I feel like venture capital has been particularly fashionable for the last couple of years. Maybe that’s just because I only recently immersed myself in a tech-oriented world. Or because Shark Tank and Silicon Valley have gotten so popular. Or maybe it has been—and with good reason, given the meteoric rise of tech unicorns with billion-dollar valuations and kids in hoodies making more in a day than the rest of us make in year. But either way, surely one of the reasons that I feel the way I do has to do with some of the new kids on the venture block. Except they’re not new. Some of them are actually really old. And big. And, historically, conservative and risk-averse. Some of them . . . are law firms.
Those who follow the world of legal tech have seen the announcements. Dentons launches NextLaw Labs and begins partnering with Seedcamp to make early-stage investments; Allen & Overy launches Fuse, a “tech innovation space”—just a couple of examples in a growing trend of law firms launching venture arms and legal tech incubation and acceleration efforts. That trend parallels increased attention and investment in the legal technology sector by the large corporate players in the industry (e.g., Lexis’s new legal tech accelerator, Thompson Reuters Labs’s new (partially) legal tech-focused focused incubator) and law firms’ own internal efforts to develop and incorporate new technologies into their practices and menu of client services (e.g., Davis Wright Tremaine’s DWT De Novo initiative, Bryan Cave’s TechX department).
Although a relatively modest number of firms worldwide that have thrown their cap in the tech incubation/venture investment ring, it feels like we’re on the cusp of something. (Famous last words in the legal tech space, I know.) So in today’s post, let’s have a look at (a) who’s in so far? (b) why are they doing what they’re doing? and (c) why is it significant?
Law Firm (and Others) Launching Legal Tech Incubators, Accelerators, and Venture Arms
When thinking about this post, I poked around for a comprehensive list of law firms launching legal tech incubation/acceleration efforts and/or venture arms and couldn’t put my finger on one. (Granted, I didn’t spend all that long searching.) So let’s begin a list. And I say “begin” because I hope that we (the Blacklines & Billables community) can update this admittedly incomplete first cut over time to crowdsource a comprehensive working list. (To that end, please leave comments noting the firms and efforts we’ve missed so that they can be added on the next turn!)
A working list of law firms who have launched legal tech incubators (external), accelerators, or venture arms:
- 2011: Foley & Lardner helps launch Catapult Chicago, a collaborative technology start-up community, and launches Foley Ventures to participate in the fundraising rounds of Catapult companies
- May 2013: Manatt, Phelps & Phillips launches digital media consulting division and pursues venture investments in the sector
- April 2015: Allen & Overy launches i2, an “ideas and investment” initiative to pursue technology-related opportunities
- May 2015, Dentons launches NextLaw Labs, “a global collaborative innovation platform focused on developing, deploying, and investing in new technologies and processes to transform the practice of law around the world”; partnership with first-round venture fund Seedcamp announced June 2016
- August 2015: Baker Donelson launches an Atlanta-based cybersecurity accelerator
- September 2016: Mills Oakley partners with Collective Campus to launch legal tech accelerator
- January 2017: Mishcon de Reya partners with L Marks to launch MDR Lab, “a technology incubator programme . . . for tech start-ups in the legal space”
- March 2017: Allen & Overy launches Fuse, a “tech innovation space” for “legaltech, regtech and dealtech challenges”, and the chair of the project acknowledges that the firm may invest in “specific solutions that have real relevance” to its business
- March 2017: MinterEllisonRuddWatts announces a JV with Goat Ventures “to explore, and capitalise on, the application of artificial intelligence (AI) for legal services”
Let’s also note:
Corporate efforts in the legal tech sector
- December 2016, LexisNexis launches legal tech accelerator
- July 2017: Thomson Reuters launches Thompson Reuters Labs – The Incubator in Switzerland focused on early-stage entrepreneurs working in, among other areas, legal tech
Internal technology initiatives and discrete incubation efforts that firms have publicized and/or separately branded as specific initiatives
- Davis Wright Tremaine launches (date unclear) DWT De Novo, a “dedicated innovation and consulting team . . . [to] combine legal subject-matter expertise, process-improvement techniques, alternative staffing models and data analytics, while leveraging the best legal technology on the market”
- February 2017, Baker McKenzie launches a global innovation program focused on “technology investments,” “services transformation,” and “machine learning”
- February 2017, Bryan Cave launches TechX, an internal group of “forward-thinking attorneys and other professionals” that is “designed to grow Bryan Cave’s…legal technology awareness, depth and expertise for competitive advantage by centralizing thought leadership and enabling participants to market innovation excellence” alongside of its BCXponent division
As the working list above illustrates, a small but meaningful cross-section of firms have begun organizing specific efforts to support, and invest in, legal tech startups (as well as their internal technology and innovation). So why are they doing it?
Why Are Law Firms Are Entering the Venture Game?
From 30,000 feet, it’s not surprising. Corporate venture capital, for example, is nothing new (even though it has gotten more attention in recent years thanks to a flood of new companies getting involved and a meaningful increase in the number, and total value of, investments being made, thanks to the likes of Google Ventures, Intel Capital, Salesforce Ventures, and Comcast Ventures). And even professional services firms bearing a closer resemblance to law firms, such as the big banks, have been ramping up their venture activities in recent years (particularly in fintech) and launching startup incubators and accelerators.
