Atrium raises $65M from A16z to replace lawyers with machine learning

Let the computers do the legal busy work so attorneys can focus on complex problem solving for their clients. That’s the lucrative idea behind Atrium LTS, Twitch co-founder Justin Kan’s machine learning startup that digitizes legal documents and builds applications on top to speed up fundraising, commercial contracts, equity distribution, and employment issues. For example, one of its apps automatically turns startup funding documents into Excel cap tables.

Automating expensive legal labor has led to a rapid rise to 110 employees and 250 clients for Atrium, including startups like Bird and MessageBird. Atrium only came of stealth a year ago with a $10.5 million party round before going into Y Combinator last winter. Today it announces it’s raised a $65 million round led by Andreessen Horowitz.

In characteristic dude fashion, Kan tells me “I’m pretty stoked about that because of having more resources for Atrium.” The venture firm’s partner Andrew Chen is taking a board seat and famed co-founder Marc Andreessen is joining as a board observer. “I wanted a visionary who’s always going to be pushing us to build something really big” Kan says. General Catalyst, YC’s Continuity Fund, and Ashton Kutcher’s Sound Ventures are also joining the round

With the massive influx of cash, Atrium will be able to develop more internal tools it can use to crank out client work faster than its traditional competitors. “We can ultimately be this platform on top of which you’re building these legal business and eventually other professional services and software services” Kan explains,”They’re all sitting on top of the platform that understands legal documents.”

In more Atrium news, Y Combinator’s leading partner Michael Seibel will join the startup’s board too. And it’s acquired Tetra, a YC artificial intelligence startup that had raised $1.5 million to analyze voice, “to help us build our platform that understands and structures data” Kan tells me.

What Kan didn’t initially mention is that two of Atrium’s co-founders, CTO Chris Smoak and legal partner BeBe Chueh. have left. He later admitted they had transitioned out of the company several months before the new funding. “BeBe wanted to spend time working on family (she just got engaged); Chris and I disagreed on his job role” regarding the definition of the CTO position, Kan tells me. He’ll now be running Atrium with remaining co-founder Augie Rakow, formerly of mega-law firm Orrick, and Kan’s long-term business partner and former McKinsey analyst Nick Cortes.

Justin Kan (Atrium) at TechCrunch Disrupt SF 2017

The law firm business model has left the door open for disruption by technology companies like Atrium. “Law firms generate revenue from hourly billing, and lack an incentive to vastly improve efficiency” Chen writes. “Many law firms dividend out all their profits at the end of each year, making it hard to invest in the expensive investment of building software. Software is hard to build inside a software company, much less a law firm”.

But Atrium is an engineering company with a legal clientele. It takes the most common and time-consuming activities — often related to ingesting mountains of documents — and builds machine learning workarounds. Atrium’s lawyers can focus on advising their clients on what to do, rather than burning the midnight oil doing it as they look for tiny quirks in the paperwork. The legal services get faster, cheaper, and more predictable so Atrium can offer upfront pricing. It’s been using fundraising workshops and other educational materials to drum up leads.

For now, Atrium’s tech is limited to a narrow band of use cases. But “over $300 billion is spent per year in the enterprise legal market” Chen writes, so there’s plenty of room to grow now that Atrium is well capitalized. It will have to convince big corporations to ditch the old way and let computers lend a hand. Luckily, Atrium isn’t a SAAS company forcing clients to use the tech themselves. Done right, they shouldn’t even know that it’s machine vision software, not junior associates, pouring over their docs. It will have to out-match fellow legal tech startups like Ravel, CaseText, Judicata, Premonition, and more, though they’re often just tools rather than software-equipped law firms.

Kan also cops to his lack of experience in legal. “I think for any full stack vertical startup started by a non subject matter expert (ie. me who is not a lawyer), there is a risk that you come in and are very prescriptive on how things work. Then you build software that says ‘the providers must do it this way!’” Kan tells me. “But the practical reality is that it doesn’t work with the nuanced, non-linear workflows that providers already have. So the technology doesn’t get adopted and fails to provide value. That to me is the biggest upcoming risk.”

Justin Kan, from lifevlogger to legal giant

Yet if Atrium can ease clients into this new world service by service, it could generate network effects that fuel the whole business. It’s just a matter of prioritization. “One of the things I always need to be focused on is…focusing. That’s sometimes a blindspot.” From Justin.tv to Twitch to its acquisition by Amazon to his role as YC partner, Kan delivers but can be frenetic. “As an entrepreneur, I have a tendency to take on too much.”

But after leaving YC because “I had felt like I’d stopped learning”, Kan has found the legal space so full of knowledge and opportunity that it can hold his attention. “Part of why I like this business is because it was so different. I didn’t think it was something that would be as easily competed with” Kan recalls. “I had this calendar company and Google came out with something similar. I told [Twitch co-founder] Emmett ‘We have to do something no one can compete with. At least Google will never do this’. Then they did.”

But unlike with that game streaming startup, Atrium doesn’t have to worry about beating or getting bought by some legal tech giant. Instead, it wants to become one.