Extract from Jon Campisi’s article “Firms Need Capital to Pay for AI Tools. Could PE Investment Be the Solution?”
As private equity investors continue to look for opportunities in U.S. law firms, they may find success in presenting their outside capital as a solution for cash-strapped businesses looking to scale up their technological capabilities, particularly in artificial intelligence.
Whether firms are looking for financing to help them build out their own AI infrastructure in-house, or they’re in need of cash to lease third-party platforms, PE is being increasingly eyed as a potential solution to the problem of having limited operating dollars. Because most law firms are structured as partnerships, there is often little liquidity left at the end of the year when profits are paid out to partners, so it is the norm for some firms to be short on cash after the balance sheets are wiped clean.
“Law firms are cash distribution businesses,” Lee Minkoff, managing director of Renovus Capital Partners, wrote in an email. “The partnership model is structurally oriented toward paying owners/partners today, not reinvesting in the business for tomorrow.”
AI and technology require substantial upfront investment, as well as oversight and management of that investment, “and that’s just not what the traditional law firm structure is set up to do,” Minkoff said.
