Inside the battle in legal tech to 'OpenAI-proof' its business

In a rapidly evolving legal tech landscape, several startups are making headlines this week after securing new funding aimed at creating solutions that can effectively stand against the rise of AI technologies like those from OpenAI. These innovative companies are focusing on tasks such as contract review, agreement drafting, and generating demand letters, all while navigating the challenges presented by general-purpose AI tools. As AI becomes increasingly capable, there’s growing concern among investors and analysts regarding the future of legal tech startups. Many junior lawyers are reportedly turning to AI tools such as Claude to draft memos, and law firms are investing in ChatGPT licenses. This anxiety intensified recently following OpenAI's announcement of internal tools designed to assist in contract and sales processes, prompting speculation about whether OpenAI might eventually compete with the startups it has been empowering. Despite these concerns, OpenAI has yet to publicly release many of these tools and has a vested interest in the success of legal tech. The organization was an early investor in Harvey, a company that now provides essential tools to a significant number of the top law firms in the country. However, the fear of competition has already had an impact; news of OpenAI's internal initiatives coincided with a notable decline in DocuSign's stock, sending ripples of uncertainty through the software sector. To distinguish themselves, legal tech companies are focusing on niche markets and specific applications where they can outperform a general-purpose AI. For instance, Ryan Daniels, CEO of Crosby, emphasizes that his company does not merely sell software for contract review; instead, it performs the service directly, utilizing large language models to speed up the review process for legal teams. Crosby recently announced a significant $20 million funding round led by Bain Capital Ventures and Index Ventures, highlighting strong investor interest. Meanwhile, EvenUp, another prominent player in personal injury law tools, disclosed a substantial $150 million Series E funding round, while its competitor, Eve, secured $103 million in Series B funding. Additionally, Spellbook, a tool focused on contract drafting and analysis, raised $50 million in a Series B round. The company believes that its specialized approach, which centers on mastering contract review, will give it an edge in the market. While some industry figures acknowledge the potential threat posed by AI advancements, they also point out that clients typically expect specialized knowledge that AI may not provide. Jennifer Berrent, a former WeWork lawyer, remarked that although major tech companies like Google could potentially develop similar tools, they cannot do everything, and OpenAI will need to strategically choose its battles, particularly in the legal tech arena. As the landscape continues to shift, the success of startups in the legal tech sector hinges on their ability to carve out unique niches and deliver specialized solutions that AI cannot easily replicate.