to give credit to Agatha 'cause she was out there, she was doing this, she was doing an amazing job. She'd already connected with some wonderful founders and it was inspiring. And I finally got up the courage to say, I don't wanna just take the beaten path. That's not me. That's not who I am. And so we got together and, and we did it and I took the leap and I've never looked back.

Our first office that Sonia joined, 'cause we shared an office actually for a while with one of our clients and they ended up raising their Series A, which we worked on and supported them on, um, but hired like 40 people. So I was like, this is not conducive running a law firm out of. So we had to get our own space, but it was like a 5th floor walk-up in Chinatown. And so if you think about this fancy glass office that I had in Midtown versus the like room that we put a bunch of people in and like furniture from our houses, it was just such a wild change. And for a while I was like a little bit embarrassed because I'm like, oh my gosh, our founders are paying a lot for legal. But if anything, it really ingratiated us to them because they're like, oh, you too are starting a business. You're meeting me where I am. And everybody has such fond memories of this office for some reason, but it was part of our own founder journeys having the fifth floor walkup. I would not tell clients they had to walk up 5 flights of stairs until they got there.

You were truly in the trenches with your founders in the most literal sense. That's incredible. You both have alluded to this. The two of you teamed up, you're in this Chinatown walkup. What is your original thesis for the firm?

My just quitting my job thesis, it evolved really naturally. When I worked with that first client, it was the first time that things for me from a professional standpoint really clicked. I was like, I really enjoy this. I enjoy the client. I enjoy the role I'm playing. I feel like I'm being a value add in this entire transaction. These founders are listening to me, the things that I'm giving them, the feedback that I'm giving them is very critical to their business. I stopped feeling like I'm just like shooting documents back and forth late at night. I felt like I had finally had value add for someone. And frankly, that continued with all of the companies and clients we worked with. It really felt like we were helping them maneuver through some very challenging times. And I, starting a business without having done that, I wouldn't have been as understanding and compassionate with founders. Like, you have to make decisions on every single issue that touches the business, right? Capital raising, on hiring, firing, your first contracts that you draft. I'm just thinking of like legal things, but every single aspect. And so you're making so many decisions every day. So to be able to find a legal partner that's, listen, I'm gonna, I'm gonna tell you what you need to know and you're not gonna have to like translate my advice to you. I know how busy you are. You don't need to be a venture capitalist. You just need to get through the meetings. You need to understand the aspects of the term sheet. That the VCs are going to talk to you about. And so being able to provide that platform for them was just really fulfilling and encouraging. And I just felt again, like finally had added value.

From the founder perspective, being able to get straight talk from a lawyer and not have to translate, it just saves a lot of time and you build so much like true candor with your clients. Lawyers are often there at the beginning and end of a company's life cycle very deeply. What is the most common pitfall founders face when fundraising from venture capitalists? And then on the flip side, what are some of the mistakes to look out for when potentially selling your company?

I can start.

So I think the most common pitfall is giving away too much too soon. We have founders who've given away 30% of the company for a pretty small check, or they've given a board seat for a very small check. So giving away too much control and too much ownership in the company too early because you're not betting on yourself. I think it could be really scary as a founder to be like, this is my only shot. If I don't accept these terms, nothing will ever come my way again. And so that's something like we really try to educate people on. Maybe they do wanna go ahead and accept that term sheet, but they should understand what they're getting into and what they're giving away. And then in terms of selling your company, in a lot of situations, founders have some kind of earnout component. So they basically go to the company that's acquiring them as an employee, and then they have to meet certain KPIs to get part of the purchase price. And that doesn't always go so well if you don't really know a lot about who's acquiring you and who they are. What do they wanna do with your company? What do they wanna do with your employees? So really getting to know your acquirer, I think, is important under any circumstance.

Yeah, I would take that advice and apply it to the early stage. I think finding the right partner is very critical. I think 99% of the mistakes I've seen founders make is that they didn't get the right partner on the cap table, and there's some sort of infighting. To a certain extent, you could fix dilution down the road, you can clean up the cap table, you can do some management top-off grants. But if you have the wrong partner on your board, and when the company is not doing well, or even if it's doing fine and your vision is not aligned, that can be catastrophic for a company and you will not frankly see that exit, or you'll see an exit because you need to get out of the situation like that. So, I would say beyond the legal terms, and I, I emphasize this to founders, like diligence your investors, date before you marry, 'cause it's not easy if it's not working out down the road.

