Venture Capital Tempts Law Firms, But Ethical Concerns Surface

Law firms increasingly are turning toward high-risk, high-reward venture capital investing as a way to spur technology innovations to streamline functions like contract review and legal research. Yet the investments are raising conflicts-related concerns among legal ethics experts and competing firms that have rejected the approach.

Extract from an article by Sam Skolnik published in Bloomberg Law

Law firms increasingly are turning toward high-risk, high-reward venture capital investing as a way to spur technology innovations to streamline functions like contract review and legal research.

Yet the investments are raising conflicts-related concerns among legal ethics experts and competing firms that have rejected the approach.

As clients demand better technology solutions from their law firms, some of the largest and most prestigious firms in the U.S. and U.K., including Dentons, Latham & Watkins, and Orrick, have turned to different forms of venture investing. That business model allows law firms—typically risk-averse operations compared with the players in Silicon Valley’s VC culture—to purchase equity stakes in legal tech startups.

But some see downsides to such investments, including the possibility that a law firm’s advice to clients on tech adoption issues could be tainted.

Investments in legal tech companies exploded in 2018, from $233 million in 2017 to $1.7 billion last year, according to figures from the Legal Tech Sector Landscape Report by Tracxn Technologies.

Law firms provide a relatively small portion of total investing in this space. But firms increasingly are seeing the advantages of promoting legal tech startups directly through VC investments, and in other ways, to boost revenues and at the same time promote legal tech innovation that can benefit the entire industry.

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Source: ComplexDiscovery