“I just use ChatGPT, it’s really good.” I was chatting with a lawyer we’ll call Mary. She’s the assistant general counsel of a late stage fintech. Mary knows all about Harvey and Legora, but she’s not interested.

ChatGPT already does everything she needs. 

Lately, I’m hearing from more and more lawyers like Mary. They’re bypassing the hyped legaltechs and going straight to ChatGPT and Claude. 

For VCs that poured a fortune into legaltech, this is a huge red flag. 

A Torrent of Capital 

Hundreds of millions of dollars have poured into legaltech in the last couple years. Harvey recently raised $200 million at an $11 billion valuation. That valuation is around 50x their current ARR. 

Legora raised $550 million at a $5.55 billion valuation just days before. Legora is also valued at around 50x revenue.

This is an incredible amount of money pouring in at extremely high valuations. 

Meanwhile, public SaaS companies trade at 4x revenue. Harvey and Legora are growing much faster than those companies. But there’s still a long way between a 50x multiple and a 4x.

To grow into these valuations, Harvey and Legora need to more than 10x their revenue. If growth slows, they may struggle to raise additional capital at these high valuations.

Foundational Models Can Buy More Data and Compute 

To handle legal tasks with AI, you need two inputs: data and compute. OpenAI and Anthropic can outcompete legaltechs on both.

Companies like Harvey and Legora buy legal data and feed it to their models. But OpenAI and Anthropic have more money and can buy more data.

They also have far more access to compute. OpenAI has locked up compute years in advance. 

How do Harvey and Legora beat OpenAI and Anthropic when the labs have more access to the key inputs? 

Legaltechs Can’t Win the Talent Wars

There are some incredibly smart people at Harvey and Legora. But can they compete for talent with Anthropic? 

A handful of top researchers are driving a lot of today’s progress in AI. Anthropic has so much excitement and capital behind it. It can attract talent in a way no legaltech can. 

The best researchers want to work with other great researchers. This means OpenAI and Anthropic hoover up the top candidates. 

ChatGPT and Claude Have the Distribution Edge

ChatGPT and Claude have another advantage: distribution. 

If you’re used to using ChatGPT in your everyday life, you’re going to use it at work too. To get lawyers to use a different tool, it has to be dramatically better than ChatGPT. 

And it just isn’t. 

Wrap-Up

It’s no surprise that base models excel at legal work. 

It’s perfect for an LLM. There’s tons of training data. All the inputs and outputs are text. 

Harvey and Legora just can’t compete with OpenAI and Anthropic for capital, compute, talent, or data. Disadvantaged at every turn and selling an undifferentiated product, legaltechs will fall behind.

I’m not an investor in any legaltech startups. But if I were, I’d be looking to unload a big piece of my position.

The party may not last much longer.

More on tech: 

How One Founder Used Warm Intros to Raise $17 Million

Request for Startups: American-Made Solar, Rare Earths and Next Gen Drones

SaaS Is Cheaper Than Ever — But It’s Not Going Anywhere

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