Incredibly helpful advice for all of the founders listening. You've mentioned some of the incredible founders that you've worked directly with, and I'm sure you've encountered a lot of these tricky situations. With the different parts of a founder's journey and company lifecycle. Tell us about a memorable client or case that stands out from your first few years working together.

With Agatha, we had probably the most contentious co-founder dispute that I've seen, and I've now seen like dozens and dozens come through the door. And it was just like a wild ride in co-founder disputes. And it's very common because Being with a co-founder is like being married. You spend a lot of time with them and people often diverge in terms of their view of a company or how it should be managed or even what the exit plan should be. And so experiencing this very emotional breakup of two co-founders for the first time and getting those 1:00 AM calls all the time basically, and then talking to Agatha, getting her, her two cents on it and just working through that. Was very educational for me. But I think that's when I really understood that when you're a founder, this is your baby and it's really hard to walk away from, and it's really hard to share it with somebody who maybe you don't agree with. And so I now understand, having been a founder, how personal a business is and how personal these decisions are.

So, um, that first client ended up actually selling his company to Datadog, which was very exciting. It doesn't normally happen, hit on the first. Wing, but it did for us somehow. But that was very exciting because it was like our first where we like represented the founder from inception through exit. And then again, when they started their second company, so that the firm, and now our careers have been long enough where we're seeing second, third time founders, and that's where things get really exciting cuz they've been through this before. So they're like, I made a bunch of mistakes, I'm starting fresh. I'm gonna make a bunch of new mistakes and now we get to do it together. So, I would say that was like the most fulfilling journey, frankly.

I feel like you guys have such an incredibly powerful position in the ecosystem because you get to see so many different reps of businesses and find the commonalities of what works here and what doesn't work here. And it always surprised me when I started sitting in on boards was that there's almost always a lawyer there for the entirety of the board. I mean, I think there has to be a lawyer for the entirety of the board meeting. And they kind of just get to vibe and listen and take some notes. And then oftentimes the lawyers that I would see would jump in with their thoughts just based on the market and what they're seeing out there. So, you guys really are in a power position sneakily, I feel like, observing from this viewpoint.

Yeah, we're seeing so many deals, right? Or the lack thereof, depending on what the market is or a certain type of deal. So, I totally agree because we're not in-house counsel, we're outside counsel, we represent hundreds of companies. We're sort of like a good market POV.

Just to maybe like double-click there, I often hear this said about the disadvantage it puts founders at, that venture capitalists see hundreds of companies in their life cycle, which means they're coming from a very sophisticated lens at the negotiation table. And that's just not true for founders, right? If they're lucky, they'll found 2, maybe 3 companies, and that's what they're good at, right? They're meant to stay at companies forever. And so for you guys, you really are a friend to the founder and giving them that extra information that VCs already coming armed with.

Absolutely. I would say like part of our whole ethos is to empower our founders with our knowledge and our experience and to put them really on the same playing field with the investors across the table. And we can do that because we've seen at this point thousands of companies. We've seen the trends, we've seen what's market, what's not market. We've seen the industries that are hot. I remember when I first heard about an NFT, It was like, what's an NFT? And it's suddenly everybody was doing NFTs. So we, I feel like we get to see the first wave of things in a lot of ways.

I would say that's also why it's important to hire like a startup lawyer and not someone that does startup law part-time because they're not going to have the same kind of lens on the market. If you hire someone that's only doing startup work, and that doesn't necessarily mean like early stage startups, our clients are throughout their life cycle. So I have clients that are very late stage. Series D, pre-IPO, they're doing complex restructurings or tender offers to clean up the cap table before they go public, for example. But I've worked with them since day one, so we've been through the iteration. And what matters is like, how do you set the company up for success? So that's something that you'll see like a good startup lawyer saying to you early on is, I know you don't necessarily think you care about this now, but we're creating the framework for the business moving forward. We're two steps ahead of you. And I think if you use a corporate lawyer that wants to do a little bit of startup work, or your dad, lawyer, you're just not going to get the same perspective.

