The Future of Legal Services for Startups

The future of legal services for startups needs to take as its beginning and end point what startups actually need and want. As they grow and scale, how can the delivery of law best be suited to these non-traditional clients, many of whom are new to legal interactions in this context?

A part of the answer will be the emergence of an in-house legal counsel for startups, which isn’t entirely new as, here in Toronto, firms such as Conduit Law and Cognition have been on the leading edge of adopting a model that we predict will become viral. We even envision tranches of more traditional law firms existing as physical pop-ups in incubation, acceleration, and innovation spaces—essentially a further evolution of the Norton Rose Fulbright office in MaRS in Toronto.

It’s critical for startups to understand that one lawyer can’t serve all needs. The traditional model is one based around very high overhead; it’s very expensive and even more inefficient. In the new model, one lawyer can act as a startup’s general contractor and project manager. They line up all the pieces for you. So Jill or Jack doesn’t do it all themselves but instead curates a bespoke legal experience for the startup at a much more favorable price point. But, of course, this can only work if the lawyer truly understands your business, which is why innovative firms need to go where startups are.

The traditional Big Law model is a pyramid utilizing leverage of lower cost and less experienced associates where partners reap the benefits of the (massive) profits. Indeed, part of the reason for the collapse of 500-lawyer Canadian firm Heenan Blaikie earlier this year was because they weren’t making enough profit to satisfy the partners. How is a startup to even begin to relate to that mentality and why should they? There is absolutely no alignment here.

But since the Great Reset of 2008, large enterprise has started to question why they pay for the expensive art work, marble tables and training of inexperienced and often inefficient associates. Startups, especially those that have lived through the bootstrap experience, would have asked that question first—particularly those that understand what they are actually buying (knowledge and advice).

As the popular Bruce MacEwan of Adam Smith, Esq., has written relating to BigLaw – Growth is Dead. If your physical overhead remains high, often both figuratively and literally, slashing staff headcount comes across as short-term thinking with long-term consequences. Shouldn’t it be the other way around? And that’s essentially to service BigCorp clients, which is the predominant preference of BigLaw.

To date, out of financial consequence, law and startups have intersected with rather high friction. It’s usually a win-lose, favoring the law firm in the short-term, truly favoring neither in the long-term.

It is critical to understand that price is not a proxy for quality of legal services. There is currently a rise of lesser-resourced legal providers that are more adept at understanding the fusion of process optimization, efficiencies driven by technology and use of like-minded networks of specialists to cover off various needs unique to startups including initial incorporation, shareholder arrangements, financing, vendor contracts and perhaps even merger and acquisitions.

Here’s the reality: In 2014, more law is being practiced at Starbucks than you think, and in 2016 it will be much more than today. It’s a mentality shift for lawyers even more than clients.

It would seem that the investment community has also caught on that while legal services are worthy of investment, it’s not necessarily law firms that stand to gain. The reasons are partly regulatory and partly economic.

Much of what qualifies as “legal work” is starting to be questioned. Document assembly tools, decision trees driving contextual placement of contract provisions and terms, on-line research and electronic document review would have traditionally been tasks apportioned to teams of lawyers. Clients paid for advice and work product process.

In future installments of what we plan to be a mini-series, we intend to dive deeper into some of the current innovations in the law x startups space.