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British Law Firm Incubators Lead Way with Legal Tech Innovations

May 2, 2019, 8:50 AM

Legal tech incubators are taking off in the U.K. as law firms like Slaughter and May choose new cohorts of companies, with even Big Four accountancy PwC getting in on the action by planning the launch of its own proving ground for growing legal tech outfits.

Incubators provide mentorship and investment to speed legal tech development. They’re more common in the U.K. than the U.S., but could see more adoption here as law firms seek approaches more frequently rooted in technology and automation to respond to client demands.

It’s helpful to understand how these incubators work and why they’d appeal to law firms, which are generally not known for being forward-thinking about tech compared to other sectors.

Incubators are vital in part because the future of law resides in the use of artificial intelligence and task automation, said Nick West, chief strategy officer for British firm Mishcon de Reya, and director of its legal tech incubator, MDR Lab.

“If that’s true,” he said, “then the question is, how are we going to be leaders in that space and not followers?”

Huge Potential

Slaughter and May announced this week it has chosen its first cohort of six businesses for its “Collaborate” program from more than 50 applicants.

The companies include a workflow automation provider called Tabled, and Logiak,which the vendor’s site describes as a “no-code environment for the configuration of interactive, advice-giving, logic-based systems.”

It was important that Collaborate include a range of types of legal technology in its initial class, said Jane Stewart, head of innovation at Slaughter and May.

Some of the companies make technology that’s been proven to some extent, said Stewart. Others like Logiak aren’t as well-tested and thus may be a bit riskier, she said, but show “huge potential.”

Most incubators possess some similar features. Legal tech providers, most in their early, even pre-sales stages, apply to become part of annual class, or “cohort,” of companies that reside for a short period—often one to three months at the firm—gaining real-world access to their markets, lawyers and law firms.

Starting a successful incubator is difficult—"harder to do than it seems,” said West of Mishcon de Reya’s MDR Lab, which will announce its newest round of companies on May 7. But he said it’s worth it, especially when able to please firm clients with demonstrations of tech advancements.

Client Concerns

Some firms, like Mishcon de Reya, can decide to take an equity stake in the company, while others, including Slaughter and May, will not.

Firms that boast incubators can receive numerous benefits, said Bob Ambrogi, editor of the LawSites blog.

First, firms that invest directly through equity ownership, like a venture capital operation, can receive strong financial returns if the companies gain more backing and continue to flourish.

But even for firms that don’t invest directly, partners are exposed to new tech, and come out of the experience “a little less of a Luddite,” Ambrogi said.

At the same time, the product the vendor is developing can be shaped for a specific use at the incubator’s host firm. And the existence of incubators can provide marketing advantages both to retain existing clients and attract new ones, he said.

Other British mainstay firms, including at least two others in the five-firm Magic Circle, have incubators.

Allen & Overy’s well-regarded Fuse program also assists companies in the “regtech” and “dealtech” spaces that devise tech solutions for regulatory compliance and financial transactions.

And Clifford Chance has its Create+65 innovation lab, which “brings together venture capitalists, start-ups, product owners and developers, universities and private institutions” to develop legal tech solutions.

By contrast, few American firms operate similar incubator programs, though some, including Latham & Watkins, and Orrick, have set up their own venture capital operations, making equity investments in legal tech operations.

Other firms, like Baker McKenzie, also have invested in a number of individual legal tech companies.

One reason fewer American law firms have stood up traditional legal tech incubators in the British model, said Ambrogi, is that more of them—including Orrick; Wilson Sonsini Goodrich & Rosati; and Reed Smith—have decided on another route: building their own tech from scratch, as opposed to starting with an “off-the-shelf” model.

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bloomberglaw.com

To contact the reporter on this story: Rebekah Mintzer in New York at rmintzer@bloomberglaw.com