Yeah. I'm reorienting my mindset as like lawyers are friends and they're looking out for you here. It's like the tagline that's jumping around in my head. And you kind of mentioned this where startups are your specialty, whether it be, uh, uncapped note, like at the beginning of the life cycle to the end of IPOing. And through the life cycle of your firm, which had both of your namesake on it, today you're with Perkins Coie and managing their East Coast startup and emerging companies. Practice. So you've now become a part of a larger platform, which many companies, many founders choose to take this path. And you've already given us such a great lens of the why you struck out on your own. So maybe taking us back to this moment of acquisition in 2022, how did that opportunity come about? And then why was it a yes for you?

It's actually very parallel to any of our clients. Just to back up a little bit, law firms, we can't take outside capital because of the ethics rules. So outside of the debt markets, from a business perspective, you always wanna be very mindful of. It's the lawyers of the firm that contribute the capital. So we can't go out and get VC money, for example, to hire, which is great because our business was profitable from day one and we were very mindful of keeping it that way and ran it very cleanly. But there does come a point where you're like, the asset that we have built is too big for the home that it is in, and we can't take money from the capital markets. But what we can do is plug into a larger strategic partner and use their resources. And so after the craziness of 2021, we were just at a place where everybody is begging for more work. We're saying no to clients because we just don't have the bandwidth to support them. And so it was naturally a place and a progression in the business where we were like, we need to look at a strategic partnership. Over the course of the firm, there were many people that were constantly approaching us and talking to us about potentially acquiring acquiring the firm or partnering with the firm. So the conversation was very organic and we just started amongst the partners talking about it much more seriously and then starting more serious conversations with the quarters, if you will.

Absolutely. And you mentioned being in New York, and I think there's this component to the New York ecosystem and startup land has evolved rapidly over the last 10 years, and there is a unique edge for your location relative to where Perkins has had a stronghold maybe over the lifecycle of its own firm.

Yeah, I think that's what was exciting for us too when we were looking at various opportunities is we built something in a green space. We wanted the ability to continue to build and brainstorm and be thoughtful, a platform that would allow us maybe to make a couple of mistakes, figure out things as we're growing in the market. And because Perkins didn't have an ECVC team in New York, it was like a perfect fit. They had an open office that they needed a team to use down in Flatiron, which like randomly enough, perfectly fitted the number of associates we had. So there's just like a lot of things that kind of lined up to make it a good strategic move for our group. And we plugged and play from day one, and it's been a really fantastic partnership. My clients have really enjoyed working with other parts of the firm. They have litigation support, IP support, and also it's nice to be back amongst other partners. I feel like you're always learning.

When it works, it works. And the synergies were there for this opportunity for you all. And you've of course, no doubt had many of your clients also be acquired. And so taking a step outside of your own acquisition and the ones you've worked on, what's something that's not discussed enough when evaluating an acquisition? We already talked about the earnouts for the founder, but is there anything else that you've seen from the legal side that people should be thinking about?

Yeah, I think, you know, a lot of things. Fun fact. Most entrepreneurs, uh, are not gonna last in a large company. I will say that. So being very careful of your earnout, your non-compete periods, that is the call I always get 6 months after the deal closes. The founder's like, what did you let me do? And I'm like, we talked about this, quiet 18 more months and then we can do another business. It's just like once you have the entrepreneurial bug, you just really can't fall out of it. And I have a founder, he's a third-time founder now. He puts it very well. He's like, you're either in build, grow, or maintain mode. And most people are able to be in one or two of those buckets and be professionally satisfied. But a lot of people that are builders just can't be in maintain, and that's what a big company is. So, beyond just like fit and earnout and non-compete periods, I think figuring out what's going to happen with your team, having a plan for integration is really critical. Some, depending whether you you're getting acquired by a strategic, for example, are going to have a more thoughtful process around integration. And that's everything. That's your technology, that's your processes, your employees, more so than others. And that is where I think a lot of value can be lost is in the integration process.

I was just gonna add another thing to think about is what is the legacy of your company? What are their plans for your product or service or whatever your company is or does? Because a lot of times there are plans for a strategic pivot or taking a different direction once the company is acquired. And I think a lot of people feel a real loss of their legacy when they see that they've worked so hard and then the acquirer takes a completely different direction.

