The overlap between software companies and law firms may be spreading, but not without casualties. The latest may be the many lawyers that had until this week worked for the well-funded legal start-up Atrium.
On January 13, the company announced the layoff of most of its legal staff and outlined a shift in its business model toward technology services, jettisoning its earlier goal to disrupt the law firm model via subscription services. Or, as Atrium co-founder and CEO Justin Kan told the tech press: “It’s a natural evolution for us to create a sustainable model.”
Atrium had hoped to be part tech company and part law firm, intending to specialize in advising other startups with legal help. The company envisioned becoming the go-to for easily automated questions such as how to incorporate or what jurisdictionally-specific forms were needed for given legal issues. Customers would use a chatbot to answer most initial questions, but human assistance was available for more sophisticated matters. Atrium intended to make this a subscription legal service, all-inclusive for a $500 monthly fee.
Atrium was not the first company to explore this idea, with similar start-ups exploring this model in the U.S., Canada, Europe, and the United Arab Emirates. However, Atrium had some advantages: It had amassed $75 million in venture funding since it was founded in 2017 and had start-up star Kan, founder of Twitch, at the helm.
Gabriel Shapiro, one of the attorneys left go by Atrium who recounted his experience on Twitter, criticized Atrium’s new model as disruptive of solo and small practitioners instead of Big Law while driving down rates and service quality instead of pushing attorneys to be more tech-efficient.
Bob Ambrogi, the esteemed legaltech blogger who broke the news, compared Atrium’s situation with startup Clearspire, which closed its doors in 2014.
We’re seeing a trend towards more law firms launching their own software development businesses, investing in legal tech startups and establishing technology incubators.
Aron Solomon, a Berlin-based startup founder and designer, tweeted: “So, when can we talk about the last 3 years of legaltech “exits” and which (of any) actually put acquisition proceeds in the pockets of investors and founders?” Solomon had predicted an exodus of legal tech funding in the 2020s. And while VC funding for legal tech has increased significantly in the last few years, some funds are pivoting away from this direction.
Despite such criticism, the trend of software companies offering legal services and law firms creating software companies shows no sign of stopping. “We’re seeing a trend towards more law firms launching their own software development businesses, investing in legal tech start-ups and establishing technology incubators,” says Mike Abbott, vice president of enterprise thought leadership and content strategy at Thomson Reuters. “These firms understand they can not only benefit from, but can help lead, this technology-based disruption of legal services as a means to improve efficiency and expand their business by creating new products and services for clients.”
Most recently, Thomson Reuters and Georgetown Law Center’s 2020 State of the Legal Market report detailed this approach, as firms look to better improve legal processes and respond to clients already leveraging technology solutions.
Further, regulations on law firm ownership — long averse to such co-mingling of lawyer and non-lawyer partnerships in offering legal services — have begun to reflect this change as state bars explore changing ethics rules with the intent to reform limiting law firm ownership to lawyers and regulating how non-lawyers can provide legal advice.
While the Atrium announcement earned criticism, other industry leaders weren’t as negative. Jeroen Plink, CEO of Clifford Chance Applied Solutions (the law firm’s tech subsidiary), tweeted that, while still unfortunate for the employees out of a job, there were important lessons to be learned, noting that the size and pace of the VC investment in Atrium showed “how broken the [legal] model is… $75 million in 2 rounds by people who think legal services are broken means people are frustrated but willing to put their money where their mouth is.”
Hannah Konitshek, Business Operations and Strategy at Legal.io, echoed this sentiment, noting on Twitter that “Building a company is hard, innovating in legal is especially hard, there are valuable lessons in what worked… [and] pivots have human costs for early employees.”
Atrium should offer a cautionary tale for lawyers, innovators, and entrepreneurs; but it should not deter enterprising minds from trying to improve the practice of law with technology solutions. That trend is already here, law firm disruption is ripe, and other start-ups will likely take Atrium’s place.
Innovation is definitely messy, however, and Atrium is a reminder of just how messy legal tech innovation can still be.