Co-Chief Operating Officer
New York, New York
Past affiliations include associate Katten Muchin
JD University of Pennsylvania
BA University of Pennsylvania
Critical thinking guides a legal entrepreneur to success
On the best piece of career advice he ever got
On the origin of his startup which changed the landscape for the delivery of legal services
On the zen of raising money
Listen to interview:
EXJ: With us today is David Perla, Co-Chief Operating Officer, Buford Capital, which is both a pioneer and, also, the market leader in litigation finance. Though the term ‘disruptor’ is often thrown around and applied inappropriately, in the case of David, he is the genuine article, somebody who truly was an innovator in how legal services are provided. We’ll find out how in a little bit. Thank you, David, for joining us.
David Perla: Thanks for having me.
EXJ: So, you get out of law school, you go to work at Katten. At that point, what’s your mindset? Was it I want to be a lawyer and obviously shoot for partnership? Or had you always had the idea of moving into business or, to take it a step further, doing something entrepreneurial?
David Perla: The question itself is actually a very good question and one that I think is worth asking. I had to go back and think about it. And the answer is somewhere halfway into law school I concluded that I wanted to be in business at some point in my life. And I earlier took the GMAT and applied to Wharton to try for a JD/MBA and didn’t get in. So, as I look back, at least as far back as 30 years ago, I had a sense that my path was going to be a business path informed by law. And by the middle of law
school. my course load, if you were to view my transcript, looked like that of someone who was gearing up for a career in the corporate world. So, I ended up quite naturally becoming a corporate lawyer. I was taking corporations; I was taking corporate tax. I was taking accounting, I was taking corporate finance, I was taking classes on personal finance at Wharton because those were available to us at Penn. So, sort of relatively, early, sometime in that second year of law school, I had this sense that I want to incorporate business in my career. What that looked like I didn’t really know. It was 1992-93
EXJ: So, you weren’t sure at that point whether that would be working for a company or your own thing. But at that point, you didn’t have the idea what would become Pangea3.
David Perla: I mean, the reality, Neil, is if you go back and I’ve spoken to law students about this, you look at the five things that followed my working at a law firm none of them existed when I went to law school. The first website was registered in 1994. The year I graduated, Monster.com was formed as part of an agency that TMP bought in 1995. Before Pangea3, you couldn’t have outsourced to India because India didn’t allow foreign investment until late 1991. And even Bloomberg Law, Bloomberg was purely in the financial data business until the mid to late 2000’s. And then, of course, litigation finance in its current form really started to exist 2007 ish. So, I don’t in any way pretend to have thought of any of these ideas. You know, at best I hung around people who were smart and thoughtful and came up with them. And I’ve been the beneficiary of some of their wisdom and maybe my propensity to take calculated risks.
EXJ: Calculated risk which, of course, played a big role in your eventual success. So, let’s just kind of jump back for a second. You’re at Katten and your next move is a traditional one. From the practice of law at a firm to an in-house position. You’re getting closer to the business side, but you’re not quite there yet. When you made that transition, David, did you have your eye on other positions within TMP or Monster.com? That is, in some way shape or form you were going to get to the business side.
David Perla: By 1999, I think I had a pretty good sense this was an entree into a corporation. And for me, in an industry where I thought I could be successful on the product side. So very much I was thinking this is a steppingstone where my legal skills will lead me in. There were two things ’I was quite good at. One was M&A and corporate law, and one was Internet-related transactions. So, timing played a huge role in my career.