We certainly talked about your founding journey, uh, a little bit about how you've empowered founders with your legal practice to make the most of their founding journeys. Let's take a step back and look at the legal industry as a whole. It's absolutely an interesting time for digital transformation across sectors. Legal, of course, being one of them. There's companies like Harvey AI, DocuSign recently acquired a company, Lexion, and we're curious how these tools are shaping or changing the way that you're working and if you've integrated any of them to you and your team's workflows today.

I'm very impassioned and enthusiastic about legal tech. I think in the legal process, clients get billed for a lot of things that are routine, like checking numbers and cap tables, making sure names and documents are correct. This is a wonderful place for AI to come in and help lawyers focus on what they need to do, which is like the strategic advice. We've worked with this type of technology throughout our journey. I think Carta is a great example. I used to, when I was at DoubleBlaze, have to maintain entire cap tables by spreadsheet alone if they weren't on a, a predecessor to Carta, and that's just like huge amounts of billable time that the client's absorbing. So I feel very excited about what's being built. I think it's only going to be able to make lawyers better, more efficient, hopefully reduce bills for clients and let lawyers actually advise.

I couldn't agree more. I think these kinds of AI tools are going to enhance what we do. We get a lot of questions on whether AI is going to replace lawyers. I would say at this point, absolutely not. There's so much judgment and strategy that goes into what we do. And so right now we're able to use these tools in a way that allows us to really spend the time we need to on the strategy, on, on the hard part.

Yes, I'm more in the AI empowering space than the replacing space. Love to hear that's where your head's at. And I do think it's an exciting time for anyone who works a job behind a computer to think about the ways you can level up yourself and have more thinking time and the ability to do the things that you actually thrive in, which it sounds like Similar to Venture, for you all, that's really being a mentor and a thought partner and working through some of these complex decisions at a board level with your clients. I think another topic that is touching AI and the legal space is the concept of AI regulation. Ironically, we're recording this on the election day in 2024, and I'm curious how you guys are thinking about proposed legislation in the AI model regulation space. And the advice you're giving founders who are asking you about this today?

I actually just spoke on a panel about this before the California bill was vetoed, 'cause that was a hot topic du jour. But I think to back up, what AI is creating is going to come under the ambit of current laws. So beyond like the developing body of law that's going to be regulating models and developers of models, AI and GenAI is going to be regulated under current employment laws, current privacy laws, current discrimination statutes. And so that's where it's going to get really fun and interesting because you're going to be applying a framework of law to a new technology. And so I think that a lot of founders forget that if you're using GenAI tools in recruiting, you do need to keep in mind discrimination laws and employment laws, right? Or sort of privacy and data collection. In terms of what's coming out around developers and models, so far it's been to regulate very big models. So nobody was sort of under the ambit of the proposed California legislation, but the veto order essentially said, this is not broad enough. We need to do better. So I think that's where you're going to see a lot of debate is like, how much should— this is a debate we always have— like the government get involved in these emerging technologies? And what are we, what are we encouraging? And is there an expense of building? And that's going to be the tension that we see developing in this body of law.

In terms of what I'm telling clients now, I think there's a big focus in the legislation on transparency. So how is private information being used to train models and for what? And so we're working with clients on being very clear in their privacy policy and in their own policies on what they're planning to do with people's data and how they intend to use it. And I think prophylactically, that's the best way to deal with collecting data at this point and using private data.

Yeah, it's so interesting to watch. We weren't really actively in the market when the internet was coming online. Claudia and myself missed kind of some of those regulatory conversations, but I think I'm hearing pundits talk about this from the lens of that, right? The internet, we had to have new regulation for, and now we have to have new regulation for AI. What is this gonna look like?

Yeah, it takes a long time for the law to catch up to technology, so I feel like It's gonna be years, frankly, probably a decade before it actually gets to where the technology sits and how it's being used.

Let's bookmark 2034 for a continued conversation. I would absolutely love that. I'd love to maybe touch on a part of the ecosystem you definitely interact with, which is the venture community. Out of curiosity, do you guys do fund formation work or support with the founding of a venture firm?

