Chapman and Cutler: Sale of Closing Room to NetDocuments could just be the start
Chapman and Cutler’s sale of deal management application Closing Room to NetDocuments is a rare example of a law firm selling technology to a legal tech vendor. But practice innovations and technology partner Eric Wood, the mastermind behind the app, believes that this is a model with potential as the firm eyes the possibility of developing its role as a software enterprise.
Closing Room was born out of Wood’s own frustrations as a junior associate in New York, locked in a dark room with mountains of documents for days on end. “It seemed everything about the closing process was designed to take as long as possible,” he recalls.
“We did it all manually – getting everything scanned, compiling it on DVD or printed into bound volumes, reviewing it and checking every index reference and title. Getting all these documents to all parties could take months after the transaction had actually closed. There were many factors involved in the legacy process that made it right for some sort of transition to a more elegant digital solution.”
The concept of Closing Room began to take form in Wood’s mind over subsequent years. He worked on the design in his own time. He considered optimal database structures and which were the right libraries to use. He also taught himself to code along the way and even contemplated coding the app himself, although he conceded that his knowledge never reached the level required for a project of this scale.
“I never wanted this to just be a typical legal technology stack. I wanted it to be something more akin to what a start-up would build,” he said. “I actually considered launching Closing Room as my own start up. But then I transitioned from practising associate to an associate that no longer had any billable requirements. That meant I could focus solely on building tech and automating the work we do as a firm.”
The project was originally built using the firm’s custom document management system but was then moved to NetDocuments where it was recoded from scratch. Then came the lengthy process of getting feedback, running training sessions and building support documentation. But the uptake exceeded everyone’s expectations.
“It started to spread like wildfire,” said Wood. “People started using Closing Room that had never even been trained. One of the great things about developing this internally is that we got such good feedback and ideas from our users which is something traditional legal tech vendors really want and need. It is harder for them because their users are spread across different law firms. We had administrative assistants, paralegals, junior associates and partners calling us with suggestions. We were able to iterate very quickly and build something that would work across all our practice areas.”
Closing Room had a dramatic impact on the time and cost involved in closing transactions. For deals without post-closing obligations, partners are able to instantly deliver closing documents to all parties as the deal completes. “We have incorporated live updates and sometimes I’ll watch the same user create a few different closing sets in the space of ten minutes,” Wood said. “The time savings have been enormous.”
Cost savings have also been significant. While some clients continue to demand printed or DVD materials, a growing number welcome the transition to digital. In those instances, Chapman and Cutler is saving between $500 and $1500 per closing. In the two years since launch the firm has completed 5400 closings. “We believe the total cost saving is in either the high six figures or low seven figures per year,” said Wood.
Closing Room was engineered with the potential for commercialisation in mind from the beginning, but Chapman and Cutler hadn’t counted on a sale to a third-party vendor. “I never thought of this as a big possibility because there isn’t really much track record of firms building something and selling it into the market,” said Wood.
But with lawyers across the firm already using the system, the decision was made to seek external revenue. Conversations with NetDocuments were initiated over the summer and no other parties were ever involved.
Chapman and Cutler is now considering forming a subsidiary to sell software. It has already built a contract review app alongside Toronto-based Kira, which recently raised a $50m first round of funding.
“Kira is one of the superstars in the legal tech industry. We have used their tech in the background to create an AI-based contract review tool inside Microsoft Word,” Wood explained. “We have built an app that allows users to set up a check list of things that they are looking for in a contract and then the results come back inside Word so the user can stay there while editing the document.”
A number of other projects are also under way and Wood believes that the firm may well look to commercialise other initiatives through deals similar to the sale of Closing Room to NetDocuments.
“I can’t say that it is clearly in the roadmap to become a software company. But we think the general idea of building something that can help our firm first and foremost, rolling it out, getting feedback, iterating and then potentially partnering with an existing technology provider or selling it ourselves, is an interesting line of business and something we hope can continue.”