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Innovating with the Innovators: Law Firms See Value of Working with Startups

With digital technology widely predicted to be a key driver of the Canadian economy in the decades to come, it’s not surprising to see law firms jostling to attract the next generation of Canadian technology companies. In the process of attracting and serving these clients, law firms are embracing innovative changes to their service delivery models, billing practices and use of technology.

This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.

From the major Bay Street players to dozens of niche boutiques, Canadian law firms are more present than ever at the hangouts, co-working spaces and conferences frequented by early-stage startups. At first glance, it’s puzzling to see the resources, including pricey sponsorships, being diverted to a sector where most nascent companies operate at a loss, have a high rate of failure and could rarely afford the standard hourly rates changed by experienced counsel.

However, firms see the growth potential of startups and view them as lucrative long-term clients. At the moment they’re retained, startups provide fascinating work in cutting-edge sectors, and create a vibrant pipeline for the firm’s next generation of clients, according to Matthew Kelleher, a partner at McCarthy Tétrault who is actively involved in serving the firm’s early-stage and established technology clients. Although startup work often begins with business structuring, intellectual property (IP) issues and practical business advice, he expects that startup clients will eventually participate in more substantive transactions, like mergers and acquisitions (M&A) and financing deals, as the businesses mature.

Just like the startup founders that have taken the risk on an unproven business model, lawyers are showing an uncharacteristically high level of risk tolerance when working with these clients. Startups that gain customer traction, raise millions in venture capital and eventually go public are incredibly rare, especially in Canada. Most startups collapse long before they can use the services of high-billing M&A teams, let alone afford them.

But a closer look at the services being offered to cash-strapped startups by law firms reveals that lawyers are not naively hitching themselves to an economic bandwagon. In order to hedge this risk of serving an unconventional and emerging client sector, law firms are experimenting with new service delivery models. The legal services offered to startups are generally low-touch and tech-driven. By embracing technology and automation, firms can serve a large roster of startup clients without diverting resources away from their established clients.

For example, take Nitro, the startup services wing of the venerable 150-year-old firm, Blake, Cassels & Graydon. Nitro, which is headed by Marc Shewchun, a veteran of celebrated Canadian startup Wattpad, offers clients access to a range of Blakes partners and associates more accustomed to addressing the financing, tax and IP needs of established public companies. But for day-to-day legal tasks, like minute book maintenance, corporate changes and equity management, Nitro clients are steered toward industry-leading legal technologies that can meet their needs.

Each Nitro client is given access to a suite of software tools, including Ownr, which generates legal documents, and Carta, which tracks a company’s ownership structure. Lawyers are provided with electronic notifications about their clients’ use of these tools, and lawyers can always review or override any legal tasks initiated through the software. But the intention is for many routine tasks to be completed through client-facing self-service technologies, which provide a unique client experience and save time for lawyers and clerks.

Similar approaches are being undertaken in the emerging companies practice at McCarthy Tétrault, where Ownr is being implemented alongside Closing Folders and Kira Systems, two other legal technologies that were developed in Toronto. At Fasken, their startup lawyers were directly involved in building a proprietary suite of legal automation tools called ViaFasken. All are looking for the right balance between self-serve technology and light-touch legal advice.

The light-touch approach works because the bulk of an early-stage startup’s legal needs are fairly routine. By embracing emerging technologies to handle these routine tasks, lawyers’ time with startup companies is spent sparingly and on focused strategic advice. With the right long-term strategy, the hope is for the firm to be a dominant player as the Canadian technology sector matures and expands. In the short term, startups are benefiting from affordable access to top-quality legal services. The centrality of technology to their law firm is largely seen as a selling point, rather than a downside. The startup sector is used to engaging with technology for all aspects of business management, and most startup founders are oblivious to the novelty of this tech-driven service delivery model.

While some of the most visible innovation with legal technology is happening within firms’ startup practices, changes in the economy may necessitate that this low-touch tech-driven service model extend across practice groups in the near future. This will have huge implications across firms, both large and small. As technology companies stay private longer due to the vast amount of venture capital and private equity funding pouring into the economy, there will inevitably be an increase in routine private financing deals, rather than the highly regulated and bespoke deals undertaken in the public markets. When it comes to demand for legal services in the new economy, firms will have to adjust to this new reality.

The innovative approaches we are seeing with firms’ early-stage clients might become a permanent shift in service delivery when clients have come to expect technology and automation to play a key role in their legal services.

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