In their quest to maximise returns from their spending on artificial intelligence technology, law firms are building their own software, appointing heads of AI and creating departments for innovation.
Others, including A&O Shearman and Slaughter and May, have set up their own tech ‘incubators’, which provide advice, workspaces and contacts for start-ups.
The Global Legal Post spoke to law firms and legaltech experts about the evolution of legal-funded incubators, some of which were set up 10 years ago.
For law firms, an incubator’s benefits can include testing and influencing the development of early-stage software, tracking trends in the booming legaltech market, spotting investment opportunities and nurturing future clients.
Incubators give law firms a “great opportunity” to influence the roadmap of a start-up’s technology so it addresses a firm’s problems, says Alex Baker, founder of Legal Tech Collective, a consultant for legaltech companies and law firms.
“If you’re a startup… one of the most critical things you need is feedback from use of your product in the wild,” he said. “If you are a firm that’s willing to invest in providing that feedback, you can shape that product to a certain extent to your specific needs, rather than just generally having a legaltech product that applies to all of the major law firms.”
Tech accelerator
Spanish law firm Cuatrecasas announced the 11th round of its accelerator programme earlier this month. It is aimed at start-ups operating in “complex legal and regulatory environments”, the firm says, which operates in 11 countries and employs more than 2,000 people.
Accelerators are similar to incubators, but start-ups typically have a basic version of a product and are slightly more mature businesses than those in incubators.
Cuatrecasas’ accelerator helps founders grow their businesses, providing business and legal advice on matters including regulation, intellectual property and investment. The latest entrants to the incubator include start-ups making autonomous agricultural robots; ‘nano-medicines’ – which are about one-thousandth the width of a human hair – to improve the treatment of cancer; and combining AI with satellite imagery to monitor environmental projects.
“Emerging technologies challenge rules that were not necessarily designed with these new business models in mind,” said Alba Molina, innovation project manager at Cuatrecasas. “Legal questions can no longer simply be addressed once the product is ready. They need to be considered alongside the technology and the business from the outset.”
Both start-ups and Cuatrecasas benefit, Molina adds.
“For entrepreneurs, working with lawyers early means identifying potential barriers before they become obstacles to investment, market entry or growth,” she said. “We learn from the start-ups too. They gain access to legal expertise, while we gain something extremely valuable: an early view of the technologies and business models that may reshape our clients’ industries.”
Start-up culture
In the UK, A&O Shearman runs a tech incubator called Fuse. Its start-ups build technology to tackle “complex legal, regulatory and deal-related challenges”, according to the firm.
The incubator, which is run by partner Shruti Ajitsaria, has hosted more than 100 start-ups since it was created in 2017 by legacy firm Allen & Overy ahead of its merger with Shearman & Sterling in 2024.
Spending time with start-ups has shown A&O Shearman lawyers a more dynamic way of working, she says.
“Part of having a programme like [Fuse] running through the firm for almost a decade is the enormous effect that it’s had on the culture of our lawyers,” said Ajitsaria. “It makes us curious and it makes us willing to adapt and it gives us an agility and an openness to change that’s actually quite difficult to engender in lawyers whose entire profile really is about risk aversion.”
Sometimes the firm will use or pilot technology built by start-ups in its incubator. For example, it has piloted software from an Australian start-up in its most recent cohort, which tracks changes in email messages sent between different people. She said most lawyers recognise it would be helpful to see what changes have been made in an email, but “they didn’t even realise that problem existed because we’re not used to thinking in that way”.
Ajitsaria declined to comment on the incubator’s return on investment, adding that calculating a figure would involve multiple criteria. A reluctance to estimate an overall payback from a tech incubator is reflective of law firms’ broader investment in AI technology, says Daniel Linna, director in law and technology at Northwestern University’s Pritzker School of Law.
“There’s been this criticism of [law firms’] innovation by press release,” he said. “You get coverage in the Financial Times or… Bloomberg, [but] it’s difficult to know what’s really going on there below the surface… [and] whether these things that law firms are doing are actually moving the needle.”
Slaughter and May
Despite its reputation for being one of the Magic Circle’s most conservative law firms, Slaughter and May has been an early adopter of AI and tech incubators.
In 2016, it created its own tech incubator for financial technology start-ups. Subsequent incubators, which provide pro bono legal advice, business support including human resources and networking events, have focused on legaltech and environmental ‘cleantech’ start-ups.
The firm has also been a start-up investor. In 2017, it invested in Luminance, a start-up that uses AI to automate contracts.
Sally Wokes, an M&A partner at Slaughter and May, says the firm’s incubators were created for two main purposes: to find small start-ups which may turn into potentially huge clients, and to help the firm keep track of the latest technologies.
“We felt that [start-ups were] a big part of the market that wouldn’t naturally come to us as a massive law firm because they… don’t have the [budget for] top-end premium legal services,” she said. “But they [also] have the capacity to expand into these enormous companies extremely quickly, and we didn’t want to find that we were not at the forefront of that activity.”
Slaughters has invested in some start-ups from its incubators, taken them on as clients or used their technology. For example, it has used visualisation and collaboration software from StructureFlow to improve how its lawyers manage transactions, present options to clients and work with data.
Slaughters’ lawyers, especially its associates, have enjoyed working with start-ups in the firm’s incubator, Wokes says.
“By and large [our lawyers] have really enjoyed working with the start-ups because it’s refreshing,” she said. The start-ups “tend to be very lively, engaging people”, she says, adding that the firm’s associates “get to see a different side of life to what they would ordinarily see”.
Despite the incubators’ various benefits, they are on pause while the firm reviews a booming legaltech market, which has changed significantly since a decade ago.
Wokes said: “With lots of big tech players coming into [legaltech], we felt we needed to pause and work out whether we could do another [incubator], and if so, what [type of tech] to concentrate on.”
Earlier this year, Slaughters set up a digital regulation practice in response to growing client demand and the boom in artificial intelligence.
Unlike some large law firms, Slaughters is not building its own AI software, preferring instead to “buy and partner” with legaltech suppliers, including Harvey. It tweaks suppliers’ software to suit its systems and legal precedents. “We are not currently in the camp of building things,” said Wokes.
Because the firm cannot match the tech budgets of large suppliers, any product it developed would be “one step behind” tech companies and at risk of being “outdated” by the time it was finished, she added.
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