As startup culture has spread to more U.S. cities, a growing number of law firms are offering specialized services to startups, including midsize and boutique firms that are tailoring their business models to entrepreneurs' needs.

But there's a reason Silicon Valley fetishes both success and failure: For every breakthrough venture, many more companies fizzle out in early stages, are acquired or operate successfully for a time before encountering financial troubles and going out of business. And that means special risks for their outside counsel.

Philadelphia-based CloudMine serves as a recent example. Founded in 2011, the medical data storage company was successful for several years, raising millions in capital and working with well known clients in the Philadelphia area. But CloudMine filed a Chapter 7 bankruptcy petition Nov 5.

"Law firms take on 'a great deal of risk' when choosing to represent startups," said Gregory Seltzer, who leads the Emerging Growth and Venture Capital group at Ballard Spahr. "In managing that risk, firms should view their client roster like a traditional stock portfolio with a combination of large-cap, middle-market, and small-cap companies."

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