Legaltech start-ups powered largely by artificial intelligence claim that they can provide clients with better value than traditional law firms by offering a new business model.
So-called ‘AI native’ law firms – built from the ground up around AI – are attracting an increasing amount of investor funding.
According to Kent Zimmermann, who advises law firms on strategy and mergers and acquisitions, native AI law firms’ “core proposition” − lower overheads, faster turnaround on high-volume, document-intensive work – is “compelling”, especially for cost-conscious company legal departments.
Some AI native firms, however, are making bolder claims.
Norm Law LLP, which was launched last November by legal and compliance start-up Norm AI, is one of the biggest AI native law firms.
Norm AI, which is based in New York, provides legal and compliance, AI-based software to companies in industries including financial services, healthcare and technology and has received more than $140m from investors, including Blackstone and Bain Capital
Its law firm has hired 40 attorneys who work alongside AI researchers, AI engineers, legal engineers, software engineers and ex-regulators.
It boasts a sleek website and promises to combine AI ‘agents’ – a type of AI capable of performing tasks autonomously – with Norm Law attorneys checking AI’s output.
However, it declined to comment on how it plans to expand from its niche to build “the first AI-native full-service law firm” that can “improve speed, consistency and auditability in high-stakes work” for institutional clients.
Executives at some other prominent AI native law firms, including Crosby, didn’t respond to a request for comment.
Among start-ups that were willing to elaborate on their offerings was Eudia – an AI-based legal technology supplier, which has acquired several alternative legal service providers.
Last September, the California-based firm launched Eudia Counsel in Arizona – one of the US states where outside investment in law firms is allowed – describing it as the world’s first AI-augmented law firm.
Eudia uses a mix of AI and its own legal professionals to provide legal technology and support, including for litigation and contracts, to company legal departments. Its clients include battery supplier Duracell and food company Cargill.
Omar Haroun, Eudia’s chief executive and co-founder, likened its technology to a legal “brain” for each customer.
“It captures the knowledge of each organisation’s best legal, compliance and procurement experts and makes that intelligence accessible across the entire organisation,” he told GLP.
For Eudia’s clients, the benefits of codifying and automating legal procedures and knowledge can include some tasks being completed up to five to 10 times faster and cheaper than the “status quo”, Haroun said.
Other models of legal firm, including a hybrid between AI native law firms and traditional law firms, are also emerging.
Lex Generalis is a small US law firm that was founded last year by venture capitalists at Anzu Partners to provide “cost-effective” legal advice for early-stage tech start-ups and other venture capital firms.
The firm, also headquartered in Arizona, doesn’t describe itself as a native AI law firm. However, it does use AI software, including from Thomson Reuters and Anthropic’s Claude AI chatbot, to help draft documents and manage deadlines. It also builds its own AI tools.
The AI software enables Lex to provide legal services, including advice on intellectual property, at a cost of between about $400 and $700 per hour, which is typically lower than fees charged by associates and partners at the top 100 US law firms, said Lex chief executive Cathryn Paine, who is a partner at Anzu. It also provides legal services for a fixed cost, she said.
One reason for founding Lex was to source “more affordable” law services for the portfolio of companies Anzu invests in, Paine said. “[AI can make] legal services less dependent on a lawyer’s time and more dependent on the actual output… I think that the model of charging by the hour, and the model of a traditional law firm is… broken.”
Although law firms’ centuries-old billable-hour model has long been criticised for putting inputs over outputs, it is unclear whether native AI firms, or some variation, will ever get big enough to provide companies with a serious legal alternative.
Zimmermann argues AI-native firms are “most likely to carve out a durable niche in commoditised legal work”, rather than usher in the wholesale replacement of full-service law firms.
He predicts that within the next decade, there will likely be consolidation among native AI law firms, with those remaining probably looking more like “tech-enabled boutiques” than traditional law firms.
Some law firms may consider partnering with or eventually buying native AI law firms, he added, although he stressed that the sector is still embryonic.
The VC funding cycle incentivises bold positioning, and “AI-native” is currently a “powerful label”, he said.
“I’d look hard at revenue figures, client retention and whether the work product has been tested in any adversarial or high-stakes context. A fancy deck and a round of funding doesn’t make a law firm.”
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