David Perla: And, earlier, while at Katten (then known as Rosenman) I represented Sony, and I ended up doing all their Internet work in the early days. So, I had these two skill sets that matched perfectly what TMP needed. TMP needed an M&A lawyer because they bought a lot of companies, but they also had a very fast-growing asset in Monster.com, so they needed someone who understood the Internet and could oversee Internet-related deals. By late 1998, Monster.com was growing faster than the aggregate of the other four business units. I basically said to them; ‘you know, I’m happy to work on both, but I want some sort of commitment that I’m the go-to lawyer for Monster.com. And that’s how it played out. That’s how I ultimately moved up to Boston to become head of Business & Legal Affairs. And I gravitated towards the business side of Monster.com. And my remit was more than just being the lawyer. I actually had authority. If I thought the economics of a deal weren’t sound or weren’t rational, my remit from the parent company was you can say no and suggest that we need to rethink the deal.
EXJ: So, it looks like you spent about five years or so there. Well, spoiler alert, his next move is going to be launching a business that will basically reshape the market for legal services forever. Can you walk us through how that came about in your mind? When you first got together with your partner and started to put this in motion?
David Perla: So, Sanjay Kamlani and I had been best friends and roommates in law school and had stayed close. We’d lived together as first year associates in New York. And I had been to India for his wedding. He and I were very close and I’d had an affinity for India. And he had gone in-house to an outsourcing company with a business processing unit in India. I was at Monster.com. Around mid-to-late 2003 both of us, almost at the same moment, started getting antsy about our careers and sharing notes. He was the fourth person at an emerging company, working for founders. The CEO of Monster.com was the founder of the company that was bought by TMP, and I had bought a lot of companies, on the legal side that is.
So, I had met at this point dozens of entrepreneurs, and I had been left with a sense from these people that there was nothing different about them than I saw in myself. There wasn’t some gene they had. I don’t want to suggest they were nothing special, but there was nothing about them that spoke to something unique that I couldn’t do. And they were telling me that. They were all saying to me, “You know, you could do this. You’re not the typical lawyer.”
At around the same moment, I sort of got the bug. When you hang around enough entrepreneurs, usually one of two things happen: you either get bitten by the bug or you fatigue, in which case you’re probably meant to be in the corporate world, in the bureaucracy. And that’s okay. But I got bit by the bug and Sanjay got bit by the bug. So, we sat down. He had just moved back from India in sort of mid/late summer of 2003. The rest of that year we were just kicking ideas around mostly by phone. I was in Boston, and he was moving back to New York from Chennai. And then, like every good startup, we have our kind of origin story. But we really have one. We went out to dinner; we’d been kicking around lots of ideas. I have all the drafts we sent each other for this idea and that idea, and we went to dinner at a restaurant called Vespa in New York City in the fall of 2003 with his wife.
Sanjay presented me with this idea. He’d written it down for something called Pangea3. He basically said, ‘you know, if you look at private equity and you look at equity research and you look at banking and you look at consulting, what McKinsey does, and you look at law, all these things can be done offshore. We can build this giant thing offshore and connect it and sell it to corporations and sell it to the law firms.’
David Perla: And I turned to him, and sort of very flippantly said, ’listen, I don’t know about anything in that world other than law. I don’t know any of that other stuff. But I know three things. I know law. I know the Internet and technology. And I know HR from Monster.com and how to recruit people. And I’ve got to believe if you gave me a team of Indian lawyers who are really hungry, I could outsource my entire legal department for a third of the cost.’ And he just looked up and he said to me, ‘so why don’t we do that?’ And that was, whatever, a weeknight in October. Within a couple of days, we were business planning. We probably spoke to 100 in-house lawyers between then and the spring. We said, okay, we’re going to quit our jobs. And come summer of 2004, this is what we’re going to do and we’re going to make this thing work. We’re going to outsource legal work to India. Long before anyone knew what to call it. And from that start, what it took to go and build the business is kind of its own story.
