This month in our Leaders & Influencers series, we talk with Matt Storms, President & Attorney of AlphaTech Counsel, S.C., a Madison-based law firm that represents emerging companies, primarily in technology-enabled industries.
I was a partner in a large corporate law firm where I worked for 13 years. While I was there, I got an offer out of the blue to be CEO for a medical technology client, which initiated a midlife crisis of what I wanted to be when I grew up! I ultimately turned down the offer and decided that I wanted to continue practice law. But, I wanted to do it differently. I wanted to be more focused on what I liked doing—working exclusively with emerging tech companies. I also wanted to rely more on technology, which is why I spent the first six months after I left the corporate law firm doing some amateur coding and building automated tools to facilitate working with emerging technology companies. After I emerged from my programming cave, I started hiring for AlphaTech. That was seven years ago.
Many professional service firms, such as accounting and law firms, have traditionally relied on an hourly payment model for services, which doesn’t give those professions a lot of incentive for developing technology, such as document automation. Under a time and materials model, the more efficient an accountant or lawyer is, the lower his or her revenue. Conversely, the more money spent to improve technology, the lower the margins become. What often happens is that professional service firms are not eager to adopt these systems unless they feel as if they need to do so to keep with market. So, many professional service firms have been slow to adopt new technologies, such as document automation in the legal field.
First, it is overdue in the legal industry. I want to be a part of the forces that cause law firms to evolve and use technology to become more efficient. While our use of technology is not the centerpiece of what we offer, it is symbolic of the common sense way we approach working with companies.
Second, use of automation can be a great knowledge management tool. For example, we built our system so that when producing routine documents, it provides prompts and information to enable the person creating the document to make informed decisions around common variables. If a company is setting up a stock option plan, for example, one variable or question is, “How many shares are available under the option plan?” The system will provide the range for what is most common and the instances of when to deviate from what is typical. In doing so, it takes information from those who are experienced on a matter to enable others the benefit of that information when preparing the documents.
And third, after developing and now using the technology, it actually frees up time for our team so that we can spend more time on things like assisting with strategy, negotiating, and structuring complex transactions rather than on routine matters. As a result, our attorneys and paralegals spend most of our time on matters that have higher value, which clients appreciate.
When I started working with tech companies in the mid-‘90s in Madison, there were some medical device, therapeutic, and scientific tool companies and some software and Internet companies. Not many of them made it far past the initial start gate. Most medical device and therapeutic companies relied primarily on SBIR funding. Gradually, more investment capital started coming in, and we started to see more software companies popping up. Fast forward to 2010-2012 (post-recession), we had more people launching their second startup company. These people originally came out of Epic, TomoTherapy, Third Wave, GE Medical, Promega, and the UW. Some were successful with their first startup; some weren’t. What was good to see is that even though people may not have been successful with their first startup, they were sticking around and trying it again.
In the last 4 years, investment capital has not been the issue it was 10 or 20 years ago, at least not for early-stage startup companies. You find more folks here who are now on their third or fourth startup, and former CTOs, CFOs, and heads of sales who are now starting their own companies. We’re also seeing a lot more talent flow between Chicago and Madison and even a number of people commuting between the cities.
Currently, we have several companies that we are working with who are struggling to raise between $3-$10M in investment capital—that’s both here in Madison and in the upper Midwest generally. These companies frequently have experienced management and a validated product generating revenue, and are now trying to scale nationally or internationally. In many cases, they need both more capital and talent. There are limited sources of investment in the Midwest that can deploy several millions of dollars in capital in these types of companies. Plus, we have a finite pool of people who have scaled a technology-enabled company to more than 100 people. So, raising $3-$10M will likely be a continuing challenge for Midwest companies in coming years.
I’m curious about how law firms are changing. There’s been more consolidation in the last 8-10 years than ever. Law firms that have between 50 and 500 attorneys are facing a lot of pressure in terms of pricing, demographics, increasing client law department sizes, outside counsel policies, and outsourcing. With increasing specialization and use of technology, it will be very difficult in coming years for a general practice firm, such as one with 50 to 500 attorneys, to stay on top of the various legal practice areas while investing and paying for the infrastructure that will be required to keep with market.
In coming years, I’m anticipating a combination of more consolidation and breakups of these firms. So, we’ll end up seeing more huge firms with thousands of attorneys on one end of the size spectrum and then niche firms like ours that are specializing in a particular area that can compete with the megafirms in that area. The megafirms will have both depth and breadth of experience and knowledge, but will likely be very expensive because of high overhead and less competition. The niche firms, on the other hand, will focus on a particular industry or area of law—intellectual property, estate planning, insurance, healthcare, employment law, emerging tech companies—which enables them to deliver the depth in that area with a better product and service at a lower price. I look forward to seeing how this unfolds.
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