The global legal technology industry finally appears to be entering the maturation stage of industrial development.

The global legal technology industry finally appears to be entering the maturation stage of industrial development.

Entrepreneurs are learning that legal services aren’t the low hanging fruit they first viewed them to be and that disruption of legal services requires more thoughtfulness, than simply blue-sky sessions with friends about the next killer app. Gone (thankfully!) are the days of throwing any sort of technology ideas at legal to “see what sticks.” The spectacular failure of US-based legal services provider Atrium serves not only was a fitting end point to legal technology’s wild adolescence, but it was also an inflection point toward a better, more helpful and sustainable industrial future.

In 2017, Justin Kan, best known for making an obscene amount of money by creating Twitch, a technology that allows people to watch other people play video games, announced the creation of Atrium, and promptly raised US$10.5 million in seed funding. Justin later admitted this funding request was based on a short and shallow power point presentation. In effect, he was banking on his reputation to get funding, not a thoughtful and robust presentation. The buzz in Silicon Valley and among many in the global legal technology/ innovation community at the time was that if anyone can disrupt legal, it was Kan.

Expectations hit a fever pitch in Autumn of 2018 when Atrium raised the absurd sum of US$65m in Series A funding from venture capital firm, Andreessen Horowitz. Atrium was awash with money and one could hear Silicon Valley “bros” chest bumping from all parts of the globe. After all, no new law firm on the planet had ever been given that amount of money to re-invent legal service delivery. But eighteen short months later, Atrium would come to a crashing halt, putting over 100 people out of work despite still having unused funds at its disposal (funds that were given back to investors). It seems that despite the hype, when it came to weaving a delicate tapestry of people, process and technology to create something that would actually make the world a better place, Kan proved he was out of his depth. Simply throwing money and technology at legal services would not create a disruptor. Mark Cohen, Brian Inkster and others have written in detail about Kan’s dalliance with legal services and these pieces contain good lessons on how not to disrupt legal services.

At first, many people were upset that a wellfunded, golden opportunity to change the legal world had been given to precisely the wrong person. But in hindsight, Atrium’s fiasco may be a blessing in disguise as it should bring some much-needed sanity and rationality to the legal technology market. No longer will investors pour buckets of money at unrefined business ideas led by people without legal industry experience. Investors will be more cautious and require viable plans, They will be less likely to use fame and fortune in one industry as a proxy for success in legal services.

Atrium’s debacle should mark the start of a process where pretenders, dilettantes and wannabes are culled, leaving only serious products and serious companies. Culling is important because with over 2000 legal technology companies all vying for the attention of the same buyers, the marketplace has become noisy and filled with an incredible amount of duplication.

Don’t be fooled by the hype. The ability of technology clusters like Silicon Valley or Cyberport to transform legal services on their own is illusory.

But what does this all mean for in-house lawyers searching for solutions to real problems, and for legal technology entrepreneurs honestly seeking to solve those problems?

Here are some things to consider:

1) Don’t be fooled by the hype. The ability of technology clusters like Silicon Valley or Cyberport to transform legal services on their own is illusory. Atrium teaches that technology isn’t a magic balm for all legal services problems and that many of those who populate these clusters know little about the legal industry. Disruption of the legal industry requires a deep, thoughtful consideration of all service delivery elements, so it pays to do a deep dive into the founders, executive team and their strategy to determine if the idea deserves your backing. You don’t want to invest your money, time, documents and systems in a company that closes down due to poor leadership and planning.

2) All the venture capital funding in the world cannot make up for a lack of purpose and passion. Being rich and famous is not the same as being purposeful and passionate. Simon Sinek tells the story of how the underfunded, but passionate and purpose-driven, Wright brothers succeeded in making the first manned flight, while the extremely well-funded Samuel Langley was unable to do so. Langley, Sinek says, was motivated to create manned flight because of the fame and fortune the discovery would give him. The Wright brothers however were
motivated by the problem they were trying solve; they believed flight would change the world. Any fame or riches they received would be a byproduct of that success, not the purpose of that success.

3) Technology clusters exaggerate both their heroes and their own importance. As a result, dedicated legal technology entrepreneurs should have no FOMO (fear of missing out) by building outside of technology clusters. As a buyer, don’t be put off when a company is outside the traditional tech bubble or lacks a rockstar founder – in fact, seek out these start-ups since they will be driven by passion, rather than by someone seeking a quick return on investment. Making money in legal technology is a slow process, so find those who treat business as a marathon, not a sprint.

4) As an entrepreneur, aim to fully understand every element of the problem you’re trying to solve. What are the real pain points? What didn’t work in the past? What almost worked? Why didn’t those things work? To do otherwise is lazy and courting failure.

5) As a buyer of legal technology, do your internal homework to determine your real pain points. You will need that information to cut through a noisy marketplace. I recently ran a technology procurement process for a client where, if we had not identified with precision how the client worked and what it needed, the client would have been easily swayed to buy the first shiny product presented to it. Because of our initial hard work, we were able to quickly cut through the noise and reduce the number of possible products to three – then had in-depth, thoughtful discussions about what suited the client’s needs. In the end, the client selected a product that was less flashy than its competitors, but which did exactly what the client needed – and nothing more.

6) One of Atrium’s many mistakes was to build its own technology when suitable options already existed. As an inhouse lawyer, your first point of inquiry should always be with your own IT department. Legal technology is nothing more than technology that happens to be used by legal services; for instance, many don’t consider Microsoft’s suite of products to be legal technology, but it is widely used in legal. In the same vein, what is the rest of your company using that can be repurposed to assist legal? What is already out there in a different industry that might be a solution? What are the company IT parameters for integrating new technology? Legal services should never be seen as a technology island, and any new provider needs to understand this.

In a nutshell, whatever legal technology venture you’re embarking upon as an entrepreneur, investor or employee, do thorough research, be thoughtful, be hungry, be purposeful and be passionate. If you’re buying legal technology, invest lots of time to become savvy about products in the marketplace and think deeply about your real needs — and don’t get stuck on the “legal” prefix, all that matters is that the technology solves your problem.


 

Mitch Kowalski Mitch Kowalski

Mitch Kowalski is a globally-recognized thought
leader on the changing legal services ecosystem
and the author of two critically acclaimed books
in this area. Mitch was admitted in 1991 and
spent 10 years as an Associate and Partner at
Baker & McKenzie (Toronto) and five years of
inhouse experience at Aoyuan International
(Canada), City of Toronto and at Toronto Community
Housing Corporation.

 


 

*This article was published in the July 2021 issue of the IHC Magazine featuring Legal Innovation and Legal Tech report. Click here to read the full magazine

In-House Community Magazine – July 2021 (e-edition) including Legal Innovation & Legal Technology Report 2021

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