EXJ: That’s amazing. When I saw what you were doing back then, I thought of Ralph Baxter, the head of Orrick. We helped make Ralph a star because we used to feature him as co-chair of a conference we did a couple of times a year on law firm leadership. The other co-chair was Rodg Cohen, the head of Sullivan & Cromwell. I remember Ralph had the idea to outsource all of Orrick’s back office to West Virginia, where he was from. I thought, that’s brilliant. Why aren’t all law firms doing that? And of course, many wound up doing just that a lot later. And here you are, doing something along the same lines. Outsourcing as a cost saving measure. But, with a very different product and value proposition. I found it kind of fascinating. Could you take us through how you funded the business. You and your partner had met so many entrepreneurs when you were working for others. Was this then funded without too much trouble via those relationships? How did how did you get going?
David Perla: So, with rare exceptions, raising money is never easy. But I think it’s the best training in the world to ask someone to take a dollar, but usually in increments of $50,000, out of their pocket to invest in really nothing more than ‘I trust you to do this as well as anyone can, and it will almost certainly fail.’ That’s teaches you a lot about yourself.
But in any case, we came together in the summer of 2004, and we very quickly realized we were trying to do everything. We were trying to build. We were trying to recruit people from New York. We were trying to raise money. We were trying to write a business plan. And it only took about six weeks for us to conclude that the linchpin both to raising money and to getting clients was that we had to prove that talent existed in India. And that wasn’t mentioned in all the business planning we had done. We had not anticipated that both the investor set and the client set needed to know this. Everyone believed we could oversee it. Everyone believed in the infrastructure, the tech, the security. What people wanted to know on investor side and on the client side is ‘tell me about the people who are going to do the work. Prove to me that the product is there.’ So, by October 2004 we went and got on a plane to India, and then I’ll come to how we raised the money.
David Perla: We knew that getting the team in place was going to be critical. We had the marketing deck, we had lots of people who helped us and that will be one of the lessons in sort of how you do this, which is ask for help. We went to India. I had done the acquisition of Monster India. They gave us free access to their resume database as a courtesy, and we found a recruiter who had just left a big company who was starting his own recruiting shop. We said to him ‘We’re trying to build this. If you’ll do it for a discounted fee, I want to say it was 8%, we will make you our prime recruiter and will feed you all the resumes. We need you to prescreen, we need you to set up the interviews and talk with the candidates in advance.’ And Sanjay’s family–his cousins– owned a hotel. We used the hotel as a landing base. So, we screened in advance of that trip 700 resumes. We contacted 120 candidates and we met, I don’t even remember how many, 40 to 50 over the course of those two weeks in India together. All we did was meet candidates morning, noon, and night. And by the time we left, we had picked what became our launch team of 13. With a few exceptions, every one of those people is now a senior leader in legal outsourcing or legal tech in India or London, working for name brand companies. And every one of them was in their 20’s at the time.
David Perla: I don’t want to underestimate in any way the value of people, because the linchpin to all of this was the people we found on that initial trip and then on all the recruiting trips we made after. There were two companies that existed at the time that we’re already doing legal outsourcing. Both were trying to build organically, funding growth with revenues only. One was Mindcrest, which was sort of a spin out of a law firm and had a relationship with that law firm, and one was called Lexadigm, a company that had an affiliated small law firm. Our view was that we had to raise money because we had to prove to people we had scale. If you wanted to get a corporation to hire you and you wanted to make real money, you had to have scale. So, we had to hire people, which meant we needed a lot of money up front. In the best of circumstances, it takes a long time to get a client. And then you have to do the work. And then if you’re lucky, you get paid in 90 days. We had to rent space in India because we’re offering people jobs. We needed an office. We calculated that we needed at least a million bucks. So, we went out and actually raised a million and a half dollars. We called that a Series A.
David Perla: Today you’d call that just seed. And that fundraising round was from a combination of friends, family, professional colleagues, and then one anchor investor who was the CEO of a public company who Sanjay had a relationship with through the Indian community. By the time we got to him, we had penciled in about $400,000 from our network. That investor had come up with this idea on his own. He had wanted to find two people to work for him. We said ‘no’ to him originally. Then he came back and said, ‘Yeah, everyone talented is saying no, so how about I invest?’
