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Asking clients: Can small legal start-ups compete with the big boys? And do you have to risk your neck?

David LLP v Goliath & Partners? (graphic by Mint)
David LLP v Goliath & Partners? (graphic by Mint)
In today’s edition of Mint: “Today our biggest problem is not foreign firms, it is people working at one-tenth the price that we work at,” said Cyril Shroff, the Mumbai managing partner of Amarchand & Mangaldas & Suresh A. Shroff & Co., in an interview in early 2012. “You are constantly being pulled down in price.”

In particular, he was referring to startup law firms. Professor Jayanth Krishnan of Indiana University’s Maurer School of Law has conservatively counted around 210 corporate law firms in India, as part of his research on the Indian legal industry. Just under 100 of those firms were set up after 2000, according to Krishnan, and at least 47 new firms opened their doors in the last five years, many having “peeled off” from larger firms.

The younger and smaller firms usually compete very aggressively on price, sometimes offering to work for free, and are turning the subdued economic climate into an advantage.

“When (the company) goes through a cost cut, the first thing to go is (the budget on) external lawyers. So instead of completely getting rid of (external lawyers), I’ve moved to a smaller firm,” explains one in-house counsel.

But are these firms like mosquitoes with a short lifespan vexing an elephant or will they disrupt the legal industry food chain in more fundamental ways?

Fire breathers

Mysore Prasanna has witnessed the evolution of the legal industry from a client’s perspective more closely than most: He began practicing in 1970, worked as a lawyer at Indian companies from 1977 and was group general counsel for the Aditya Birla Group from 1998 to 2010.

In his experience, most lawyers start their own firms for broadly similar reasons. In-housers who take the plunge may often feel that they have reached the limit of their current career path but still have “fire in the belly”, while also eying longer-term economic considerations.

Senior associates or young partners leaving larger law firms, he says, are often driven by the ambition to create something of their own, as well as dissatisfaction with the recognition they receive at their existing firms or a sense of “exploitation” or frustration about not rising through the ranks internally compared with the “blue-eyed boys”.

This psychological profile of the stereotypical entrepreneurial lawyer perhaps gives start-ups an edge over their older competitors.

“One thing I do feel is, when you are starting up there is a hunger to prove yourself,” says Madhu Khatri, who is associate general counsel at Microsoft, but spoke in her personal capacity.

Can’t buy me love

A legal head at one of India’s large global companies has had bad experiences with some big law firms. Twice, she says, she caught one of India’s well-known legal brand names inflating its bills by charging for work that its lawyers never performed. So the in-house lawyer blacklisted the firm and several months ago approached a less than three-year-old start-up, negotiating lower rates and setting performance metrics for certain types of work.

“It’s working fantastically: They are so keen for the work and the business and the turnaround (time) is fantastic,” she enthuses.

Khatri, who instructs large firms and several smaller specialist and start-up firms, says that she has personally always found it “interesting and useful” to work with start-up law firms. “I found people who work very hard, who have innovative service and are more in touch with the needs of the clients, which large firms tend to ignore.”

Some niche sectors, such as private equity (PE) and venture capital (VC), can also open up several avenues for start-ups. “I suggest start-ups and other mid-size tier II and III firms to some of my portfolio companies and I find them (able) to provide better services (than the top-tier firms),” says Karthik Mahalingam, Mumbai-based legal counsel at the philanthropic investment fund Omidyar Network.

The brave

While smaller firms may be keeping some clients happy with their services, instructing the unknown over the incumbents can be a gutsy move.

No one ever got fired for hiring IBM, say three in-house counsel separately interviewed for this article, about the propensity of managements and general counsel to prefer the big law firm brands in India—“playing it safe” in other words.

“My neck is a little bit on the chopping block because it’s not a reputed firm,” admits the in-house lawyer who blacklisted the big firm and went for the start-up. She fears that if any legal problems crop up—and often in India these can be outside the control of legal advisers—her head office will say, “this one went to an experimental firm and it went wrong.”

“To cut a long story short,” adds the India legal head of a global hospitality major, “I would go with a start-up if I feel that the guy who’s heading it and the team is good enough and have good experience. I would not go (with a start-up) for a high-value deal.”

Another mid-level, in-house lawyer at a large Indian company says that big brand names will also automatically get the nod if the legal department is not directly involved: top directors and senior management will have relationships and comfort in using the “Cyrils and Zias”—the collective and colloquial term in the Mumbai corporate legal sector for the most senior partners such as Cyril Shroff of Amarchand and Zia Mody of AZB & Partners.

The same goes for the biggest deals in the PE and VC space, according to Mahalingam. “Typically, what happens is the PE and VC guys prefer to use a number of firms. Some, they will use for mission-critical (deals) and focus on tier II or tier III firms for other work.”

An international financial services company’s general counsel is blunt: “You wouldn’t really go for any level of serious matter to these start-up firms…unless there is a huge promoter comfort with the partner.”


By all accounts, few, if any, of the firms set up in the past five years have graduated from small instructions here and there to marquee work, which remains the preserve of the top few.

“I think the opportunity is there for the small start-ups,” says Khatri. “Small start-ups, they can be fly-by-night operators and in the early days it is always hard to distinguish who is there for the long run.”

But although the biggest burden for most start-ups is their youth compared with the incumbents, it is easy to forget that the Indian corporate legal market as a whole is still very young.

“If you look at Trilegal, 10-12 years back, these were all guys, youngsters, from national law schools and today what a brand equity they have,” Prasanna says.

“That’s how Amarchand was just 15 years ago—purely litigation focused—and they became a behemoth,” recounts another general counsel. “AZB was just Zia Mody—it was just her!—today it’s like a countrywide thing.”

In little more than a decade, those firms became kings of the corporate advisory hill, displacing a number of traditional and less aggressive Bombay solicitors firms such as Crawford Bayley & Co. or Mulla & Mulla & Craigie Blunt & Caroe as the default option.

Those memories may very well be haunting the sleep of some of the largest firms’ partners.

Fragmented crystal balls

Predicting the landscape in 10 years is not an exact science, though all the in-house counsel interviewed agreed that the start-up firms were unlikely to disappear any time soon, despite some currently eking out an existence from low-margin, commoditized work.

“They can survive,” says Prasanna. “In the beginning, they may have a tough time but I have seen start-up law firms moving on to much better premises within a couple years—it is very impressive.”

Most also agree that the start-ups are likely to start consolidating in future.

“Right now (the market) is going through an extreme fragmentation stage, because the entry barrier is so low,” Cyril Shroff said in early 2012, but added: “Just as night follows day, consolidation will have to follow fragmentation and you just have to keep your nerve through this process. I think (it will take) another three or four years. You can see the market is maturing.”

Prasanna agrees, but while Shroff is talking about consolidation into larger domestic firms, the former general counsel believes that overseas firms are going to be the more likely suitors.

“When India opens up the legal profession for international practice—it will happen, I am very optimistic it will happen one fine day—all those start-up law firms which have by then clocked three, four years of experience, will be up for phenomenal alliances.”

“I am quite happy to see it,” he adds. “The pie is large enough for everyone to have a piece.”

This article first appeared in Mint. Legally India has an exclusive content partnership with Mint, which will feature the latest legal news and analysis in its print and web editions.

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