Vanilla, Meatballs + Cooley’s Flat Fees – with David Wang

Cooley’s fund formation platform, Vanilla, is now offering a key element of its work – transfers – for a $495 flat fee. AL talked to Head of Innovation, David Wang, about how pricing should be all about outputs rather than inputs, the changing legal market dynamic, and the analogy of Ikea’s meatballs.

In the short interview we unpack a lot, but the key points are as follows. Vanilla is a dedicated platform built by Cooley to provide legal help and productized services for fund formation – an important area for the California-based firm. But, it’s also where not every element of that work needs a full team of their lawyers, nor a billable hour model.

In fact, as noted above, some components of this legal work can be sold to clients on a fixed fee for as little as $495. And that’s not a lot for a firm like this, given a junior associate might bill that for one hour of work.

AL and Wang explore some of the key aspects here, which include:

• Why do this? Is this a ‘loss leader’? Or perhaps this is a type of subtle ‘incentive’, like the way that Ikea also serves up reasonably priced meatballs inside its furniture stores, but the goal is of course to get you to come back to buy more higher value goods?
• Can Big Law successfully offer bifurcating product lines, e.g. expensive human support for complex legal needs and at the same time productized legal documents at relatively far lower, and fixed, prices?
• David’s analogy of the airplane, i.e. a modern airliner is made of 1000s of parts. Some parts are expensive and some are not, but all are critical to the operation of the aircraft. Naturally, airline companies want all the parts there, but probably appreciate the fact that not all parts have luxury level price tags.
• Does pricing create a new market dynamic? E.g. if the NewMod / AI-first firms are offering fixed fees and fast delivery of key legal work, does Vanilla provide competition to that? And do rival Big Law firms now become compelled to do something similar, if not already, and if running this type of offering do they feel the need to expand it?
• And as AL notes, if all of the billions of dollars in investment into legal tech and AI over the last decade have resulted in no real change at all to the output price of ‘legal products’, then have we had any meaningful impact at all?

Overall, changes to pricing unleash incredibly powerful forces within any market. Moreover, lower output prices don’t necessarily mean poorer lawyers. Price shifts can change demand and the volume of purchases – and that can drive up profits. Lower output prices can sustain high profit margins if production costs – i.e. inputs – are also lower. New prices change customer behaviour and loyalty, and as noted above can incentivise purchases of higher value goods.

In short, fixed fees and productised services do not mean Big Law lawyers with less PEP. It’s just a more complex model than adding 5% to the billable hour every year and filling in time sheets for the manual work performed. Moreover, also as explored, the two can operate in unison.

Any road, legal economics – the foundation of Artificial Lawyer’s interest in legal tech and AI – is an area that is becoming more and more central to the conversation. Ironically, legal tech is neither all about the law itself, or just technology.

To watch the video please press Play, or you can go to the AL TV Channel.

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Below is an AI-generated transcript of the discussion.

Hey everybody, Richard Tromans here again, Artificial Lawyer TV doing a special interview today with David Wang from Cooley, ⁓ a legal innovator who you know well. ⁓ Today we’re gonna talk about Vanilla You may have seen some press on that already. We’re gonna dig into this. ⁓ David, good to have you with us. Tell us, what is Vanilla?

David (00:00:33)

Yeah, thank you for having me. ⁓ Vanilla is a proprietary platform that we developed here at Cooley that we use to support ⁓ our industry-leading fund practice. So for those of you that don’t know, ⁓ Cooley, our fund practice, has about, I would say, like maybe two-thirds, maybe even 75% market share in the VC fund space. And increasingly we’re also serving bigger funds in the PE space as well.

And so this is something that is not like a side project, it’s how we run our front practice. So we just recently crossed the threshold and help our clients close $100 billion worth of fund closings on the platform. And so because there’s so many funds on our platform, our clients were having this problem where their LPs, their limited partners, need to transfer their fund interests, right? And these ⁓ limited partners are not our clients, right? But

We built a feature to facilitate this transfer and then we are also rolling this out with fixed pricing at four ninety five, which is not something you hear every day from big law, of course.