So, he took an anchor position ultimately of half a million and the other million were former Monster.com people, PWC people that Sanjay worked with and family members, and then people that we were introduced to. Once you have investors that excited, they tell a friend, you know, random people – then you go for coffee with the deck and an hour later they call you and say, I want to give you $75,000. And that’s kind of how it went. The next two rounds were more traditional. We went out to the market and, interestingly, our second round found us. We were in the process of doing a round, but I got a phone call. I was in India, and it was someone who worked for Larry Graev, who had run a well-known law firm in New York.
EXJ: Sure. Yes. O’Sullivan Graev & Karabell.
David Perla: Right. He had really built it into the premier private equity fund law firm and had recently left to start his own sort of merchant bank. He had hired someone who’d been a banker. And he called me off our website (we had a US number in India) and said, ‘Are you looking to raise money?’ And I said, ‘As a matter of fact, we are’. He was on his way to Europe, and we were going to be two ships passing in the night.
And he said to me, ‘Yeah, I’ve got to go to Europe and I’m going to see my partner in Israel. ‘ I have family in Israel’. I said to him,’ I’m happy to stop in Israel’. On the way home, we met. I met with him and a big money family in Israel. When he came back, he met Sanjay in New York because we had been trading off that year in India. He led a $4 million round and then, over a year later, Sequoia India came in. We had been talking to a group of investors that became Sequoia India almost from the day we started the company, and they’d followed our progress. They did what became our last financing round.
EXJ: At that point, David, the concept had already been proven. Were you profitable?
David Perla: No. We were not profitable until late 2008, early 2009.
EXJ: But I would imagine you probably had a top line that was pretty impressive, the growth trajectory.
David Perla: We had the growth. It was more muted than we had hoped and promised. But we also had the scale. We had proven that we could train people, we could do the work and we could retain our people. We hadn’t gotten the revenue to grow quite as fast. And then, in late 2008, the world fell apart, financially speaking. We rationalized the operation in order to preserve costs, which is something all Sequoia companies were advised to do and that we took very seriously. And by the end of 2008, every legal department of size in the world was under a mandate to cut costs. And to summarize a complicated story, the phone rang. A lot people we’d been calling and pitching for years who said, I’ll never send my work to India’ suddenly said to me, ‘Well “never” has arrived.’ And suddenly we were getting massive. We were growing 50-100 people a quarter in 2009 and 2010. And revenue was growing just as fast.
EXJ: So, the financial crisis obviously was a benefit for the unique model that you had. That’s amazing. It’s funny you were just in mentioning O’Sullivan. When Kim and I started that first company in 1995 that I was mentioning before we started this interview they were our lawyers. O’Sullivan Graev & Karabell. The angel investor in our company, his PE shop was one of their biggest clients. This is all so interesting. I’ve got so many questions, but I’ve got to steer it towards helping people that want to transition to something else other than practicing law. So, if we could just switch gears and talk about litigation funding for a moment. What’s the best way if you’re a young attorney, to get into litigation finance?
David Perla: Sure. First, decide that and then ask a lot of questions to determine if it’s really for you. It has some sex appeal right now. But really you ought to explore whether you want to be an investor. There is a series of threshold questions that seem obvious, but a lot of people don’t ask them, like, do you like math and numbers? Do you at your core enjoy it? Do you think more about making money than the concept of whether your client is right or wrong or the outcome of a case? We are capitalists and – you’re laughing – but a lot of people don’t think about it.
At the end of the day, you better like being a banker and you really have to like finance and you have to like capitalism to be in this business. I think once you’ve looked at that, there’s lots of different ways to get into the business. Some people come in and they are really salespeople, so they are on the origination side. Other people come into underwriting, and so they’re litigators who have a financial bent. The key is, whatever kind of lawyer you started as, ‘are you commercial? or do you want to learn to be commercial as opposed to advocacy?’
