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In Latest Tech IPO Frenzy, Big Brands Make for More Legal Work

Lyft, Zoom and Pinterest IPOs

Lyft, Zoom and Pinterest IPOs Photos: Bloomberg

If March and April are any indication, 2019 is going to be a huge year for tech companies going public.

While the current activity doesn't match the late-1990s dot-com boom, market watchers said, the companies now entering the public market already have well-known brands. For their law firms, that means more complicated legal work and a greater demand for capital markets lawyers.

Last week, two more tech unicorns—startups valued at more than $1 billion—made their initial public offerings. Digital pin board Pinterest Inc. debuted at $23.75 on the New York Stock Exchange last Thursday, valuing the company at $10 billion. And Zoom Video Communications Inc.,  a video conferencing company, went public the same day and saw its share price soar from $36 to $62, giving it the company valuation of $15.9 billion when the markets closed.

Pinterest’s IPO was led by Cleary Gottlieb Steen & Hamilton, Potter Anderson & Corroon and underwriter counsel Skadden, Arps, Slate, Meagher & Flom and generated $2 million in legal fees and expenses for the three firms.

San Jose-based Zoom was advised by Cooley and underwriter counsel Wilson Sonsini Goodrich & Rosati, and is paying its legal counsel $1.5 million for their work on the IPO.

Pinterest and Zoom are the latest in a string of high-profile IPOs. Lyft was the first of the 2019 pack to hit the market, in March, followed by software company PagerDuty in April. Uber is set to begin trading in early May. And Airbnb Inc. and Slack are both reportedly preparing for public offerings.

Together, initial public offerings by Lyft, PagerDuty, Pinterest and Zoom have generated $6.4 million in legal fees and expenses for the law firms advising those companies, according to U.S. Securities and Exchange Commission filings.

Two law firms—Cooley and Wilson Sonsini Goodrich & Rosati—also reported that they own some shares of their clients’ stock. Uber’s S-1 filing reveals that attorneys at Cooley have “a beneficial interest in an aggregate” of less than 0.03 percent of the company’s common stock. Zoom’s filing disclosed that an investment fund associated with Wilson Sonsini owned less than 1 percent of the video conferencing company’s outstanding capital stock as of the end of January.

CompanyLegal CounselUnderwriter CounselAmount RaisedLegal Fees & Expenses
UberCooley; Covington & BurlingDavis Polk & Wardwell------
ZoomCooleyWilson Sonsini Goodrich & Rosati$356.8 million$1.5 million
PinterestCleary Gottlieb Steen & Hamilton; Potter Anderson & CorroonSkadden, Arps, Slate, Meagher & Flom$1.4 billion$2 million
PagerDutyCooleyOrrick, Herrington & Sutcliffe$218 million$1.5 million
LyftWilson Sonsini Goodrich & RosatiGoodwin Procter$2.3 billion$1.4 million

More Mature Companies, More Work

While the legal fees reported in S-1 filings relate only to the companies' IPOs, the law firms' work for those companies often continues after they are on the public market.

“It is very lucrative,” said Curtis Mo, a corporate and securities partner at DLA Piper, referring to the full range of services law firms provide to newly public companies.

In addition to handling the IPO preparation and the offering itself, these law firms often will continue to provide legal support for their clients as expand using those investments, Mo explained. That post-IPO activity can create even more legal work than in the pre-IPO period, he said.

Mo, who has been representing emerging companies in Silicon Valley since the late 1990s, said the latest IPO wave is still small compared to the IPO boom during the dot-com era. Before joining DLA Piper in 2010, Mo was founding partner of the Palo Alto office for Wilmer Cutler Pickering Hale and Dorr.

“If you go back 20 years, Silicon Valley was an IPO machine, you would have 100 to 150 and more IPOs a year,” he said. “On a grand macro scale, the IPO market has still never recovered to its heyday.”

The companies debuting on the public market now are far bigger and far older than the companies that were going public 20 years ago, he said. And that means there is a greater amount of legal work related to the IPO transactions.

“I am sure those lawyers are putting in a lot of late nights recently,” said Kate Reder Sheikh, the managing director in the associate practice group for Major, Lindsey & Africa, “I expect that capital markets associates in the Bay Area are working pretty darn hard right now in order to accomplish the goals of their clients.”

The increasing capital markets work has also driven up the demand for securities lawyers in the Bay Area, Reder Sheikh said. With more companies choosing Bay Area-focused law firms for their IPO work, Reder Sheikh said she expects more associates to move to California, instead of going for the traditional capital markets such as New York or London.

“I think a lot of that is being driven by the IPO activity,” she said.

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