When you can combine venture capital with legal services

Artificial Lawyer this morning posted an article entitled: ‘It’s hard to combine venture capital with professional services’ – Atrium Co-Founder, Augie Rakow

The premise taken by Artificial Lawyer from an interview with Augie Rakow was that Atrium didn’t work out because of this combination.

Artificial Lawyer observes that:-

scaling up a law firm from scratch is hard as it generates a lot of costs as it goes.

Is that not true of most businesses that venture capitalists throw money at?

Artificial Lawyer’s conclusion is that:-

injecting cash into a legal business and expecting rapid growth is reasonable, but expecting it to become super-profitable in a short time as well is a big challenge.

What Artificial Lawyer misses is the fact that it was what Atrium spent their venture capital money on that was the real problem. They sought to reinvent, at vast cost, a legal technology wheel that already existed. A cost that could not easily be recouped. I covered this in detail in my post the other day – Atrium: A Post-mortem.

It is only hard to combine venture capital with professional services if you spend that venture capital on the wrong things, as Atrium did.

In the USA they obviously have the regulatory issues that prevent non-lawyer ownership hence the two company structure that the founders of Atrium set up: One a regulated law firm and the other a non-regulated technology company.

In England & Wales where non-lawyer ownership of law firms is a reality under the Legal Services Act 2007 there have been plenty of examples of successful combinations of venture capital with legal services (some unsuccessful ones too of course). Usually with no great concentration on the technology (certainly not building your own) but more on the model and management involved.

You only have to browse through the section on news about Alternative Business Structures on Legal Futures (who have provided great coverage on such changes in the business of law for many years) to see some very good examples.

So don’t let the failure of Atrium lead you to believe that it’s hard to combine venture capital with professional services because that is simply not the case if you do it right.