The Legal Tech Bubble Paradox

Why the data says otherwise (and what it really means)

Adrian Parlow

July 17, 2025

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

Legal tech headlines have been flooded with one word lately: bubble.

  • Business Insider warns that AI tools like Harvey are creating a frenzy among VCs.

  • Bloomberg says the boom could be peaking.

  • NuvaLaw asks the big question: are we looking at gold or a bursting balloon?

But Artificial Lawyer just published a piece drawing from new Raymond James data, and the story it tells is more measured.

Here’s the big takeaway: when you strip away the hype and mega-rounds, this doesn’t look like a bubble at all.

In fact, the numbers show something closer to a mature, logical correction, not a frothy, irrational one.

In this week’s Attorney Intelligence, we’ll explore:

  1. Why removing Harvey’s raises reframes the entire legal tech funding picture

  2. What GenAI changed about the speed and scale of startup success in law

  3. How to spot the difference between hype and healthy growth

  4. Why focusing on explosive traction is smarter than chasing funding

Let’s get into it.

Surface-Level Panic

Let’s get this out of the way: $600M in two Harvey rounds will skew any chart.

But when you remove those two outliers, total legal tech funding in H1 2025 looks pretty normal. Actually, it looks conservative compared to other hot sectors coding assistants.

Deal volume is steady. Round sizes are mostly proportionate to GenAI's upside. And while today’s valuations dwarf the pre-2020 era, they’re still well below the 2021 COVID spike.

So why does it feel like we’re in bubble territory?

Because the narrative flipped fast. Three years ago, most VCs wouldn’t touch legal tech. Now it’s one of the most compelling verticals in AI.

That relative shift feels dramatic but it’s not the same as irrational excess.

The View From Inside the Arena

Talk to legal tech founders, and the tone isn’t particularly anxious. In fact, it’s energized.

Five years ago, it was nearly impossible for a pre-Series A startup to land Am Law100 firms. Today, it happens because the tech is finally good enough to make massive jumps in value.

That’s what’s fueling these rounds. Companies reaching $20M in ARR within 3 years is less a sign of a bubble, and more a sign of a shift in what’s possible.

Founders aren’t raising just because Harvey raised. They’re raising because the opportunity velocity has hit the sector and customers are finally saying yes.

What Law Firms Should (and Shouldn’t) Take From All of This

There’s a trap here for buyers. Some firms are starting to treat big funding rounds as a shortcut for validation: “They raised $100M, so it must be good.”

But that thinking is risky. Just because something is well-funded doesn’t mean it’s enterprise-ready, or aligned with your workflows.

On the flip side, firms that ignore these new players entirely risk missing the fact that this generation of startups is shipping faster, onboarding faster, and solving deeper problems than their predecessors ever could.

So what’s the move? Evaluate outcomes, not optics.

  • Is the tool helping your team deliver better results?

  • Can it scale with you?

  • Does it understand your needs?

These questions matter more than who just closed a Series B.

The Real Risk / Bigger Opportunity

If there is a bubble risk, it’s not investor losses, it’s buyer disappointment.

If overfunded, over-promised tools underdeliver, firms will lose trust in legal AI altogether. That would set the industry back.

But if the tools perform, and many already are, then we’re looking at something far more powerful than a bubble: a step-function shift.

With these transformational leaps happening in the industry, explosive growth is what really matters.

With explosive growth the money chases you. And right now, there’s more explosive growth potential in legal than ever before.

More of a Correction Than a Bubble

What we’re watching isn’t the inflation of a bubble but rather the recalibration of a market that was historically undervalued.

Legal is no longer a tech backwater. GenAI unlocked use cases that were previously impossible to solve. That shift deserved a reprice and now it’s getting one.

The smart firms won’t panic at the headlines. They’ll ask better questions. And they’ll use this moment not to pull back, but to double down on tools that actually work.

Legal Bytes

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Axiom study finds 66% of lawyers are using raw chatbots instead of verticalized legal AI tools

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Industry news and insights on the future of legal AI, delivered weekly to your inbox.

Industry news and insights on the future of legal AI, delivered weekly to your inbox.