In a rare move for one of New York’s elite Wall Street firms, Cleary Gottlieb has made a minority investment in legal tech startup 10BE5, which helps lawyers to complete prospectus documents by automating part of the financial disclosure drafting process.
While we have seen US firms such as Latham & Watkins and Orrick invest in ‘app store’ Reynen Court, and Wilson Sonsini invest in Lexion, the doc analysis system, the more traditional New York-based law firms have tended not to take stakes in legal tech startups. So this move is quite significant.
But, what is 10BE5 and why did Cleary come in as a minority investor? Artificial Lawyer caught up with the founders, John Kwan and Mohamed Taha (pictured below), to find out some more.
First it has to be noted that Kwan was an associate at Cleary for six years and Taha still works at the firm. The 10BE5 project also started there and was incubated inside the firm. However, Kwan stressed that this is not a ‘Cleary only’ startup and several major law firms, including some Magic Circle firms, are already using the prospectus drafting application.
Now to the company and what it does. The current focus is on a particular product they are calling N2N, which is designed to help lawyers take the raw financial data in Excel format that is needed for debt or equity prospectus creation, primarily in relation to disclosure requirements, and through a series of Q&A steps and automated document creation turn it into a nearly finished product.
This speeds up the process and also helps to ensure lawyers don’t miss key numerical data out, or its relevance to the prospectus. As Kwan explained, lawyers are not always the best at dealing with numbers. But, when any company does an IPO, the SEC demands that the prospectus is verified, and this task falls to the lawyers.
The lawyers doing this work are handed plenty of financial data and are expected to present this clearly for investors to read and also to add a text narrative to key parts of the financial analysis, flagging up reasons for any unexpected items or changes, such as not meeting previously set growth KPIs. As one can appreciate, this is not the kind of thing you usually learn how to do at law school.
The system also helpfully enables you to avoid duplicating data, or missing any, then automatically lays it out (see below). But, it also creates the text narratives and highlights areas that you may need to go back and check with the client – which is a great time-saver and a risk reducer.
What inspired this startup? Kwan explained: ‘Our motivation was straightforward: we were looking for ways to use technology to help us do our jobs better and make our lives easier. What we found is that, whilst there are a lot of solutions on the market, very few actually tackle core legal work such as the bespoke drafting that we do.
‘Because of this focus, our products require extensive legal input and we are really fortunate in this regard to be able to draw on Cleary’s expertise and practice experience.’
The point about needing legal input is abundantly clear, and one could not really see someone who had no first-hand experience here ever thinking: ‘Hey, I see a gap in the software market!’ You’ve really got to have been hands-on with this kind of very technical legal problem to get the inspiration for a solution to it.
Meanwhile, fellow founder, Taha, added: ‘As a capital markets lawyer, I found it frustrating that I often have to spend a lot of time on tasks that a machine could frankly do better and quicker (as N2N illustrates). What we are trying to do at 10BE5 is to automate those mechanical tasks and let lawyers focus on the work that really requires their skills and training.’
And the brand name? Why 10BE5? Kwan explained that this is because 10-B 5 is a core part of the SEC’s rulebook, but also the idea is that by using their system you can reduce 10 hours of work down to five hours.
Kwan also noted that the system is at present not operating on a cloud basis with the law firms that are using it now, and is installed locally instead. That has greatly helped with passing security requirements.
It’s another great example of lawyers seeing a problem that is eating away at time and leaving them open to risk, and then coming up with a tech-based solution. Good luck to the team, and congrats to Cleary as well for backing this.