Why the old ‘build vs. buy’ dichotomy is breaking down

The ‘build vs. buy’ dichotomy is on its last legs. Law firms—increasingly acting like large corporates or even VCs have found a third path—one that blends investment, partnership, and even ownership in ways that are quietly reshaping legal tech.

Welcome to Attorney Intelligence, where we break down the biggest advancements in AI for legal professionals.

This week, we’re talking about the key shifts within law firms that are driving changes in the AI landscape.

Following the lead of firms like Cooley, Orrick, and Cleary, more law firms are opting to invest directly in legal tech to keep up with competition and the external pressures of the AI boom.

“Build vs buy” is often framed as a binary choice for firms adopting legal tech. But various forms of investment are taking center stage as law firms attempt to leverage their own know-how alongside the expertise of vendors to achieve a superlative outcome.

How law firms are investing in legal tech

Law firms have historically adopted a few common approaches to investing directly in legal tech.

Direct investment

A common play is partner fund investments, whereby partners in a firm pool their capital in a fund earmarked for investments in legal tech. In this scenario, law firm partners play a direct role in making investment decisions, either by appointing a senior partner to be the fund manager or creating an investment committee. Often, these funds are spearheaded by the partners working directly with technology clients, but not necessarily in their emerging companies and venture capital practice.

Another approach has been to make balance sheet investments, wherein the company invests directly in legal tech off its own balance sheet. This can be complex given the partnership structure of firms, but not prohibitively so. Additionally, especially outside the U.S., some firms achieve the same end by spinning up wholly-owned subsidiaries (think A&O’s Fuse or Mishcon’s MDR LAB), which function as de facto venture arms and incubators.

An advantage of these two models: the law firm helps to fund the development inside companies that have the practical and technical expertise to efficiently create solutions.

The drawback, however, is that these investments are often made at arm’s length, putting distance between the attorneys in the firm—who have a keen sense of the tools they need—and the builders, risking misalignment. That risk has prompted other law firms to build certain tools in-house (e.g., Neuron, Compendia, etc). However, there is another form of “investment” which avoids this drawback.

Design partnerships

Often overlooked as an investment, design partnerships achieve many of the same ends. Rather than writing checks, firm leaders and partners invest their time (which, in a law firm, is effectively the same thing). Law firms leveraging this model are able to directly drive the product roadmap, without having to bring vendor expertise in-house.

I asked our friend Kevin at Centari (who was top of mind following their Series A announcement) for an additional perspective on this, knowing that they had also directly experienced the change towards partnerships.

We were of the same mind on this trend. He also pointed out that, for several of their partners, the top-of-mind advantage was not that of shaping the tech, but rather of being the first to deploy it.

“We’re at a unique moment in legaltech history where firms are starting to recognize the benefits of partnering with startups to accelerate innovation. Our earliest law firm design partners helped define the product vision and, in turn, were the first in the market to gain access to new capabilities.”

Earlier this week, at a conference in Santa Cruz, I got an opinion from Fergus, one of the co-founders behind Provision, a team I know to be avid fans of design partnerships. They also had a slightly different take, viewing partnerships not just as a means to build the best product, but also as a means to nurture the company culture they desire.

“When it comes to design partnerships vs traditional sales with law firms, we think that each relationship for us has to be a design partnership. It would be a missed opportunity if we didn’t engage meaningfully with the people living the pain we are trying to solve for every day. What’s more, building our teams and culture to effectively triage ever-increasing amounts of customer feedback as we grow allows us to avoid that common pitfall of moving further from the problem you are trying to solve as you scale.”

Hybrid approach

Firms considering design partnership often realize they might be leaving money on the table. As they think through the success case, two things are true:

1) They have a great product that solves an important problem for them.

2) There is a company that is predictably more valuable than it was at the start of the partnership.

For this reason, a common trend of the past year is for law firms to couple design partnerships with direct investment, allowing them to capture the broader economic upside from their impact on the startup.

Thinking beyond the “build or buy” binary

Technology procurement in large law firms has traditionally been focused on “build” vs “buy” (boutique firms generally only have the “buy” option). However, from investments to design partnerships, to even interpreting “buy” as “buy the company” (e.g., Cleary’s Springbok acquisition), there has been a tremendous wave of innovation—not just in the underlying technology but in how law firms are structuring their relationships with vendors.

The leading alternative model that seems to be emerging is one in which law firms invest directly in a legal startup—whether through high-touch iteration, through monetary investment, or through both—and heavily influence their roadmap. This model sees lawyers and software engineers working in close concert. Lawyers identify exactly which issues need to be addressed, while software engineers, taking cues directly from their investors, can deploy their skills efficiently and effectively.

Build vs buy? Law firms are choosing the best of both worlds.

Legal Bytes

$1.5B Anthropic Settlement Gets Preliminary Approval — A federal judge in San Francisco tentatively approved a $1.5 billion class-action settlement between Anthropic and authors claiming unauthorized use of ~465,000 books to train its AI. (AP)

California SB 53 Advances (Transparency in Frontier AI) — California’s Legislature passed the Transparency in Frontier Artificial Intelligence Act (TFAIA), now awaiting the governor’s signature. (Politico)

Ross Intelligence Appeals Legal Research Copyright Ruling — The defunct legal-AI firm told an appellate court that reversing the lower court’s decision in its copyright case would have “sweeping consequences” for AI innovation. (Courthouse News Service)

Looking to improve your firm's efficiency?

Book a demo to see how PointOne can stop revenue leakage and drive insights across your practice, business, and people.

Thanks for reading, and we'll see you next week.

Katon