RT (00:01:38)

Yeah, absolutely. So, it’s, uh, and worth pointing out for people who don’t know that vanilla has existed for a while. It didn’t, it didn’t, um, get created last week. This is, this is not a completely new thing. Just, just talk us through a little bit of the history and then we’re going to talk about pricing.

David (00:01:53)

Yeah. ⁓ We built vanilla originally because the fund practice was one of the least automated, but it had this very complex process of like essentially coordinating between the GPs and LPs in the fund process. So at Cooley we were kind of first in the industry to establish that. And of course, like any platform, you know, ramp up, ramp up, ramp up. And then all of a sudden we look back on ourselves now and we’ve crossed the like one hundred billion threshold. So now I think we’re something like fifty thousand LPs on there.

RT (00:02:23)

So when did, ⁓ just ⁓ out of interest, when did vanilla, when was it, what year was it created?

David (00:02:31)

this was like ⁓ I wanna say like twenty twenty thereabouts. I don’t remember exactly when we launched.

RT (00:02:38)

Gotcha, gotcha. But yeah, it came out of the great work from home period, which we won’t talk about. yeah, gotcha. Okay, well, let’s talk about the, you might say the dynamics, the economics of it. So $499 for a particular piece of work on this platform, effectively a fixed fee, we can say, goes against what a lot of Big Law does. Just talk us through why did you

go for a fixed fee, first of all.

David (00:03:11)

Yeah, I think the ⁓ right now I think we’re all kind of hearing constantly like AI, AI, AI all day. Right. And I think I’ve always been more focused on how do we actually deliver value to clients and how do we actually make real changes in the legal industry. Right. And to me, this is the beginning of like the separation from input to output and really kind of like valuing ⁓ our something that we deliver according to what it should be.

Because you know, most of the time what we’re doing is elite high-end services that are valued a particular way. And the thing that I always say is that like, does your lawyer know the difference between something that actually is worth a lot versus something that just takes a lot of time to produce and is actually not worth that much? Right. And just starting to make that difference. And part of this is us demonstrating ⁓ to our clients, again, who are

Not actually the LPs doing the transfer, but the general partners, like your A6C and Z of the world, right, that use this platform, that hey, we coolly recognize the difference between these two things. And just because you know we charge ⁓ X dollars per hour for this elite service on this one hand doesn’t mean that like these routine things that are just a nuisance for our clients that we can’t handle that for you, right, in an efficient and economically sensible way.

RT (00:04:38)

So how did you get to 499? that, was that just, it’s like an indicative price. It’s kind of like, you’ve got to charge something. You sat down with a slide rule and you kind of worked out your base costs and electricity and,

David (00:04:53)

Yeah, I I you know ⁓ the a Fording it’s really ⁓ there’s this I don’t I don’t know if folks are familiar with there’s this ⁓ thing that Basil’s talks about that I really like called like one-way door, two-way door. ⁓ I think in the legal industry and law firms in particular, people are very hand-wranging about pricing, right? And I think this is a confusion between like one-way door and two-way door. And a one-way door is like a

RT (00:05:06)

Mm-hmm. ⁓

David (00:05:21)

really hard to reverse difficult decision. And you know, kind of basil’s pro popularized this thing is like for those decisions, you should be like thinking very hard about them, like really carefully making the decision. And then there are things that are like two way doors. Like you can walk through a door and then you can walk back through a door. And it pricing is a two way door. It’s not a one way door, right? And so, you know, we just pick something that we think makes sense, that we think would approximate

what it would be in the market. It’s significantly less than what any of our competitors would charge for it. And because we have such a high degree of automation, we think we can make it work. And then we want to try it in the market. And if it’s incredibly popular, like we’ve already been inundated since ⁓ launching ⁓ I think on Monday. And then maybe we go, okay, you know what? Maybe 495 is too low and then we can change the price. But if people still complain

about four ninety five, then maybe we can look at it. But we need to charge something because you know we don’t we need the right economic incentives, right? It’s not like we’re gonna make a bank on four ninety five. ⁓

RT (00:06:23)

Yeah, I’ve to charge something. Well, yeah, mean, then we get into some really, yeah, I mean, you get into really classic market economic things, don’t you know, elasticity, supply, demand, you know, sort of, sort of market benchmarks that are sort of formed almost sociologically, you know, why are certain things at a certain price, they just sit there.

it becomes like a shared truth, even though there’s actually no logical reason why something costs 500 or 700. It just becomes, well, that’s what you pay, right? I mean, it’s a fascinating one, isn’t it? Because of course, if you’ve got a ton of demand, you could keep dropping the price ⁓ and wait until the demand just went completely crazy.

