Incubators: the new kid on the block

Law tech incubators are office areas within firms where legal technology start-ups can develop solutions with the legal expertise onsite.

Designed to provide a space where clients, tech companies and start-ups can collaborate and co-develop solutions with law firms. They are capable of fixing technology or process problems and enabling the completion of legal work.

The spread of law tech incubators is on a global scale, taking off in the UK with big law firms (and even the big four accountancy firms) planning and launching their own space for growing legal tech hubs.

LexisNexis has also launched its own legal tech accelerator. From a technology perspective, incubators are still a relatively new phenomenon but they are not just something for the large national or global firms – they are relevant and offer value to small and mid-sized firms.

The legal sector is undoubtedly ready for change: being a good lawyer is no longer enough. And these are also uncertain times for clients.

In an increasingly complex world where industries are confronted with disruption and digitisation, law tech incubators are an ideal meeting of minds that tackles and solves the problems with the technology the legal profession and its clients need.

This technology column has covered best-of-breed and build your own software: law tech incubators nestle somewhere in the middle and deliver two key benefits:

1. Access to the technology company and experts within the incubator who can assist in ascertaining what problems need solving; and recommend how – removing the cost implication for in-house IT teams.
2. Access to innovative technology that has practical uses and has been tested in real scenarios.

The incubator is firmly rooted in technology and automation to respond to the demands and needs of a firm’s clients. It can act as a sounding board with IT experts with the knowledge and experience of working with lawyers, so it has the skills to gather the insights and knowledge to design a solution. It can also provide mentoring and investment to help speed up law tech development.

Although incumbent IT companies have a substantial market share of the legal technology sector, many truly innovative products and services are created by start-ups. Funding has been available through traditional investment channels; and some larger legal firms have set up tech incubators as a place where start-ups can develop products in a collaborative environment with other technology companies, lawyers and clients.

Most incubators involve legal tech providers, most in their early (even pre-sales) stages, applying to become part of an annual class or cohort of companies that reside for one to three months at a firm, to gain real world access to their markets and lawyers.

Big fish, little fish

Incubators are designed to bring great success but require more than just space and positive intentions. A successful incubator must be focused on tackling specific challenges facing firms.

Many assume law tech incubators and accelerators are only for larger firms. However, they allow smaller firms to compete with the big firms by giving them access to powerful research tools.

For example, seven Austrian law firms, including Dorda, Schöenherr and Wolf Theiss (most with fewer than 100 lawyers), grouped together to pool resources and created a shared legal tech hub in Vienna (LTHV).

It has just completed its first incubator cohort. By pooling resources and bringing in the support of local universities and other bodies, the firms created a legal tech resource function they may not have been able to do on their own.

Although Dorda is a leading Austrian firm (with no more than 100 lawyers, devoting fee earner time to creating and running an incubator would have been a strain. By combining with smaller firms, it has the resources comparable to a far larger business.

This desire to redesign legal advice by joining forces to enhance client services and give them a space for human and technical resources and mentorship, signals that the legal field is ready for change.

Just do it

Utilising legal technology is an opportunity for firms striving to improve overall efficiency to adapt to an agile working environment. Successful incubators require meticulous planning and a combination of expertise to access consumer opinion to solve problems. Benefits to the start-up include:

• Opportunity and experience of working within their target market to pilot and improve products and gain a better understanding of how legal services are provided; and where lawyers and their clients benefit from new technologies.
• Consultations with experts and coaches to provide relevant procedural knowledge and start-up guidance.
• Mentors to provide content driven inputs and professional legal knowledge.
• Business model development including roadmap creation, user experience, business coaching, help with presentation and pitches and financials.
• Ongoing support for fundraising, marketing and growth, human resources (HR) and team consultancy, pitching in front of experts within the professional services sector and other sectors to help build the business.
• Legal coaching with customer agreements and brand protection.
• Understand that backing law tech start-ups with money, expertise and other support is a significant commitment. Behind the thinking is a realisation that today’s start-up is potentially tomorrow’s global mega business.

Joining at its inception makes good commercial sense and represents the start of a mutually beneficial relationship. Incubators deliver firms with several benefits including:

Technology

• Expertly developed tech solving a problem rather than developing tech in-house that may not be so refined.
• Improving processes to aid client retention and attraction.
• Fixing a specific problem to the firm or client.
• With cyber risk a key issue, a tech incubator is the ideal forum for experts to collaborate and look for technologies that can help lawyers and clients identify and manage cyber threats, secure data and ensure systems are available when most needed.

Legal issues and revenue

• A start-up requires agreements, protection of the brand’s intellectual property, HR and employment law.
• It may require commercial property, eg a headquarters and, perhaps, multiple offices later on.
• The company may acquire or be acquired and need specialist lawyers.
• To be a showcase of talent and legal services, eg expertise in start-ups. Some of the knowledge will already be in-house.
• Some firms invest financially in start-ups but investments come with risks. Weigh up the pros and cons of an incubator with future plans – both from a client and an infrastructure perspective; and seek advice from a trusted advisor who can act as a facilitator.

Invest time in your own research to understand the incubator in context. For instance, find out how many have been successful; whether real size and scale is the only way to pull them off; and whether involvement will deliver positive impact to a start-up involved with just one firm.

Fourth industrial revolution

Innovation remains top of the agenda because of its importance to clients. There has been a shift in the applications of technology, which some call the ‘fourth industrial revolution’.

Increasingly, training for lawyers will include a law tech component and firms will insist on general legal tech competence. There’s also the changing face of how and where we do business with the rise of a 24/7 consumer culture.

This means firms need to change traditional working practices to survive. Incubators provide a way for them to access skills and expertise they may traditionally have not embraced or, at least, would have struggled to attract.

Law is a relationship business. Using, embedding and developing tech can help to retain clients. Having the technologists of tomorrow on site should pay dividends in this mutually beneficial relationship – but at the heart of it are the clients.

Stephen Brown is a consultant at Lights-On Consulting and IT adviser and consultant to Lodders lodders.co.uk