General counsel are increasingly feeling pressure from management to keep legal costs down and to manage the predictability of costs the company does incur, according to Burford Capital chief investment officer Jonathan Molot.
That, he says, is driving demands by GCs for their outside law firms to change how they deliver and bill for their services. And, combined with an uptick in the level of competition among law firms, turning to outside capital to compete could be a major advantage, he said.
“Law firms are cash-in, cash-out partnerships, they’re not structured to bear risk,” Molot said. “The pressure from clients on law firms to come up with alternative billing arrangements in which they do bear risk, and pressure on law firms to maintain high annual earnings creates an environment where there’s a need for third-party capital.
Imagine, Molot said, if each employee at Google had to take a pay cut to fund the company’s research and development, and it was not clear the employees would have an entitlement to the future revenue that R&D created—Google would “way under-invest.”