Our Entrepreneurial Approach

Juris Informatica works with our partners on an entrepreneurial basis. Rather than being paid a salary or an hourly rate, our partners receive a percentage of the profits generated by the Web sites they participate in. JI offers these individuals several advantages:

They can continue their full-time job and work part-time with us.
II will provide whatever talent and services that individual lacks. Most Web professionals prefer to focus on their area of expertise.
II will handle all of the systems maintenance and administration of these sites, so that they can focus on more creative endeavors.
II will handle all of the business aspects. We provide detailed monthly P&L statements so that our partners can easily see how the profits are calculated.
Most important, JI will use its considerable SEO talents to drive substantial traffic to our Web sites.

One of the greatest benefits offered to our partners will be an intangible one — the ability to have a substantial impact. Many Web writers, designers and developers have worked for large companies where they are part of a large team. Or they are consultants who are tweaking an existing site or who have clients whose viewpoints are different than theirs. With II, designers will be able to choose the design they want. Developers will not be writing version 12.3 of the Korean version of the Microsoft Office paper clip, but rather will be able to design and code a system from scratch, doing it right the first time.

Occasionally we meet a professional who agrees with our approach in general but proposes an exception for him, for a variety of reasons. (We have heard most of them.) We have always made it clear that our partnership model is a fundamental principle of our company and there are no exceptions.

Benefits to the Firm

Our entrepreneurial approach offers several benefits to our firm:

The most obvious one is that we do not need to raise outside capital to fund the company, since out-of-pocket expenses are simply funded by James Mitchell. This means there is no dilution to investors, leaving a great percentage of the equity for our partners.
We can manage the business for the long term, since we view this business as a long-term cash flow generator, rather than something to be sold in a few years. (Obviously if a high price was offered, we would take it, but that is not how we are managing the business.)
Since everyone is a partner in each of their Web sites, they think like owners and suggest “out of the box” ideas to improve profitability.

Offering an piece of the pie will allow us to attract a higher caliber of professional than even if we were paying huge salaries — people simply work harder, and care more, when they own equity. In his essay Great Hackers, Paul Graham notes:

At our startup we had Robert Morris working as a system administrator. That’s like having the Rolling Stones play at a bar mitzvah. You can’t hire that kind of talent. But people will do any amount of drudgery for companies of which they’re the founders.

Legal Web Sites

Juris Informatica publishes legal Web sites. Our sites discuss in detail a particular legal topic. We focus on lead generation for attorneys. The “call to action” on our Web sites is for the potential client to contact us via telephone, a Web call, or by filling out a Web form. Assuming they have a good legal case, we then refer them to an appropriate attorney near them.

The lawyer receiving the referral does not pay us anything until the case is substantially under way. That way, his risk is much lower, since he does not pay us anything until it appears the case will do well. We do not receive a percentage of the legal fees, since sharing of legal fees with non-lawyers is prohibited by the canons of ethics of various states in the U.S. But because we are willing to wait, we receive a much high introduction fee that if we were paid up-front.

Most of the cases we refer to attorneys are plaintiff contingency cases.

Contingency Fees

In a contingency fee case, a lawyer agrees to represent a client in a dispute and is paid only after money is obtained from another party, either through settlement or collection on a judgment. Although in theory a contingent fee could be negotiated by a defendant (“if the plaintiff obtains nothing, I will pay you $X), that is extremely unusual, and in almost all such cases, the client is the plaintiff. Often, the lawyer attempts to obtain a settlement without filing a lawsuit, but in most cases, it is necessary to file a lawsuit for the defendant to take the plaintiff seriously. Almost all cases settle rather than go to trial, since defending a lawsuit is very expensive and defendants (rightly in many cases) are afraid juries will award an excessive amount to the plaintiff.

The most common contingent fee is one-third of the total amount recovered from the defendant, either through settlement or through a trial. In most cases, an additional amount is charged for an appeal. Some states limit the percentage that can be charged, most typically in medical malpractice cases.

Probability of Settlement or Trial

Once a client is signed up with an attorney, it take some time for that lawyer to obtain money from the defendant, via settlement or trial and then collecting on the judgment. Many leads do not convert into actual cases. We only refer potential clients to highly competent, experienced trial lawyers. These lawyers are careful about which cases they undertake; if they did not, they would eventually go out of business. Once a good attorney accepts a case on a contingent fee, the odds that that case will lead to a settlement are high. On average, about 10 percent of the cases taken on by our attorneys become worthless, for a variety of reasons:

As the lawyer learns more information, he decides the case has no value, and convinces the client to abandon the case.
The case proceeds to trial and the plaintiff loses.
The defendant files for bankruptcy or is otherwise unable to pay monies to the plaintiff.

Referral Fees

Attorneys regularly refer cases to each other, for a variety of reasons:

The referring attorney may be too busy to handle the case.
The case may require legal expertise that the referring attorney does not have.
The case may be too large or too small for the referring attorney.
The referring attorney may have a conflict because he already represents someone with an adverse interest to the client.
The receiving attorney may be geographically more suitable for the client.
The referring attorney may not be equipped to handle contingent fee cases, which often require a substantial investment of time and out-of-pocket expenses before money is received.

