Ryan Gravelle wasn’t always a tech lawyer, but he says he got there as fast as he could. After graduating from Rice University and the University of Virginia School of Law, Gravelle joined Andrews Kurth in 1998 as an associate in Houston doing mostly energy IPOs and M&A.
But after a year and eight months, the Denver native moved to Austin to work at Wilson Sonsini, where he stayed for almost five years, and later went in-house at Dell and then nGenera. In 2010, he launched Kastner Huggins Reddien Gravelle in 2010 with former Wilson Sonsini partner Evan Kastner. Like Austin itself, the firm – since shortened to Kastner Gravelle, or K/G – has experienced phenomenal growth, doubling its lawyer count since 2019 and moving to new offices in October to accommodate even more. In the last year, his firm has handled Sweat Equity-led $26 million investment in Spruce, QuotaPath raising $41 million in funding led by Tribe Capital and Stellar attracting $7 million in capital led by Acrew Capital and Trust Venture.
In this Q&A, Gravelle talks about the climate for startup funding and M&A for tech companies, competitors that have moved to Austin and how a potential recession will affect Austin’s tech community.
What’s new since the last time we met in early 2019?
We have tried our best to keep up with Austin’s explosive growth and have leaned into hiring. The talent coming to and through Austin in the last two years has been impressive. We’ve added multiple lawyers to our team across the corporate, employment and technology and commercial transactions teams and are just under 25 lawyers now, which represents almost 100% growth since we last met. In October, we’ll be moving into new office space at the base of the Independent (Jenga Tower) in west downtown to give us more room for continued growth.
Have you added any new practice areas to your arsenal?
K/G has added great new team members in our corporate and employment practices, and we have also been making some moves to enhance our abilities in fintech and the web3/blockchain areas. We are also thrilled to be building on our existing M&A capabilities and have created a dedicated M&A practice within our corporate group that will focus on further serving both our buy and sell-side clients, as well as the small and middle market private equity buyers.
What types of deals have you been seeing? Is it mostly fundings and/or M&A?
We have seen a steady balance of financing and M&A activity, and our M&A is equally split between buy-side and sell-side clients. 2021 was off the charts for everyone in the M&A space so 2022 has tempered its pace, but there are still quality deals happening at a more sane pace.
Any new funding/M&A structures out there?
As the markets cool, we’re seeing more aggressive and creative investment terms, especially in the private debt markets. As the cost of equity becomes more expensive, more companies look to debt and debt-like structures as that cost of that capital moves relative to the cost of equity capital. On the M&A front, the RWI (rep and warranty insurance) markets will continue to tighten as well, and I suspect we’ll see more buyers looking to deferred consideration structures, earn-outs and other methods to mitigate immediate cost and risk.
What type of companies are raising money and which ones are having a difficult time?
The phrase we’re hearing again and again is “flight to quality.” Strong companies will always be able to raise, and there is still committed capital that needs to find a home. The open question is whether there is a sustained pause before that capital moves. Our spectrum of services covers startups through growth stage companies, and the startup/newco activity remains high. Often some of the best and strongest companies start in these challenged markets, and the cost to start remains low. Companies looking to access the public markets and later/growth stage companies are probably being impacted the most at the current time.
Do you think it is still a seller’s market and that valuations remain high? And do you think conditions will flip given current economic conditions and the stock market dip?
Valuations have definitely come down and again the question everyone is trying to answer is for how long and whether they’ll fall further.
What are your thoughts on a possible recession? If it happens, do you think there will be layoffs around Austin’s legal community and bankruptcies by startups?
I’ve been practicing in this industry long enough to have been through two of these downturns. It is still early, but there are a lot of positives in the market and types of companies that make me optimistic, especially as we evaluate the Austin and Texas markets. We are continuing to hire, but like many others, at a prudent pace and with some extra caution. I do wonder if the confluence of blistering growth and a cooling, concentrated market will mean contraction or redeployment of attorneys at some larger firms. I haven’t seen that yet and certainly hope we can all weather this dip.
What do you think about all the new firms that have moved to Austin? How can you compete against the Goliaths?
In a lot of ways, it validates what we have been seeing and feeling about this market. The diversity and breadth of talent and companies has been remarkable, and it feels like Austin is entering a new era in its growth. As to competition, we feel we have a somewhat unique value proposition in our combination of top talent and deep, focused expertise with a very competitive price point. I think there will always be a lot of work for top executors and we are very focused on that standard. As the market goes through this current volatility, we think that demand will be strong for our services given our value proposition relative to the larger firms.
Are IPO’s still happening?
The IPO and SPAC market has cooled significantly, but given our focus on the startup and emerging growth sectors of the market, that trend has not directly impacted our business.
Any other trends you want to mention?
We are all watching and preparing for the development and evolution of AI, machine learning, blockchain and some of the novel governance structures and issues coming into focus with blockchain. There are going to be a lot of new ways to automate and optimize certain tasks, which will place a continued premium on experience, market intelligence and the advising elements of the legal practice.
Did you have any mentors, and if so, who? What did you learn from them?
I had a lot of great mentors along the way, in the law and otherwise. The best helped arm me with technical proficiency but also some great pragmatic lessons. One of my favorite phrases was from a boss at Dell: “When you hit oil, stop drilling!” That has influenced many a negotiation and the use of negative space in conversations. I hope I can be a resource to others as they go through their career paths, knowing how important it was for me to have a friend and advocate at so many steps along the way.
How was it working in-house?
I really enjoyed the experience and the position of being embedded in a business (and understanding how legal fits within the broader business goals and P&L). I think a common theme in my career has been injecting the law with plenty of business.
Why did you launch your own law firm? How has the journey been so far?
I have to credit my co-founder Evan Kastner for the seed kernel, but I was very quickly on board. Like my response above, what has been the most fun is starting and running a business. We’re a startup just like many of our clients; we just sell legal widgets.
It’s profoundly satisfying to set strategies and to grow the business and become a trusted partner in the Austin and broader community. I am intensely proud of our people and culture and it makes a hard job really fun and rewarding.
What are your proudest achievements and your most profound disappointments?
I am fortunate to have kept the disappointments to a minimum. On the achievements, see above. I am most proud of the fact that I feel K/G has played a real role in the growth and development of a really exciting startup ecosystem in Austin. We’ve got some headwinds in the sector right now, but we are very bullish on the next decade of growth in Austin and at K/G.