Byron S. Kalogerou
Byron S. Kalogerou
Kristian A. Werling
Kristian A. Werling

With its announcement on Monday that it will set aside $1 million in fees to represent burgeoning life sciences companies, McDermott, Will & Emery LLP is the latest large law firm to show interest in representing little-known startups.

McDermott, which has a 135-plus member life sciences practice that counsels pharmaceutical, biotechnology and other medical companies, will seek out and screen early-stage companies in those fields and offer them discounted legal services.

The firm plans to offer a total of $1 million in discounts to companies that pass a vetting process that is part of a program it calls LEAP, or Life Sciences Entrepreneurs Acceleration Program, which will be focused in three hotbeds of life sciences development — Boston, Chicago and Silicon Valley.

"The influence of Abbott Laboratories and Baxter and some other big players (in the life sciences industry) in the Chicago area is leading to a robust startup culture here," said Kristian A. Werling, a McDermott partner.

"This is something that regionally our lawyers were asking for and our potential clients were asking for."

A courting competition for startups in Chicago among law firms has intensified as the prominence and number of young companies has grown — 197 new digital companies launched last year, the most ever, according to Built in Chicago, an advocacy group.

The life sciences industry is in a growth spurt, too. Venture capital financing for Illinois biotechnology companies has jumped 209 percent since 2009, according to a 2012 Illinois Biotechnology Industry Organization report.

While firms often discount or defer fees for startup clients, McDermott's move represents another page in a playbook large firms have developed to represent young companies that do not always fit the definition of their typical client — well-established and deep-pocketed.

For instance, Foley & Lardner LLP has donated its unused office space to a technology accelerator program of sorts called Catapult Chicago, which houses growing companies and a number of new Foley clients. Foley, whose lawyers Galen R. Mason and Christopher C. Cain helped found Catapult, announced in April it would renew the tech accelerator's lease of more than 10,000 square feet of space.

Firms including Kirkland & Ellis LLP and Katten, Muchin, Rosenman LLP have sponsored 1871, the 12th floor space of the Merchandise Mart that houses early-stage businesses and often features lawyers donating their time in hopes of finding a budding client.

Other firms are part of more formal social circles, such as DLA Piper's involvement with Chicago Founders Circle, a newly developed mentoring group of entrepreneurs and service providers.

While they take different forms, these moves are variations of a bet that investing in the startup community, despite its lacking initial returns, could lead to long-term success for large law firms.

"As far as a big firm playing in the uncharted waters of startup companies, we look at it as if we were a venture fund," said Gregory S. Grossman, a DLA Piper partner who represents Groupon Inc. and the fast-growing iPad-based rewards company Belly Inc.

"We realize there might be some representations where we run up a few thousand dollars worth of fees that we can never collect on … and we sort of net that against the Groupons of the world or the Bellys of the world that become great clients and become institutional firm clients that give you years and years of work."

McDermott's partners said one goal of the LEAP program was to develop long-term clients. The first direction for interested entrepreneurs on the LEAP website, after all, is "Talk to a McDermott partner."

But they refuted the idea that their strategy was a recognition that it can be difficult for larger law firms, which often feature higher rates than smaller competitors, to represent cash-strapped startups.

"It's more a recognition that we want to come alongside these entrepreneurs and support them when they need it," McDermott's Werling said.

Byron S. Kalogerou, the Boston-based chair of McDermott's life sciences practice, added, "When you think about how (large companies) evaluate potential investments, they're evaluating (startups) all the time. And if they see issues, those foundational issues that are going to take too long to clean up, they move onto the next prospect. … So you need to get your house in order very early on."

Some qualities unique to young companies in the life sciences industry make them a particularly appealing wager for a large firm, Werling and Kalogerou said.

For one, the bulk of these companies' value is determined by their intellectual property, making them dependent upon high-quality legal services.

For another, the industry is dominated by a handful of established companies that do the bulk of startup acquisitions. McDermott, Kalogerou said, works with those companies and the venture capital investors who serve as leading lights for their investments.

"Often times we play sort of the capital connector role," Kalogerou said.

"We're able to essentially send their pitch papers to the (venture capital funds) we represent, to the private equity funds we represent and to the strategic VC funds we represent. And I think that we just recognized that … it's critical to have all those constituents under one tent."

Foley's Mason, a senior counsel who spends much of his time advising startup clients, said he expects local lawyers to keep their eye on the startup scene. But that does not come without some risk.

"If I go out and do this," Mason said, referring to representing startup clients, "I assume the mantle of people that were critics who say, 'This better work.' But in a way, for me that's my startup risk."