Bringing new technology to the legal field has been difficult historically. This is because legal work relies heavily on complex legal language. However, recent advancements in Large Language Models that have increased language writing and understanding abilities have sparked a wave of interest and investment ($700 million in startup funding since early 2023).

Technical solutions like retrieval augmentation, prompt engineering, fine-tuning, and guardrails have emerged to tackle technical hurdles like lack of accuracy, explainability and privacy protections. Despite the breakthroughs in technology, structural impediments persist, such as retrofitting automation to nuances like billable hours and lack of standardization.

Founders exploring the LegalTech sector should consider having co-founders with a deep legal expertise to help in navigating incumbents’ dominance over relationships, data assets and security and to target positioning as partners rather than competitors to incumbents. This is because incumbents are consolidating through acquisitions and partnerships rather than building internally, as seen in legal research, document processing and litigation.

Future opportunities may arise in specialized domains like IP and compliance as well as improvements in legal service operations. While generative AI drives momentum, the legal industry’s complexities warrant caution in terms of partner positioning and segment selection.