We do. I work with several emerging managers, so I would say like first-time managers, mostly former operators that went and started a fund. They're actually, I would say, more fun to work with because they've done this before. They tend to be a little more like founder-friendly. They've been through the sort of the rigor more of raising capital and understand how the founder is feeling and thinking through the process. But we're able to support them because they haven't raised a venture fund before, right? So the whole process is very different. We joke they're back to capital raising again, which usually is founders' like least favorite thing. So yeah.

That's helpful because my question was around the emerging manager landscape. So I'm glad to hear I'm at the right place. I joined an emerging manager myself as my first role in venture. We were in our fund 2, so I didn't see that first inception fund moment, but helped us raise fund 3 and just learned a lot about the nuances of the LP ecosystem for fundraising as a VC yourself. And there's been a huge macro conversation about kind of the demise of emerging managers or the inability of first-time funds to become second-time funds. Given the illiquidity in the market today. And so would love your vantage point again, from that bird's eye view you offer so well around if you're bullish or bearish on first-time emerging managers in this market.

Yeah, I'm bullish. When you invest this early, you're not looking to return your fund's capital within a year or two. So I think understanding how venture funds work, especially in an early stage, like you usually have a 5, ish year window to make your initial investments out of a fund, and then 7 to 10 years to return your money to your capital, to your LPs. So that's a pretty long time from day one of seed investment through 7 to 10 years, depending on your fund's documents, to see a return. And most venture funds, they're not looking— they're looking for that one investment that's going to return the entire fund. That's how they're positioning and thinking through their strategy. So I actually think right now is a perfect time to be an emerging manager because capital is expensive. So that means that founders are actually— it's only really the best founders that are out there raising capital, and you're likely to get better terms than you would have in 2021. And you're also dealing with founders who are in the ecosystem and understand that capital is expensive and hard to get. So they're making that capital last longer. So I actually think that investments that are being made now are gonna have a bigger return and a bigger impact on the overall climate, um, just given sort of the timelines that are in mind.

Yeah, I think that's absolutely right. People are being a lot more careful with cash. So it used to be that you would raise a round, it, it should last you 12 to 18 months at least. Now it's like meant to last 18 to 24 months, up to 2 years. So people are really conserving cash. And I think it does make the stronger founders are coming out on top and it's clearer who they are. And so I'm seeing a lot of activity, a lot of new funds. I was a little bit surprised because yeah, capital is getting more expensive. Absolutely. But it's exciting to see that there's still a lot of activity out there. So I would say I'm also bullish on first-time fund managers.

And then from the founder perspective, on my day-to-day, All of my peer founders are always asking each other, like, how's your fundraise going? Is the market getting quote unquote better? Certainly there's been this shift from grow at all costs in 2021 to how can we show an efficient business that still grows in 2024? And so given that you work with so many founders through multiple fundraising journeys and multiple different rounds, more broadly, how are you feeling about the market today with your unique vantage point? Might we see more liquidity in the public or private markets based on deal activity? What would your take be for founders that are looking to raise a Series A or potentially consider an IPO or raise a later stage round?

I feel like I can't wait to listen to this, my future self listening to this on this big election day and see if I still agree with this crystal ball prediction. I think the election has created a lot of, obviously, chaos and uncertainty in people's minds. So they wanna get through it and sort of figure out what chaos we're gonna be dealing with. So I think we're gonna definitely see a shift at some point when today ends. I am still seeing deals be done. They are not necessarily at the valuations that founders received in 2021, and maybe not the valuations that they think they deserve, but deals are still getting done. Capital is still being deployed. It is being used very efficiently, as we said. I, I am seeing more deals get done Series A, Series Seed stage because there isn't that need to suddenly shift the business to a profitability model, right? So going from like a growth model to a profitability model, you're really like changing train tracks completely. Where we've seen very challenging deals is in that later stage business, later stage climate because of that shift. You're, You're having to take a look at the business and reallocate resources dramatically from a growth model to a profitability model. And I think that is a much harder exercise than when you're a little seed or Series A company and you can be a little more nimble.

Awesome. Any final kind of thoughts on that topic?