It depends, it? I mean, this is the thing, isn’t it? mean, ⁓ law has, as we all know, has been artisanal. You’re producing a work of art that is ⁓ extremely valuable. ⁓ It’s had a lot of efforts. And so the price is really, it’s for the seller to set the price. This is a very, different dynamic because you’re productizing something.

David (00:07:35)

Yeah. And I think this is the beginning of a conversation, right? Because I think for pricing, what we’re trying to signal to our clients is look, pricing is a partnership. Let’s have a real conversation, right? And the most important thing for me in terms of what I want to communicate to our clients on pricing is that we want to demonstrate in a really public and meaningful way that coolly we understand the difference, right? That

There are some things that are routine and there are some things that are premium. Our business is focused on the premium, right? And then let’s have a real conversation about what that means in terms of integrating efficiency, integrating AI into the conversation. It’s, ⁓ you know, this is just the beginning of the conversation. And I think we’re already seeing that with our customers that are recognizing, ⁓ wow, right? Like these guys get it. A lot of firms are talking about it and hinting at it.

But you really don’t see much action. Like one of the most common things I hear from general counsel is that all all the law firms are saying they’re doing AI things, but like, how does this actually flow back to my benefit? And we’re trying to demonstrate across the board. I mean, this is obviously the most visible because it’s such a large scale thing that we can put a fixed price tag on it. But you know, we welcome kind of this partnership and conversation with our clients because

it’s only gonna actually work in the market if we establish like a win win win with everybody.

RT (00:09:07)

Yeah. Yeah. I mean, it’s, it’s, an interesting one that isn’t it particularly because the, we’ve got all these new AI first law firms, new mods, as I like to call them, you know, hitting the market and they’re trying to do pretty much everything on a fixed fee and they’re trying to turn it around. They’re using tons of AI, you know, goes with the name. I mean, as you mentioned off camera earlier, this particular slice of the platform isn’t necessarily an AI product itself.

an AI output, ⁓ but maybe it doesn’t really matter. Maybe the technology is actually a side issue. Maybe the AI thing has just got us talking about this. mean, the real issue, going back to your earlier point, is the output, right? It doesn’t matter if it’s deterministic or probabilistic or a combination of the two. If you can get the production costs down to a very, very, very low level, then you open up all kinds of opportunities for the output price.

David (00:10:03)

Exactly. Right. And I think ultimately, like, what is the value to the client? Right? Like, cause it’s like the thing that really, in my opinion, should always be driving the behavior as a service provider is like how do you actually deliver ⁓ the most value to your clients? And I think, you know, with new mods and kind of new entrance into the market, like they’re just throwing things at the wall and seeing what sticks, like any startup would do. Right.

I think we have a lot more data and we have a lot stronger relationships with our customers to have these conversations, but you have to do the thing, right? And so that’s the th I think where like it stops for some at the water’s edge, is that a lot of law firms are starting to try to innovate. You know, having been in this game for a while now, it’s great to see the level of energy and activity coming into the market. But, you know, on the other side of it, if you don’t actually change

The delivery, like what have you really changed? Right. And so that’s really, I think, the question that’s facing us all in our

RT (00:11:07)

yeah.

RT (00:11:11)

Well, totally. mean, you could argue it doesn’t matter if a law firm has, you know, 25,000 staff to produce X or five people and an AI. If the net result is exactly the same price and the quality is exactly the same on a sort of macro level, nothing has changed. You’re just employing a lot of people, right? One of those businesses has a far larger profit margin than the other one.

