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03/02/92

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Lawyers were key architects of Silicon Valley

STANFORD -- Lawyers - more than engineers and scientists - were the architects of the industrial community known as Silicon Valley, says a Stanford University doctoral student who studies the sociology of organizations.

The ideas of engineers and scientists were essential raw materials, as were the billfolds of venture capitalists, Mark Suchman said. However, it was attorneys, he found, who brought these ingredients together to structure the high-tech industries now known as California's Silicon Valley.

These were not the pin-striped corporate specialists of San Francisco's financial district, Suchman said, but rather suburban lawyers whose firms grew along with the industries they nurtured. One Palo Alto firm - Wilson, Sonsini, Goodrich and Rosati - grew from 12 attorneys in 1975 to more than 200 today.

"Early in the history of the Silicon Valley, around 1970, when there were a small number of high-tech companies without much sense of a common enterprise, local law firms got to see a lot of these relatively inexperienced entrepreneurs out of academia or engineering," Suchman said.

"Typical clients might be a couple guys in torn blue jeans, who had put together some kind of box in their basement that wrote letters on a video screen. If these guys walked into the Transamerica Tower in San Francisco, the lawyers there wouldn't really have known what to do with them. They were set up to handle Bank of America and Chevron."

The suburban lawyers gave their new clients useful business advice about incorporating, writing contracts and such.

"As the Palo Alto law firms saw more and more start-ups," he said, "they began to make connections and developed models or rules-of- thumb about what wouldn't work and what would."

Soon, the lawyers developed a deal-making role, linking the engineers and scientists with venture capitalists, or helping new companies to form joint ventures or take on licensees. The attorneys became information brokers, not just for the inventors but also for venture capitalists who needed advice on how to get the most from their investments.

"These lawyers ended up playing a central role in defining the culture of the community and its resource structure and base," Suchman said. "They defined the nature of the relationships between venture capitalists and entrepreneurs and helped to structure these relationships to reduce conflicts and antagonisms.

"The venture capital firms grew up along with the law firms. In the beginning, they were local people, and the people running these firms are still very much local."

The case study challenges conventional assumptions about the role of the legal profession in American society, said Suchman, who works with Stanford's Center for Organizations Research.

"The more conventional model of the legal profession is based on large, big-city firms," he said. "In them, the most prestigious attorneys are the most remote from nitty-gritty business issues. They deal with refined legal issues, such as appeals on narrow points of law.

"Here in Silicon Valley, the pinnacle is deal-making and business counseling. Law firms are crucial intermediaries influencing the development of new economic activity."

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