Silicon Valley Big Wig Targets the Legal Market

This summer, serial entrepreneur Justin Kan set his sights on disrupting the legal profession.

Kan famously sold Twitch — where people can watch other people playing video games — to Amazon for $970 million in 2014. More recently, he was a partner at Y Combinator, a tech incubator that earned a reputation for spotting disruptive companies by investing in Airbnb, Dropbox and others that are collectively worth billions of dollars.

While launching start ups, Kan said he inadvertently became a “power user” of corporate legal services and was frustrated by the lack of automation.

Out of this experience, he along with Bebe Chueh, another legal tech entrepreneur, and former Orrick partner Augie Rakow, raised $10.5 million in series A funding to launch Atrium, a one-part law firm, one-part technology company, that aims to transform the way corporate legal services are delivered.


WATCH: Justin Kan discusses his latest venture, Atrium, “a technology enabled law firm for start-ups,” on Bloomberg TV. 


 

So far, the company is only advising start ups on fundraising and deals, an area in which law firms can rack up long hours and high legal bills because of the document-intensive and administrative nature of the work. But Atrium believes this can be largely automated and done for a flat fee. Eventually, after Atrium proves its technology, it plans to expand to other areas of law, and perhaps license technology to other law firms.

After officially launching in August, Atrium has 17 lawyers and 17 technologists, and leased a new office that can accommodate up to 100 people in San Francisco’s tech-heavy SOMA neighborhood. In two months, it claims to have advised on more than 100 deals, but Chueh acknowledged the firm is currently focused on closing financing rounds and not yet handling more complex M&A deals or IPOs.

And while Big Law firms may not have noticed Atrium yet, the firm is attracting support in Silicon Valley, where more than 100 angels and institutional investors have signed on to its network and could provide a steady stream of start up clients until it is big enough to compete in other areas.

Bebe Chueh. Photo by Kevin Abosch (Courtesy)
Bebe Chueh. Photo by Kevin Abosch (Courtesy)

Like every tech company, its founders have origin stories that help explain their intentions. Kan’s co-founder Bebe Chueh was part of the 2007 crop of law graduates who entered the job market just as the economy tanked.

As Chueh explained in an interview, below, this defined her career and helps explain why she thinks Atrium is different from the scores of other organizations looking to disrupt Big Law. The order and length of the interview was edited for clarity.

 

Big Law Business: So you graduated from law school in 2007. What happened?

Chueh: I had an offer that was rescinded from Big Law and it was the best thing that happened to me, because honestly had I entered Big Law, I probably would have stayed. I’m not that much of a rebel.

Instead, I ended up writing a book, a comparative study of what lawyers do in a communist society versus a capitalist society and it kicked off this alternative career. I became very sociologically interested in lawyers. I wound up joining an employment litigation firm [in New Jersey], and I found that I really liked the practice, which was very intellectually stimulating but the business of law really sucked. It didn’t scale. No matter how hard I worked, my only lever [to increase revenue] was to increase my hourly rate.

 

Big Law Business: So why can’t law firms address these challenges?

Chueh: They’re LLPs, so it’s hard to invest in infrastructure since you have to get all of the partners to agree. How do you get all of the partners to vote on this and decide to invest in the future? The partnership structure is just not incentivized to get partners, especially senior partners who have money, to invest. It’s like trying to get something in your lobby as part of a condominium association.

 

Big Law Business: How is Atrium structured?

Chueh: There are two entities working side by side, it’s an LLP that houses all the lawyers and there’s Legal Technology Services Inc., the company that works on the technology [to automate more legal services]. The two entities work hand in hand to innovate and that’s really the core innovation. Every associate at Atrium is paid on a Cravath scale, plus they get equity in the technology company. Our tech company definitely wants to go public. We’re going to be licensing its technology, not so much a patent play, but we’re going to license tech. It’s going to be a long time before we have figured it out exactly.

 

Big Law Business: What type of work are you targeting?

Chueh: Currently, we are a venture law firm. The practice is mostly composed of deals, because deals have a lot that can be automated. Literally, we think we can automate 40 percent of it. Deals have a ton of documents — due diligence is a big chunk of deals, and can be automated in a major way, preparing signature packets, the administrative work of getting signatures, producing legal opinions.

 

Big Law Business:  How do you compare to a service law firm?

Chueh: We have 14 lawyers full-time. When they do deals, they don’t have to bill every six minutes. We set a flat fee. Rather than reviewing documents, and trying to find documents, everything is organized for them. We do this intake process that is completely tech enabled: we get access to [the client’s] data room, and it grabs all the docs, has all the folders completely hierarchically labeled. Our lawyers spend more of their time advising than doing this grunt work. Right now, since we haven’t finalized some of the product yet, these lawyers are doing 80 percent deal work, and 20 percent advising technologists. Currently, we are a venture practice, when we prove this works, we’ll solve another problem.

UPDATED: An earlier version of this story incorrectly stated that Atrium has handed off the more complex parts of its deals to larger law firms. Rather, its lawyers have completed financing deals, and hand off more complex deals, such as M&A and IPO transactions to other law firms.

Contact the reporter responsible for this story: Gabe Friedman at gabefriedman@outlook.com.

Contact the editor responsible for this story: Casey Sullivan at csullivan@bloomberglaw.com.