VC, private equity firms face legal fee cost-cutting pressure

A new survey reveals a real legal conundrum for venture capital and private equity firms face in that they are under pressure to cut legal costs as business revenue from M&A and fundraising activity declines. The study, “Private Equity and Venture Capital: Two Industries United by Lackluster Legal Spend Management,” was completed by Apperio, a legal spend tracking technology firm. Its findings included the fact that venture capital firms in the U.S. and U.K. are likely to be under even more perceived pressure to cut costs, and both PE and VC firms are concerned about lack of billing accuracy, timeliness and predictability from their law firms. Apperio hired a research firm and polled 100 senior in-house legal stakeholders in U.S. and U.K. firms with an average of more than $9 billion under management across multiple funds. Officials discovered that private equity companies spent an average of $9.5 million on legal fees, while venture capital firms spent an average of $7.5 million in 2019. The primary spending for both types of alts firms was on M&A and fundraising. While venture capital groups are paying less than private equity, more than half (55%) of them still said they do not trust that their law firms are billing them accurately. Both groups responded that scrutiny of legal costs for fundraising skyrocketed by 33% in the past five years. Over the last five years, Apperio said that the general external legal spend has risen by 27% for private equity firms and 32% for venture capital firms and is poised to climb further to 29% and 35% respectively by 2022. Those interviewed by Apperio expressed a belief that their budgets will shrink this year in a bid to reduce external legal spend. Both groups of management firms said they are often surprised by their legal bills. Nicholas d’Adhemar, CEO and founder of Apperio, and former lawyer and private equity investor, said that it really is imperative that firms get better visibility into their legal spend and to use all available modern resources to address problems. The study showed that nearly all private equity firms (91%) and 76% of venture capital firms still rely on Excel to manually collect data to track legal spend. “PE and VC firms are fully justified in demanding greater efficiency and accountability from their legal services providers, and the proper mix of human and technology resources will help,” said d’Adhemar. “Law firms must meet the request and make themselves indispensable to their clients to ensure their competitive standing.”

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