David Perla: I know plenty of great litigators, but they’re not commercial. They really like the advocacy side of it as opposed to the commerciality. And from there, it’s ‘what do you like to do?’ I don’t think you have to love your job, but I think you ought to like it. What’ll make you happy coming into work every day? Do you want to be talking to clients and originating work? Do you want to be reading cases? Do you want to be doing modeling? Do you like reading spreadsheets? Do you like writing, or do you want to advocate for a position? You know, our head of PR is a former lawyer who worked for Hillary Clinton at the State Department and in the U.S. Senate. He’s brilliant. We were on 60 Minutes. He set us up for that brilliantly. He also happens to be a lawyer. But he followed his passion into government and communications and PR. And I think he would probably tell you he feels finally at home at age 36-37.
David Perla: I think it can be a variety of paths for JDs who want to transition. Though, I do think for us and for many of the better litigation funding firms you do need real legal training, meaning at least some use of the law degree, not just having it, although our PR head, David, never actually practiced. On the other hand, our head of policy worked at Skadden and Edwards Angell Palmer & Dodge. She also worked for Jeff Sessions at the US Attorneys Office as well as clerking at the New Jersey Supreme Court. So, she followed what she liked to do but she had been in practice. The other thing and this is really snobby, but we’re in a snob business, as you know, at least for litigation finance it’s helpful that the JDs come from name brand law firms – major firms or elite boutiques. There’s a sense that great future lawyers go to brand name law firms and they serve as a screening function. It’s unfair, but it is the reality.
EXJ: That’s a really important point.
David Perla: At least for the big litigation funding shops, you’ll very rarely meet someone who came out of a law firm that you’ve never heard of.
David Perla: I started with my friend Greg, He had worked at Howrey, and he went to Vermont Law School. I had worked at Katten. And we showed up the first day and I said, how did the two non-Cravath guys get in the door here? Obviously, It’s not all Cravath, but I do think the name brands give people some confidence that you have the discipline, you have the work ethic, you have the critical thinking skills and you have the training. Fair or unfair, I think that’s the reality. It’s probably easier to transition to opening a bakery irrespective of where you practiced law. I don’t think any of your customers are going to care where you worked or where you went to law school. This is like investment banking for law. And there’s a sense of, you know, most everyone here was an A student.
EXJ: Yeah. That’s the reality. Although, I should point out that when you and I were speaking before we started the actual interview, I had mentioned a JD who successfully transitioned to opening a bakery. Her name is Helene Godin. Her now wildly successful chain, is the By the Way Bakery. Earlier in her career, she was the GC at Audible overseeing its sale to Amazon. NYU Law School. Draw your own conclusions.
You’ve touched upon this, David, earlier. How did your law school training help you become so successful in business?
David Perla: I think law school is amazing for business. It’s amazing for a lot of things. It’s one of those training grounds that can be morphed into anything, particularly at a place like Penn where, when I figured out I wanted to be in business, I could go take classes at Wharton and I could meet Wharton students. I think it’s this way at most law schools today, cross-disciplinary and interdisciplinary, your courses and your learning can involve a lot more than just studying law.
Law school gives you options to learn all sorts of things. But most importantly, and this is a totally trite expression, it teaches you how to think critically. It teaches you to look at something and say, that’s not right. How many times do you open the newspaper and think, ‘that’s total nonsense.’ I know what the article says, but it only takes me three steps to conclude that is not how it could have gone down. So, that’s a really useful skill. I don’t mean just being cynical or skeptical, I mean thinking through a problem.
David Perla: Law school teaches you how to how to read things and how to ask questions, optimally. It also gave me some fundamental tools. If you go to the right place where you have the right colleagues and mentors, law school teaches you how to be unafraid to ask questions.
When I went to Monster.com, I realized I was out of my depth from the perspective of understanding financial data. I was not financially literate enough, even as an M&A lawyer. I went to our CFO, assuming that I needed to take accounting classes. So, I showed him a course catalog I was looking at. He took it out of my hand; he opened it up and he circled a program on financial statement analysis. He looked at the guy teaching it and said ‘take this class, he will teach you what you need to know about financials at a public company’. And he was dead right. But I had to know who to ask and not be afraid to ask.
