John Laco.

Vice Chair, Entertainment Venture and Technology Group

O'Melveny & Myers LLP 

JOHN Laco founded O'Melveny & Myers' emerging companies practice three years ago, when the future looked extremely bright for many Internet startups. That was when Laco's clients needed legal advice in negotiating their generous venture capital offerings or preparing for their IPOs.

These days, many of the former high flyers are seeking Laco's assistance in trying to stave off bankruptcy by securing another round of financing or to negotiate their acquisition by another company.

For dozens of local start-up companies hunting around for the elusive second or third round of financing, Laco represents the last hope. "Through our networks, we can at the very least offer them a crack through the door to the money guys," said Laco, who declined to name any of the troubled firms he works with. "We can say to VC firms, 'These are our clients; we believe in what they're doing,' and we have the guarantee that they'll take a look at them."

However, with most VC firms focusing on their pre-existing portfolios and reluctant to take on any new risks, it's pretty rare for one of Laco's clients to be thrown a lifeline in the form of another round of financing.

That often leaves them with just three options: filing for bankruptcy, folding their venture into existing operations, or selling the company. And with companies running Out of money, their negotiating position can be weak.

"Many acquirers will be very patient and even willing to wait until the company goes bankrupt," said Laco. "At the same time, if a company is having cash problems, they need to sell as quickly as possible. Sometimes you have to convince the existing investors to pour additional money into a company just to keep it running for 45 more days and to put us in a better position to negotiate a deal."