Yeah, I would say we always see deal activity. We're just always constantly very busy, but because I think our model and our practice speak so well to founders, but I think everyone's saying 2025 is the year. It's gonna be just bananas busy. And I, I do think people are pausing their breath. There has been like a collective pause in some ways. People are still moving forward. We're still seeing deals, but they're a little bit, they move a little more slowly. I do think things are gonna heat up even more though in 2025, so I'm hopeful that is a return to the level of deal activity we saw a few years ago.

Yeah. And to touch on that a little bit more, so back to the fund point that we were making about how funds work. So what we need to happen is we need like liquidity to come to, into funds, right? So we need the IPOs to happen. We need more, I would say, good M&A versus sort of what we're seeing right now, which is more of bad M&A so that those returns go back to LPs so that they can then reinvest. Invests into a new fund. And when we see that cycle, it will like trickle back down to your early stage or Series A companies. So we're all in it together, even though sometimes when you're across the table from a VC, you don't feel it. They're like, trust me, I too have my investors that I need to return money to. So I think we need an entire cycle shift in order to feel like we can take a deep breath. And we're hearing, like, I at least am hearing positive, um, some positive feedback.

It's so easy for either side of the table to feel like we're firmly on this side of the table. And it's a really helpful kind of reorientation that a founder's success builds a fund's success. And we're all here to have a full circle moment in 2025, especially that we're 2 months out from 2025. So I'm really excited to see what happens in the markets from both the fund side and founder side next year. As we wrap up on time, I know we only have a couple of minutes left in today's conversation. I love to ask the hero question we ask all of our guests. That question is, who is a woman in your life that has had a profound impact on yourself and your career?

I would say the judge that I clerked for, Judge Lorna Schofield in the Southern District. She's the first Philippine American woman federal judge. She was, when I started practicing 15 years ago, probably the only woman of color that was a partner at a major law firm that I knew. So, she's just such a trailblazer. She's such an amazing mentor. She's taught me so much of what I know and do and so much about being a leader. And she has a really unwavering commitment to diversity. And so, she has one of the most diverse chambers, is like the people who work with her in her courtroom, of anyone I know. And it's just something she's so committed to. I recently went to a reunion and it was just It's just incredible to see the array of backgrounds of her clerks and to see the way she really continues to follow through on her principles and what's important to her as a judge.

It's incredible. Agatha, how about yourself?

I would say a more general response. I think all of the female founders that we get to work with, because we see on a day-to-day basis how hard it actually is to raise capital, the hoops that they have to jump through for a variety of different reasons, but mostly because they're women and being able to see them build big businesses despite all of those challenges and build teams of women that support them and build and grow their businesses is really inspiring. And so it is something that I personally love when we have an all-female-founded company and team coming to us for support. I'm like, this is great. The girls are gonna get it done. And on Election Day, I'm like, note to my future self, hopefully we can continue with that theme.

Thank you so much, Agatha. Yeah, cheers to that.

Cheers to that.

Thank you so much, Agatha and Sonia, for being with us in the room today. It's been so incredible to hear your story going from law to law founder to really helping empower a lot of the founders like myself that are really just trying to make it through this ecosystem and during these really uncertain times. So it's been such a pleasure having you on today. Thank you.

We loved this. We love supporting you guys and, and can't wait till 2025.

Thank you so much. Cheers to 2025.

Thank you so much for joining us at The Room Podcast.

If you want more from The Room every week, subscribe to our newsletter at theroompodcast.com/newsletter.

We'll be back next week with a new episode and inspirational guest Tuesday. See you in the room. Perkins Coie supports the most innovative entrepreneurs and investors in fast-moving and high-growth sectors, addressing their myriad of legal needs. But the firm doesn't just provide end-to-end legal and business counseling to its startup clients. It also facilitates introductions to key advisors and sources of capital. Perkins Coie's interactive website, Startup Percolator, offers access to programs, resources, and rich dynamic content designed to assist entrepreneurs on their startup journey. To learn more, go to startuppercolator.com and perkinscoie.com.

This podcast is brought to you by Mercury, the banking platform businesses like The Room Podcast use to simplify their finances. It's time banking did more than hold your money. Now it can. With Mercury, you can pay bills in seconds. Close the books faster, and even send invoices. Not only does Mercury do away with a patchwork of tools, it eliminates guesswork, giving you complete and accurate visibility into your business's finances, all from one account. Apply in minutes at mercury.com.