Why City law firms should be watching Norm Law

Norm Law has announced mandates from Blackstone and Coatue in the space of a week, in a sign of how the AI-native law firm is starting to make inroads into the traditional Big Law market.

The New York-based firm advised Blackstone on its investment in AI chip company Etched's $700 million financing. On the same day, it revealed it had advised Coatue on a $100 million funding round for healthcare AI company Cadence.

Norm Law is still relatively new, and there is an important caveat: both Blackstone and Coatue are investors in Norm Ai, the technology business behind the law firm.

But its progress is worth watching, not least because its model offers a look at what an AI-native challenger to traditional City law could look like.

Building an AI-native law firm

Norm Law calls itself the world's first AI-native full-service law firm. Under its model, AI agents do much of the underlying work, with senior lawyers supervising and refining the output.

It also takes a different approach to pricing. Norm says it prices matters based on outcomes under what it calls a “client-aligned incentive structure”. No billable hour here.

The firm is powered by Norm Ai, an AI platform that has raised more than $260 million and was valued at $1.2 billion in its latest funding round in July. Its backers include Blackstone, Bain Capital and Coatue.

Norm Law has also been hiring heavily from Big Law.

In July, it recruited John Budetti, a long-time investment funds partner at Kirkland and Paul Hastings, as a partner and co-head of global private capital funds. Former Sidley Austin executive committee chair Mike Schmidtberger is chairman, while former Ropes & Gray partner Bill Mone is also on board as head of private equity.

The combination is compelling as a business proposition: use outside capital to invest heavily in technology and recruit senior partners from established firms who bring relationships and judgement, with AI doing more of the work traditionally carried out by junior lawyers.

Could it work in the City?

The model is particularly interesting from a UK perspective, where the rules around law firm ownership are much more relaxed. Norm deals with the stricter US rules by keeping the technology business and law firm separate, with investors backing Norm Ai rather than the legal practice.

Certain areas of private capital work look well suited to the model, particularly repeatable, document-heavy work like fund formation - as evidenced by Kirkland’s recent AI partnership with Palantir.

Private capital client relationships also tend to be more personal than other areas, which should make it easier for new talent to bring work with them.

Big Law firms have benefited enormously from the growth of private capital over the past decade, but there are signs of frustration with the legal fees that have come with it.

Earlier this year, the body which represents investors in private equity funds publicly pushed back against rising legal costs in fund formation work. Its recommendations singled out the billable hour and also indirectly highlighted the huge profits being made by Kirkland, the dominant firm in the funds market.

An AI-native firm able to combine experienced lawyers with a lower-cost delivery model could offer an alternative.

A new model

In the UK, there are already similar businesses emerging elsewhere in professional services.

Big Four challenger Unity Advisory launched last year with $300 million of backing from Warburg Pincus. It is led by former PwC UK managing partner Marissa Thomas and former EY UK chair and current DWF chair Steve Varley.

Former EY executive Jeff Soar, who previously led its global law business, is meanwhile heading up WTS UK. The wider group has €500 million of backing from Swedish private equity firm EQT and is also putting AI at the centre of its model.

It seems more like a question of when, rather than if, we see something similar arrive in the City legal market.