Fund formation: How your law firm can drive new revenue

It is no surprise that many law firms have strategic growth plans focused on private equity (PE) and venture capital (VC) organizations. On average, they spend $35 million on outside counsel for fund-and deal-related work each year.

The added pressure of a downturn in mergers and acquisitions (M&A) activity and general economic uncertainty in many jurisdictions means that law firms face challenges with profitability and productivity in key practice areas.

What can law firms do to compete and thrive in fund formation? 

There are multiple ways that firms can support PE and VC clients in fund formation, for example:

• Negotiating the critical terms of a transaction 
• Drafting the investment documentation 
• Managing the transaction 
• Conducting legal due diligence 
• Foreseeing and resolving issues that may harm future fundraising or the potential exit

Onboarding new business 

Onboarding is an essential and legally required process in all fund formations that involves certifying investors and ensuring the source of their capital is legitimate. It can also include drawing up the subscription agreement, which commits an investor to their share in a fund.

Many law firms do this already. But not many do it as efficiently as they could. Onboarding is often a very time-consuming, manual process with lots of back-and-forth between firms and investors — and the firm must repeat this process for every individual investor.

However, technology can transform how firms handle fund formation.

How can technology improve your fund formation offer? 

Technology is rapidly growing in importance within PE and VC companies. For example, in deal sourcing, execution, and exit it plays a significant role as a value-creation lever throughout the whole deal lifecycle.

Clients need their firms to stay up to speed with their technology adoption. So, given the importance of onboarding to fund formation, law firms are well advised to digitalize this process as much as possible.

The good news is that firms often have the right technology platform already in place for M&A work and can expand how they use it to shift into PE and VC without new investment.