Fenwick & West’s layoffs show how sluggish markets for tech-related IPOs, M&A and venture capital has pressured Silicon Valley law firms that lack counter-cyclical practice areas such as bankruptcy.
Fenwick, a 478-lawyer firm, said Feb. 13 it would lay off “just under” 10% of attorneys and staff. Cooley, Goodwin Procter, Gunderson Dettmer and Wilson Sonsini, which like Fenwick focus on tech-related mergers and acquisitions, initial public offerings and venture capital, have also trimmed headcounts over the past 15 months.
The five firms “all put their eggs in one basket, in one industry, that’s not doing well right now,” said Katherine Loanzon, managing director at legal headhunting firm Kinney Recruiting, referring to tech companies. “Moving forward, they really need to reevaluate themselves about what type of firm they want to be.”
The value of venture capital deals in the US last year fell to lows not seen since 2019, according to year-end report by Pitchbook. Venture capitalists invested $170.6 billion in the US in roughly 15,000 deals in 2023, a figure that is down about 30% from 2022. Globally, they invested $345.7 billion, down 35% from the year prior and the lowest figure since 2017.
Bay Area-founded firms such as Fenwick and Cooley saw a hiring opportunity in 2020 and 2021 during an increase in start-up-related venture capital activity, said Nick Goseland, a Palo Alto, California-based managing director for the legal recruiting firm Macrae. Rising interest rates then dampened desires to provide startup funding, causing less work for firms, he said.
As the work dried up for lawyers, Silicon Valley firms found themselves overstaffed. Many newly-hired lawyers “were left with nothing to do,” Goseland said. “VC funds were left with a lot of dry powder, but they’re just not deploying it.”
Fenwick chair Richard Dickson said in an email to staff that over a year ago, as many peers announced layoffs, his firm conveyed that it had no plans for reductions and that “short-term economics would not drive a decision of that magnitude.”
“However, over the past year, the firm overall has not seen the rebound we had hoped for,” Dickson added.
No Bubble Burst
There are several reasons behind the layoffs, said Kate Reder Sheikh, a California legal recruiter for Major, Lindsey & Africa. Interest rates are affecting venture work coming into the firms, which for some is their life blood, she said. Coupled with the over hiring firms did in 2021, and recent associate salary raises, the financial pressure on the legal operations increased.
“I don’t think any bubble has burst,” Reder Sheik said. “The work will return, but it may not be coming simply fast enough for these firms to keep up, especially with the pay raises that were given.”
In November 2022, Cooley said that it would be letting go of 150 lawyers and business personnel across US offices. Goodwin followed suit last January, letting go about 5% of its attorney and business staff. Gunderson Dettmer said in April it would be laying off 10% of its attorneys, paralegals and staff.
Wilson Sonsini hasn’t announced any firmwide layoffs like the others, but according to one source familiar with the firm, it cut a large number of associates during its annual performance reviews in recent months, particularly within its transactional and transactional-adjacent groups. Wilson Sonsini did not respond to requests for comment.
The tech-focused firms that didn’t do layoffs in 2023 “unfortunately have good odds of having to do them in 2024,” Reder Sheik said.
Goseland predicted that larger Bay Area law firms and offices with strong tech startup practices would survive a continued VC slump because they’re typically multifaceted—even in the types of work they handle for mature tech companies such as Apple Inc. and Alphabet Inc.’s Google.
Giants like them, unlike startups, often regularly need assistance with antitrust, labor and employment, and securities litigation issues—something those firms also specialize in, he noted.
But for firms that solely provide corporate transactional services, the future might require a bit more contemplation. Tech-focused law firms need to figure out if they should expand offerings to other industries or combine with another firm, Loanzon said.
It will depend on the firm if they’re receptive to retooling, Reder Sheik said. But, she said, “some of them are very, very proud of their venture identity and they’re going to ride out the storm because that’s who they are.”
— With reporting by Sam Skolnik.