But even so, it’s worth asking the question why the firms listed above are taking the steps they’re taking. Corporate venture capital can have a range of motivations—from the strategic to the financial—and those motivations can change over time, depending on the performance of investments, the state of the market, and a million other factors. So what are these firms thinking now? We can think of a few possible motivations:
- First, and most simply, firms may be diving into legal tech in order to provide better—and cheaper—client service, responding, for example, to increasing fee pressure that makes it important for firms to work more efficiently and cost-effectively. That means finding and making use of the best technological support in the market today. And what better way to find and engage with what’s out there than by offering capital and other valuable resources to innovators themselves?
- Second, and relatedly, setting up an incubator or accelerator gives firms direct access to some of the brightest minds and the best talent driving the cutting edge of legal tech innovation, which means firms will have better sight into what the future holds and be in a position to keep a finger on the pulse of important developments.
- Third, it could be a business-development play. Historically, firms have rubbed elbows with startups in various verticals as a way to begin relationships that may yield lucrative business in the future as those startups mature into bigger companies with greater legal needs—from early financing rounds to IPOs and beyond. (Investment as a BD strategy, however, does raise some interesting and thorny ethics questions related to the conflicts that could arise.)
- Fourth, it could be part of firms’ efforts to diversify and hedge their revenue model in the face of an evolving market for legal services. (If new tech is going to eat a portion of the firms’ work, why not grab a piece of that pie?)
- Fifth, and relatedly, it could be more of a defensive play—a way to keep disruptive new solutions as close as possible to members of the profession with the concomitant professional obligations. (See @artificiallawya’s piece on the actions taken by the Marseilles Bar.)
- Sixth, and finally, it could be plain-vanilla case of good old fashioned economic opportunity. Firms are presumably well placed to evaluate which legal tech ventures are going to most effectively disrupt the current market, and it stands to reason that they would want to act on, and profit from, that information.
(What other motivations are we missing? Leave a comment below.)
Rather than hazard a guess as to which motivations align with which initiatives, we plan to ask! We’ll be inviting leaders from a number of the institutions listed above to join us on the Blacklines & Billables podcast to share a bit more about what they’re hoping to achieve, why they think the venture model is the best path forward, and how they see the trend developing in the future, so stay tuned.
Proximity and Pragmatism
Regardless of the motivation(s), how significant is it that large law firms (and, to some extent, law-focused corporates like Lexis, Thompson Reuters, and Wolters Kluwer) are beginning to play a larger, more central role into the legal tech ecosystem?
I, for one, believe it’s quite significant. And I believe it’s significant because I think that the phenomenon help solve some of the problems that make legal tech, and particularly legal tech for large firms, so challenging.
There are far too few recovering firm lawyers who have taken the leap to strike out on their own and build solutions to the problems they experienced in practice. (And serious kudos to those few who have.) Which means there’s often a wide and detrimental gulf between the technical expertise and the domain expertise that are both required to craft truly effective solutions to law firms’ most pressing problems. The efforts listed above, however, are important steps toward bridging that divide, generating three much needed things: proximity, access, and focus.
Proximity, because the efforts bring lawyers and tech talent together so that the techies can see the real pain points of practicing firm lawyers. The techies then also have access to the practicing lawyers’ experience, so they can learn from, and test ideas on and among, lawyers who have spent years in the trenches doing the job. And that combination of proximity and access makes it that much more likely that the best tech talent and the newfound institutional support will be focused on the on the areas of the greatest need and the potential for the biggest impact.
The trend we’re discussing can also help create collaborative environments where ideas can be tested and refined in actual settings of practical application. Every entrepreneur knows that early ideas are built on assumptions, but successful products are built on data—data resulting from the right product feedback, captured from real users, and used to improve and iterate a product’s design. And while gathering the right data and running the right build/measure/learn feedback loops can be particularly difficult for enterprise products under the best of circumstances, in the absence of the an institutionally-sponsored ecosystem, in a industry like law, that task becomes nearly impossible.
Moreover, some of the most potentially transformational technologies for the law are built on data in an even more literal way. AI-driven products, such as those that employ machine learning, are immensely dependent upon high quality and high volume sets of training data in order to to operate effectively. And when those data sets are controlled by firms and other institutions, as they are in much of the legal world, the participation of, and provision of data by, those institutions is critical to ensuring that the products’ potential is fulfilled. (Exhibit A: Up-and-coming AI-driven M&A due diligence platform Luminance’s collaboration with Slaughter & May, which has been instrumental in the company’s success.)
Finally, I think there’s a strong possibility that the trend will help push new legal technologies towards areas where they can generate the most beneficial impact. For all their promise, even the most cutting-edge technologies, such as the machine-learning tech referenced above, have key limitations. As we discussed in our earlier post “Robot, Esq.? Four Reasons Why Lawyers Shouldn’t Fear AI and Automation Legal Tech,” those budding legal tools have quite narrow and specific use cases. Which means that, while the tools can improve and even disrupt discrete tasks and law firm workflows, they can’t displace them. The lawyers and the tech will—necessarily—be working hand-in-hand. Which means two things. One, for the impact of the tech to be its greatest, it requires buy-in and seamless integration into firms. And two, firms will play an important role in steering new technologies to their most effective uses. To me, that means that the soaring promise of technological advancement will be grounded by the firm’s pragmatic reality.
And while that may sound boring or limiting to some, to me it sounds like lawyers making fewer mistakes. And lawyers making critical judgment calls driven by data, not just intuition. And lawyers performing work more efficiently and predictably, so firms can right-size their bids and their budgets. And lawyers spending more time doing the high-value work that they love to do. In sum, it sounds like the proximity and pragmatism fostered by firms’ venture efforts could help legal tech finally transform, for the better, how firms serve their clients, and I look forward to keeping a close eye on where this trend goes from here.
If you haven't yet signed up, get new posts and important community announcements straight to your inbox!