How AI is transforming legal tech — and DraftWise leads the way

 Bek Ventures has led the pre-series A round of DraftWise - a legal tech startup transforming how lawyers draft and negotiate legal documents using state-of-the-art AI.

DraftWise transforms legal work with specialized AI and already serves the who-is-who of global law firms.

DraftWise is a legal AI platform that uses machine learning, natural language processing, and data analytics to automate legal work, such as document drafting, contract analysis, and negotiations. DraftWise enables lawyers to run powerful search queries in their document and knowledge base, and with the help of DraftWise AI, enables them to draft contracts from scratch or iterate over them during negotiations, create email and memo drafts, and summarize documents. DraftWise is directly accessible within Microsoft Word and Outlook, the primary working interface of lawyers, for seamless integration into daily workflows.

DraftWise uses Large Language Models (LLM) as the basis of its AI technology, which is fine-tuned to the needs of law firms. Although LLMs like GPT-3.5 or GPT-4 are fairly strong for generic use cases, they are not directly applicable to the mission-critical legal domain. What sets DraftWise apart in the market is its unique approach to AI: it leverages the legal content and data of law firms to produce highly accurate outputs while ensuring enterprise-grade security and data privacy.

The founders of DraftWise are uniquely positioned to recognize the challenges in the legal industry, while also having the skills and experience to solve them. Before DraftWise, James Ding and Emre Ozen held tech and product leadership roles at Palantir, focusing on AI, search, and big data. Ozan Yalti was a lawyer at Clifford Chance, a reputable global law firm, and a Stanford Law School graduate, experiencing the inefficiencies faced by lawyers firsthand during complex deals and negotiations.

Unlike many other startups or incumbents that claim to equip lawyers with AI capabilities, DraftWise has already won the trust of select “Big Law” firms, like Orrick, Mishcon de Reya, Katten, Gunderson Dettmer, Chapman, and Womble Bond Dickinson. With access to a strong client base and a perfect mix of founders from legal & tech backgrounds, DraftWise has something unique in the market.

Historically, law firms have been conservative in adopting new technologies. Their tech stack has been mostly limited to Microsoft Office (Word and Outlook in particular), document management systems, and basic tools like time tracking and invoicing platforms. Beyond these, tech adoption in the daily work of lawyers has been very limited, and document drafting which consumes a significant part of a transactional lawyer’s time has remained a manual process.

However, generative AI and LLMs now represent a watershed moment for legal tech, and law firms are doubling down on digital transformation. Today, nearly all major global law firms have Chief Innovation/Information Officers, responsible for changing the way their lawyers work, accompanied by increased software budgets. All these factors lead us to firmly believe that legal tech is primed for digital transformation.

Law firms are hesitant to embrace generative AI as they have concerns about legal accuracy, data privacy, and the lack of fine-tuned products.

Even though many law firms are interested in exploring generative AI, they still have important concerns about its professional applications.

They are concerned about the legal accuracy of the AI-generated content. Popular LLMs are so far trained on diverse sets of data and are not tailored for professional legal content. Such LLMs are also prone to the AI hallucination problem (where the AI model confidently generates false information that is not justified by data), so the content they generate could be quite off.

Separately, data in a law firm’s possession is highly confidential, and running generic third-party LLMs like GPT-4 on that privileged data poses a serious privacy and security concern.

On top of this problem, legal firms also look for streamlined workflows, collaboration functionalities, and integrations with other software in their tech stack. Therefore, simply building an interface around GPT-4 (which is widely common these days as entry barriers for such GPT wrappers are quite low) does not satisfy the complex needs of law firms. The AI startups that start with very bold claims are either turning into custom projects for a specific customer or end up as lightweight tools.

DraftWise’s unique approach to generative AI: trained with legal data, enterprise-grade security and privacy, embedded into legal workflows

DraftWise addresses the accuracy concern by fine-tuning the LLMs with private legal data, unlike many other players that offer generic AI models trained on publicly available documents. This requires access to a large volume of high-quality data (a major differentiator in AI), and it is especially a major challenge in mission-critical domains like legal where customers are particularly cautious with data privacy.

DraftWise is fully compliant with enterprise-grade security and privacy requirements, by enabling its clients to maintain full control over their data, ensuring data segregation through permission-based data handling, and the option to deploy its software on-premises or on the private cloud. DraftWise has successfully proven its ability to win the trust of global prominent law firms. This is where the team’s expertise in servicing large clients came into play, and with the help of these initial customers, the product is successfully fine-tuned for the industry.

As a product developed with lawyers in mind, DraftWise seamlessly integrates with Microsoft Word. With advanced information extraction capabilities, it makes documents searchable based on variables such as clause types, contexts, references, aggressiveness/client friendliness, and parties involved in the document. Lawyers can ask open-ended questions to an AI-powered chatbot, search for information, automatically draft documents, and easily compare different clauses all within Microsoft Word.

The AI-led transformation will create new winners in the legal tech space

We have seen that major platform shifts in technology, like LLMs, have often created new leaders and champions within specific tech verticals, while also challenging incumbents.

Although large amounts of money are being injected into AI legal tech startups, the actual number of companies serving real-world needs has lagged behind the financing activity in the market. We observe that, among the hottest and extensively publicized companies in the market, only a handful truly engage with real customers, with the majority offering scrappy products that fall short of meeting market demands.

DraftWise has a unique advantage here, as well, as it already has some of the most prominent global law firms among its clients. DraftWise also follows a successful land-and-expand approach within these select clients, by getting in with limited functionalities for specific departments, and gradually expanding into new legal specialties with new product offerings.

DraftWise is well-positioned in the legal tech market, with its unique approach and exceptional founder team.

At Bek, we believe we are currently at a pivotal moment in technology, marked by the advance of LLMs like GPT-4 and their popular everyday applications like ChatGPT. We expect numerous experiments and iterations involving these technologies in various industries and use cases. While many of these experiments will result in failure because the underlying technology does not match what the market needs, some will create promising business and investment opportunities.

Also, in vertical software businesses, founding teams such as DraftWise that blend subject matter expertise with an understanding of daily industry challenges, along with tech expertise to implement cutting-edge technologies, have a distinct advantage. In emerging software categories, products may undergo significant changes and extensions over time. As investors, we had a similar experience in the RPA market with UiPath and in the vertical SaaS market with Payhawk. We therefore believe product-oriented founders will ultimately emerge as category winners, as they will be the most agile in adapting to the evolving needs of the market.

We strongly believe that DraftWise and its exceptional founder team have the right approach to address the needs of the market. They already have a strong position in the market as one of the select AI players serving real customers, and they are poised to emerge as a category leader in the coming years. We are very excited to support them on their journey.