EXJ: Interestingly, David, one of the things that we’re doing at ex judicata is creating courses for lawyers that want to transition. And the very first one we’re doing is on financial fluency, understanding financial statements for lawyers transitioning to business. It is being taught by the Notre Dame law professor who literally wrote the
book Accounting for Lawyers used at most law schools in the country. It will be asynchronous learning. That is the first one we filmed. I am pleased to hear that this
connects up perfectly with what you were saying about your own knowledge gap.
We actually have two more courses in production. One is on data analytics for transitioning lawyers, again being taught by a professor who has written a book on the subject. The second is a kind of primer on startups. This, for those JDs who may be harboring an idea for a business or are interested in finding opportunities in startups already underway.
One last question. It is really a cliche question, but I always like asking it. What’s the best piece of advice you got when you were transitioning out of the practice of law into business or once you were a businessperson?
David Perla: Yeah. I’m going to give you a couple, if that’s okay, because I’ve gotten a couple of different pieces of important advice along the way. The first is to get yourself a mentor(s). Many people told me this along the way. You know, every great CEO, every great builder can tell you who their rabbis are and their sherpas are. By the way, Chris Bogart, who’s the founder and CEO of Burford, has a mentor list.
EXJ: That’s great.
David Perla: The second piece of advice is, when thinking about a legal problem, or any problem you are trying to understand in the commercial world, follow the money. I learned this as a first-year associate. Follow the money. Keep asking questions. Where did the money start? And where is the money going? I took Liz Warren for bankruptcy and for contracts in law school. Fundamentally, what are those two things about? They’re about money. And so, Liz Warren started our contracts class not with offer, acceptance and consideration. Rather the first case she teaches is Hawkins v. McGee. 31 years later I remember it. Because it’s about remedies. Her lesson was that all of contract law is about remedies. It’s about following the money. That’s what law is about. You’re litigating for the money. What are you fighting over? With the possible exception of divorce law, where people are just fighting because they’re going to fight, it is all about money.
David Perla: Oh, one other important piece of advice is something Sanjay and I were in synch on from the beginning. When faced with a complicated problem, where your normal framework for decision making doesn’t work to get you to a conclusion, simply do the right thing. And you’ll almost always know what the right thing is. The worst that happens is you’ll have left money on the table, or you’ll regret a deal you didn’t do. But no one ever got nailed, no one ever went to jail, for choosing the right thing.
We also decided that we needed to run our startup like a public company. We need a CFO from day one, we need books and records. We’re going to have to raise money. and we need transparency. It also makes your life a lot easier. You look at what’s going on with FTX and see it is a colossal failure of every bit of corporate governance. Had it been run like a public company there would have been red flags all over the place. Were they operating by doing the right thing?
EXJ: No to both and a look at either one would have would have unraveled it.
David Perla: Right. And it also manifests in how you approach the workplace. We got fired by a client. We were doing work for a client in Afghanistan. They wanted one of our people to come for two months. A lot of our team members were brought to clients on long term secondments. It was very common, and they wanted her to work there and she was actually eager to go. This was 2011. We’d already sold the company and I said no. I just was not prepared to send anyone, particularly not a woman in her 20’s, into Afghanistan. And they said, basically, we’re going to fire you. And I said, fine. I know what happens if I make that decision – I lose revenue. but I can only imagine what would have happened if I’d made a different decision and put her in harm’s way. I remember sitting with Sanjay and him saying, ‘who cares whether they fire us, we’ve been fired before.’
EXJ: That’s a great story and speaking to a very simple point. Just do the right thing. It’s not hard. Tremendous, David, thank you so much. Your thoughts are going to be super helpful to our readers and listeners.