Is there a common reason funds select different outside counsel for fund formation and downstream transactions? Are there any examples where a firm is first choice for both?

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It’s always preferred to have both done by the same firm on a primary basis. What that usually means is that their go to counsel does all (or all flagship) fund formation work and also all downstream work to the extent not conflicted. Although the really big players almost always have multiple counsel they go to for downstream work by nature of relationships of the higher up in-house lawyers with their prior firms. Fund formation work also could get divided up such that you have one firm do all the flagship fund work and another do the smaller middle market funds, other strategies, etc.

As to why it’s preferable to have one firm do both formation and downstream work, typically there are upstairs issues involved when deploying capital so it’s much easier to just have the lawyers working on the downstream transaction just coordinate with their fund formation colleagues on any questions related to upstairs matters rather than having the in house lawyers at the PE shop play middle man between two different firms.

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Awesome, thank you. What circumstances beyond a requirement for specific industry expertise could lead to a firm getting a bigger share of the work? Particularly interested in top PE.

Gunderson is an example of counsel that forms funds and also facilitates deployment of capital from those funds. I’m sure other EC/VC firms are the same in that regard.

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Plenty of reasons… Echoing a1, they are totally different groups and just because one firm can be strong in both practice areas doesn’t always mean the lawyers from that particular firm are the best fit. In house at a fund now and deals can be very nuanced and require specialized knowledge, so we often think of a specific lawyer we want to engage depending on the transaction.

We also may like the funds lawyer at firm A and a deal lawyer at firm B better from a relationship perspective / based on BD efforts.

We continually assess our relationships with outside counsel on our teams and the firms themselves. Are we getting top service, are our teams responsive, is this firm committed to advancing our company values, how are they doing wrt diversity, etc. Also, we prefer to have a number of different firms we can engage. Our deal flow can be intense and when there is a high volume of deal work, slamming one firm can cause bandwidth, work quality and project management issues. Obviously not applicable to all funds.

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They are literally different specialties. Fund formation people don't understand the intricacies and personalities of deal work. It is better to have seasoned deal attorneys work on deployment then try to stick with find formation attorneys. If those two sets of attorneys happen to be at the same firm, great, but, often they are at different firms.

I appreciate it will nearly always be different teams that do formation and deployment but I wanted to know why they wouldn’t use the same firm when they have equally strong formation and downstream practices. It sounds like this is purely down to the top level relationships which is very interesting. If you look at the largest PE firms, they nearly always have different 1st choice for formation and downstream.

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There are way more firms that excel at M&A than there are firms that excel at fund formation.

Only a few firms have very good practices at both. STB, Debevoise, KE
&E PE; Cooley and Gunderson for VC. K&E is never going to do your VC deal but they’ll do your VC fund. Same with Cooley and PE.

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