Silicon Valley’s next hot start-up isn’t likely to be a video chat app. Nor is it likely to be an on-demand service, like Instacart or Uber.
Kan’s months-old legal technology start-up, Atrium, is actually incorporated as a law firm — and may be the only Silicon Valley start-up ever to have done so. It has raised $10.5 million so far, and it is even more unusual in a region where rule-breaking and rule-bending are celebrated, and lawyers are among a start-up founder’s last and most reluctant hires.
Walking into Atrium’s sleek, 34-person offices in San Francisco’s design district, is in some ways like stepping into the prototype for a law firm of the future. In it, lawyers and paralegals wearing T-shirts and jeans sit side by side with coders on bean bag chairs (who are wearing the same attire).
Throughout the day, the lawyers field questions from a roster of start-up clients looking to execute routine legal tasks, like fundraising from venture capitalists and issuing stock options to employees. Engineers watch the dealings closely, extracting bits of information from the conversations and the documents exchanged. They’re trying to build technology that will ultimately automate that work — and replace some of the human beings who are doing it.
Or, as Kan and his co-founders put it, they want to create a law firm full of technology-turbocharged lawyers who can offer clients more efficient services for a single, transparent bill.
In the past two years, automation and artificial intelligence tools have become sophisticated enough to influence professionals and white collar work. Administrative assistants, radiologists, financial advisers — and now lawyers — have all become the targets of such software. McKinsey estimates that 35 percent of all professional tasks can be automated these days. JP Morgan recently marshaled an army of developers to build software that can do in seconds what it took lawyers 360,000 hours to do previously, the company said.
The tension that surrounds every discussion of artificial intelligence, over whether such technologies are ultimately going to obliterate jobs or augment the people who do them, has become more fraught as knowledge workers face their own obsolescence. Researchers think these tools will eventually reduce the number of workers needed across many professions — and augment the capabilities of those who are left standing.
Of course, Kan’s effort is in its early days. Right now he is hiring lawyers, not making them obsolete. The office includes six of them and several paralegals and engineers. Two of his three co-founders, Augie Rakow and Bebe Chueh, are lawyers themselves. Rakow was a senior partner at the top Silicon Valley firm Orrick, Herrington, and Sutcliffe. (The fourth co-founder, Chris Smoak, is an engineer and serial entrepreneur).
Kan says he was drawn to the idea out of frustration with an archaic industry that he had to work with time and again during his experience founding and selling start-ups. “I’ve basically been an involuntary power user of every part of the Silicon Valley legal practice,” he said in an interview. “I’ve raised money. I’ve done a merger. I’ve been sued. And yet every time, bills would pile up and I had no clear idea what I was paying for. In Silicon Valley, we want everything to be transparent.”
To that end, one of Atrium’s more innovative features is its pricing model. The firm doesn’t charge by the hour, as most corporate law firms do. Instead, Atrium estimates the amount of work that it expects to do for every client and charges a single, upfront monthly-fee — regardless of the hours worked.
Atrium says it has helped its start-up clients raise $94 million. The clients are not your typical small businesses or large corporation: they include Meadow, a cannabis e-commerce platform; a drug testing service for cancer patients; and a start-up that just raised capital by selling an obscure cryptocurrency through a process known as an initial coin offering.
Despite reaching the top ranks of the legal hierarchy, Rakow said he was drawn to the challenge of working on something that could help move his profession into the future. “Everyone knows this is the future of the legal practice,” he said. “I don’t want to spend the second half of my career like a taxi driver complaining about Uber.”
While innovations stemming from Silicon Valley have transformed everything from taxi-riding to manufacturing to the media, few industries have proved to be as stubbornly immune to the disruptions of technology as the legal profession. As anyone who has racked up legal fees due to lawyers’ mounting billable hours can attest, law firms remain almost surprisingly low-tech operations.
But shifts are coming. As law firms face more pressure than ever to cut costs and reduce billable hours, many are reluctantly investing in innovations and technology. Since the recession, corporations have moved more legal work in-house to save money; some, like JPMorgan, have devised their own technological shortcuts.
The legal industry has been extremely slow to adopt tech, experts say, because the incentive structure at law firms doesn’t reward investing in innovation. Lawyers are paid by the hour, and therefore technologies that can make their work more efficient have little appeal, since they result in less work. Moreover, most corporate law firms are structured as partnerships, in which investment in new technologies must come directly out of the partners’ pockets, creating a barrier to funding new tools.
A handful of start-ups have tackled slices of legal services, such as document review, e-discovery, and even automated contesting of parking tickets (The parking ticket chat bot, DoNotPay, has recently enabling consumers to send automated small claims lawsuits to Equifax). But for the most part, the technorati have yet to target a legal services industry worth roughly $300 billion.
Legal technology start-ups have raised less than $800 million since 2011, according to the research firm CB Insights, a fraction compared with other nascent categories like virtual reality, artificial intelligence, or self-driving cars.
Frank Levy, professor emeritus with the Massachusetts Institute of Technology, questioned whether more legal work could actually be automated. In a forthcoming paper in the Georgetown Journal of Legal Ethics titled, “Can Robots be Lawyers,” Levy and co-author Dana Remus found that even if corporate law firms raced to embrace all artificial intelligence tools on the market today, just 10 percent of all legal work could actually be outsourced to software. “Ninety percent of what lawyers do today cannot be automated,” said Levy, because it requires intellectual capabilities and decision-making that exceeds the capabilities of today’s technology.
In addition, he pointed out that the Atrium model may be extremely costly to execute, even for the deep-pocketed Silicon Valley types (Levy stressed that he had not seen Atrium’s specific business plan and was commenting generally). Lawyers are costly, he said, but so are engineers.
Kan is building software to focus on some basic tasks that are tailored to meet the specific needs of early-stage Silicon Valley start-ups. If Atrium were to expand to other areas, it may have to build many types of customized software, each one requiring specialized engineering that may be very expensive to build.
Still, Kan, Rakow, Chueh, and Smoak say they hope their venture will help make the legal business more customer-friendly. “In Silicon Valley, we rate every Lyft ride and every Amazon purchase: Feedback is core to Silicon Valley,” Kan said. “No law firm ever asked me how my service was. I always wanted transparency and I never got it.”