Lawyers See Caseloads Shift From IPOs to Buvouts.

Just a few months ago, companies like RightPro Inc. were frantically turning to their attorneys for counsel on the intricacies of going public.

But with the meltdown of the IPO market, especially for Internet plays, West Los Angeles-based RightPro and other firms now need legal advice of a different kind: How to attract venture capital just to stay afloat.

"We're in the middle of (raising) a $3 million round of venture capital, but we've been careful not to approach venture capitalists too soon," said Norbert Tan, vice president of business development for RightPro, which hopes to launch an Internet database this summer that connects attorneys, accountants and other professionals with clients.

"We're taking all the right steps and getting the right legal advice," he said.

In the course of a few short months, L.A. law has seen a significant shift in direction. The IPO market has tanked, and venture capital deals have slowed, as investors become more discerning about companies they want to fund.

You would think deal-oriented law firms would be feeling the pinch. Not so, according to local attorneys. Most say business is booming thanks to an increase in merger-and-acquisition work and growing trade in financial restructuring.

"We're representing a lot of companies out there that are hitting the wall," said Jeff Hermann, a partner in the commerce and finance group of Brobeck, Phelger & Harrison LLP. "Mostly they're companies with high cash-burn rates, but their plans to go public have been soured by the recent market downturn."

One client of the firm was just weeks away from a planned $1 billion IPO. When the market tanked, the company dropped its public offering and was left scrambling for venture backers.

"They were still burning cash at a rate of many millions a month, but the appetite of venture capitalists had decreased," Hermann said.

When the client, which Hermann declined to name, couldn't find backing, it ended up being acquired by a larger player. Hermann's s firm oversaw the legalities.

'Fever' has chilled

Just a few months ago, venture capitalists were falling all over themselves to fund startups, many of which were unproven Internet commerce companies that were spending furiously to gain market share.

"Capital sources were almost unlimited. You could call it a fever. People were afraid to miss the deal," said Ken Baronsky, who heads the corporate department for Milbank, Tweed, Hadley & McCloy LLP in Los Angeles.

The plan for venture capitalists was to pour cash into the startups in anticipation of quickly taking the company public. But the downturn in the IPO market has VCs searching for companies with sounder business models.

"There's actually still a lot of venture capital out there, but the VCs are a lot more selective now," said Baronsky. "People are definitely bolting at business plans and trying to figure out what the path is to profitability."

Attorney Leib Orlanski, a partner with Kirkpatrick & Lockhart LLP in Los Angeles, said it's part of his job to counsel startups -- like his client RightPro -- on how to attract funding from today's more discriminating venture capitalists.

"We try to keep our clients informed of trends in the funding arena so they don't go off in the wrong direction," said Orlanski, who agrees that the types of companies VCs are interested in has narrowed.

Right now fiber-optic and network switching companies are in vogue while e-commerce ventures are tough sells.

One of his clients, a maker of wireless phone headsets, recently received $2.5 million in venture funding and another client that makes fiber-optic switches received $10 million in venture money.

Meanwhile, Orlanski's firm has two IPOs nearing release for firms in the fiber-optic and network arenas.

"In L.A. we have 22 attorneys, but we'd like to bring in four more," said Orlanski. "I wish it would let up a little bit, so I could take a breather."

Restructuring work grows

Paul Aronzon, a partner with Milbank, Tweed who oversees the financial restructuring group, said his particular legal specialty, by its very nature, is counter-cyclical.

"When times are good, our finance group and corporate group are going great guns. When things turn, our group (financial restructuring) gets busier," he said.

The buzz in the legal profession lately has been that law firms can expect to see a surge in restructuring work as dot-com companies implode due to a lack of funding.

While there are signs that demand in that area is building, his firm is benefiting mostly from an increase in merger-and-acquisition work, as smaller companies seek out larger suitors with the cash flow to sustain them.

Joel Bernstein, chairman of the corporate department for McDermott, Will & Emery LLP in L.A., estimates that his firm's IPO trade is only half to one-third of what it was prior to the spring market tumble Still the company has two or three IPOs and several private placements in the works. That, coupled with other business, has Bernstein looking to add attorneys to his 10-person staff.

The good news for the big law firms, he added, is that it will be tougher for dot-coin companies to lure away their talented attorneys with promises of hefty stock options.