Although there are some state regulations concerning referral fees (e.g., most state prohibit naked referral fees), in general whether a referral fee is paid and if so, the percentage, is primarily dictated by custom and the market. Larger more prestigious firms rarely pay or accept referral fees. They believe their reputation speaks for itself and they feel they do not need to pay referral fees. When they refer cases, they do not want the client to believe that a referral fee would affect to whom a referral is made. The reality, of course, is that there is an informal barter system at work — if A regularly refers cases to B, A expects B to refer cases to A.

Smaller firms, particularly firms that do a lot of contingent fee cases, are much more likely to pay referral fees and to expect a referral fee if they refer a case to another firm. Firms that undertake a lot of plaintiff contingent fee cases are much more business minded than most typical law firms; if they were not, they would go out of business. They are more likely to view a referral fee as a necessary cost of doing business. If they are receiving one-third of the amount realized and have to pay one third of their fee to the referring attorney, they are still receiving 22.2 percent of the amount realized. Since most cases settle, the economics simply work for them.

Referral fees are most often one-third of the legal fees. For less attractive cases, the referral fee could drop to as low as 20 percent. We have never heard of a referral fee of less than 20 percent.

Because we are not attorneys, lawyers are not allowed to pay use a referral fee. They are allowed to pay use introduction fees, and since we do not ask that it be paid when the case is introduced to them, the introduction fee is much higher.

Mesothelioma Example

The cases we refer to attorneys run the gamut from high end cases (such as mesothelioma) to less valuable cases. One of the most lucrative cases from an attorney’s point of view are mesothelioma cases. The average settlement for such cases is approximately $1.2 million. A one-third contingency fee would generate legal fees of $400,000. If that cases was referred to the trial attorney by another attorney, $266,667 would be retained by the trial attorney and the referring attorney would receive $133,333.

Financial Projections

We have prepared some financial projections which we are willing to share with qualified Web professionals who are seriously interested in our company. We started in March 2008. One year later, we have launched 12 legal Web sites. (The non-legal sites we developed will be maintained but going forward, we expect not to develop any more non-legal Web sites.) In 2009, we expect to launch about 5 new sites a month, which will increase to 10 sites per month in 2010 and thereafter. By 2014, we expect to have over 500 legal Web sites.

Some basic assumptions:

The average introduction fee for a case is $20,000.
Each site generates 1 actual case a month. (This is an extremely conservative assumption.)
500 cases a month x 12 months x $20,000 = $120 million a year. Even if we are off by one order of magnitude (i.e. each site generates one case per year), revenues would be $10 million a year. If each site is generating only one client per year, something is frankly wrong.
Since everyone working on this project is receiving a percentage of profits, there are essentially no expenses, and thus profits will be very close to revenue.

Financial Projections for a Writer

Here are some financial projections for a writer:

Each legal site produces one case a month, and each case is worth $20,000 in referral fees.
Writer receives 10 percent of the profits of each Web site he writes.
Writer writes eight Web sites a year, or 40 sites over a 5-year period.
Profits of the site are equal to 90 percent of revenues.

This would mean that each site would produce $21,600 a year for a writer. Thus, after the first year, the writer would be earning $172,800 a year.

After two years, the writer would be earning $345,500 a year.
After three years, $518,400 a year.
After four years, $691,200 a year.
After five years, $864,000 a year.

Financial Projections for a Web Designer

Here are some financial projections for a Web designer:

Each legal site produces one case a month, and each case is worth $20,000 in referral fees.
Designer receives 5 percent of the profits of each Web site he designs.
Writer designs 25 Web sites a year, or 12 sites over a 5-year period.
Profits of the site are equal to 90 percent of revenues.

This would mean that each site would produce $10,800 a year for a designer. Thus, after the first year, the writer would be earning $270,000 a year.

After two years, the writer would be earning $540,000 a year.
After three years, $810,000 a year.
After four years, $1.08 million a year.
After five years, $1.35 million a year.

Monetization of Cases

Starting a contingency plaintiff law practice can consume a lot of cash during the first few years. Although it is often not hard to attract clients, many of the cases do not settle for a year or two or three. In the meantime, the lawyer must pay rent, salary for a secretary, as well as own living expenses. In addition, the lawyer usually advances all of the out-of-pocket expenses for the cases he undertakes.

As a result, specialized financing firms have arisen to provide financing for such attorneys. These firms have large historical databases as to what various cases are worth. Once a lawyer has a dozen or so cases going, these firms are willing to advance not only the out-of-pocket expenses, but also an advance so the lawyer can pay any bills as well as reasonable living expenses. These firms estimate the aggregate value of all of the cases and then advance roughly 40 percent of the estimated value. When the cases settle, they are paid first, plus interest, and the lawyer receives the difference. Often the form of financing provided is “evergreen” — it is envisioned that such financing will be perpetual. As more cases are commenced, the amount the lawyer can draw increases, and as cases are settled or judgments paid, the amount decreases.

We have spoken with a few such firms on a preliminary basis. Such firms are willing to provide the same type of financing to our partners. Each partner would have a portfolio of cases, based on the Web sites they worked on. The aggregate value of all of such cases would be estimated, they would multiply by the expected percentage to be received, and then they would apply a 40 percent advance rate. The interest rate is not cheap, about 11 percent. As with the lawyer, as more cases are accrued in one’s portfolio, the more that could be drawn down, and as cases are collected on, they would be paid first.

Such financing would be available solely at our partner’s discretion. If they needed or wanted the money now, they would participate in this program. If they did not want to pay the interest rate, then they would wait. The choice would be solely theirs.