In the wake of ChatGPT, financing for legal technology has exploded, and startups and law firms that do not embrace AI will fall behind. Investment in legal tech startups reached a new high in 2024, with legal technology being one of the largest beneficiaries of the artificial intelligence startup boom that started last year.
AI-based legal technology, according to investors, has the potential to significantly change how legal firms operate and bill, particularly if it progresses beyond merely automating back office tasks to doing more of the actual delivery of legal services.
Shubham Datta, who oversees the corporate venture capital division of legal software manufacturer Clio, says, “The rush we saw in the first six to twelve months was around contract drafting and using AI to do certain things like negotiations and redlining (correcting documents) back and forth.”
“I’m really interested in and leaning toward things that significantly alter the workflow or help automate some of the workflows that lawyers have, and I’m using AI to power these.” The public release of ChatGPT has raised expectations for what AI is capable of, and while the majority of the money has gone to OpenAI rivals like Anthropic or Cohere, it has also spurred investment in fields like law. By the end of October this year, both the total amount raised and the number of legaltech businesses raising capital had hit a new yearly high.
The legal sector accounts for around one-third of Thomson Reuters’ business, which generates billions of dollars in revenue annually. The company’s CVC unit has been one of the investors actively investigating the application of AI in this field. According to Thomson Reuters Ventures managing director Tamara Steffens, “applying models and AI to our content really kind of sets us apart.” “For us, the timing is ideal.”
The portfolio of Thomson Reuters Ventures includes Spellbook, which uses AI to examine and produce contracts, and Wisedocs, which developed a platform for summarizing medical documents for damage claims. Priori, an online marketplace for legal experts, is the subject of another investment. Since the 2011 debut of the core platform, an AI technology called Scout has been developed to automate the management of law firm panels and communication with outside counsel.
“I would say that Spellbook is currently one of the best legal assistants available, and it’s probably the best legal drafting tool on the market,” Steffens says. AI is also being used by Primori in a variety of contexts. If you are a big tech firm and you need a specialized lawyer who knows something about, say, the Port of Louisiana, you can actually find a lawyer who understands that. Priori provides the tool to in-house counsel and lawyers.
Legal technology has advanced because, although very large language models are useful for a variety of creative tasks, such as writing copy or creating images, they are ineffective in fields like law, which require highly specialized knowledge and cannot tolerate the mistakes or hallucinations” that generative AI is prone to. Because of this, there is now room for specialized startups that can operate with accurate information and frames of reference, especially in certain areas of law.