David (00:11:29)

Yeah. ⁓

RT (00:11:37)

But again, that’s the law firm’s business, right? You could argue that who cares, right? If a law firm wants to have a tiny, tiny leverage and lots of AI and retain most of the profit, or it wants to have a gigantic leverage and charge through the nose for every single one of its associates, ⁓ so be it. ⁓ The interesting bit though, there’s so many different aspects here. So it’s like, you in many, many cases, ⁓

where a company is able to drop its production costs, it aims for volume, right? ⁓ And then usually it ⁓ becomes a separate business, right? So like the people who make fine champagne in France could also have a soft drinks company where they sold soda for a dollar a can, right? And hundred dollar bottles of champagne. But it’s unlikely that they’ll do that, right?

David (00:12:30)

Yeah, I think it’s it’s interesting, right? From a s ⁓ service perspective, you also have the counterexample of like where you have a you need to provide an integrated solution, but it also spawns off these smaller problems, right? It’s like, you know, like I think of them more like from a airplane airplane manufacturing perspective, right? So like you can take there’s a series of decisions essentially when you make an airplane in terms of like which parts do you like

you know, ship off an offload to a third party vendor and which parts control. And then there’s this kind of like overarching quality control. Right. So from our perspective with something like vanilla, it’s really that like our business is at its core ⁓ serving these elite funds and all of their elites in terms of their fund formation. And it’s transfers is like a component, right? That is just like sand in the gears, but like it’s could be a critical component.

Let’s say like it’s actuator on the wing, right? And you kind of have to make these decisions about like, well, do I like let that slip into something that’s not as good in terms of service quality that we would demand for the rest of the plane? And sometimes it may not matter, maybe like it’s the coaster inside on the seat that you can like, you know, put to a third party. But let’s say it’s a component on your landing gear.

RT (00:13:30)

Ugh.

David (00:13:56)

Right. Like your job is to make sure that the whole plane works and can safely function. You may not want to outsource that. It’s to me more of like a quality thing. And then it’s like, well, you have to do this at scale because there’s lots of these little actuators and things that need to go into the landing gear. And then so like

RT (00:14:12)

But so is it then a bit like a loss leader? It’s almost like cultural buying. It’s a bit like meatballs at IKEA. I don’t know if you have the IKEA meatballs experience in the US, you you get these cheaper, but good quality things pretty much on the basis that you’re going to buy all these other things, which are far more expensive. And if you don’t buy all, I mean, some people will come in and take the meatballs and go home again.

Right. You just, have to work that into the equation, but you’re hoping ⁓ that I won’t just come from the meatballs. They’ll come from the rest of it. Right. I mean, that’s, ⁓ it’s an interesting one, isn’t it? Because you know, mean, Loft Big Law has been doing loss leader type work to some degree for a while, ⁓ or at least what they used to call value added back in my day, where they would take a bunch of associates and they would spread them around their key clients and effectively give them as a free gift.

to the clients. ⁓ So effectively giving away value on the basis of those people, those clients would keep working with that law firm. I mean, ⁓ is this a much more sophisticated form of that?

David (00:15:23)

Yeah, I think the it will ⁓ time will tell, right? I the things that we know for sure is one, there is absolutely value in this. And that two, we are delivering more value to our clients than we did before. And then the third question, which is not answered, is, well, what does that mean? Is it meaningful in terms of increasing our the business that we care about? ⁓ Or, you know, is it just more trouble than it’s worth?

I mean that’s the spirit of innovation that you have to experiment and try to figure these things out.

RT (00:15:56)

Yeah. I mean, but also it comes down to competition, doesn’t it? mean, competition is the, you know, the mother of all invention. The, you know, if, you edge a little bit this way, I mean, one of your rivals edges a little bit that way and you start to get this dynamism. And then it’s like, well, I’ve got to, could use Coolio or I could use ABC law firm or, you know, XYZ new mod. And, you know, I’m kind of leaning towards Coolio because I like what they’re doing with the meatballs. The meatballs are really, really, I like that. I like the approach.

You know what? ⁓ I mean, I’ve worked with Kula before and the meatballs, that’s it. I’m sold. ⁓ And the other two, ⁓ the new mod and the rival Big Law firm are just like, man, we’ve got no meatballs. What are we going to do?

David (00:16:41)

I think that’s the thing is they’re all meatballs.