Justin Kan
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With Goat Capital, Justin Kan and Robin Chan want to keep founding alongside the right teams
Justin Kan and Robin Chan have each been angel investing for more than a decade. They’re starting a new fund together now, though, to stay involved as cofounders of more startups.
Goat Capital is a hybrid incubator versus a pure seed investment firm, Chan explains. It will be writing checks ranging between roughly half a million and $3 million dollars, and it is only planning to raise $40 million — so the checks will be selective.
The offering is that “you’re going to be working with Justin and Robin,” he says, as a direct collaboration to help your company succeed. With $25 million closed already from themselves and several family offices, the fund has begun investing globally with particular interests in digital health, ecommerce, digital entertainment and gaming, robotics and climate change.
The goal is not just about being the Greatest Of All Time, Kan adds. In a startup, you “climb high heights and eat shit to get there. That tenacity is what we want.”
It’s a nod to their own successes and struggles as founders over the years, and what they have seen as investors and advisors to a wide range of companies around the world (Twitter, Xiaomi, Bird, Uber, Square, Ginkgo Bioworks, Scale.ai, Cruise, Razorpay, Xendit, Equipment Share, Wave, Teachable, Semantic Machines, Rippling, Built Robotics, etc.)
Kan was a cofounder of Justin.tv, which became Twitch as well as Socialcam. He later had an on-demand company called Exec and previously a calendar app called Kiko, both of which sold for small amounts. Most recently, he took a big shot at the traditional legal industry with Atrium, a law firm and legal software startup that raised big rounds of funding before shuttering earlier this year.
His prototype for Goat is Alto Pharmacy, a booming digital health unicorn today that the founders started in his living room.
“We do think founders should be treated like athletes, going for gold really hard… the Olympic metaphor,” Kan qualifies about the name. “That means grinding for years — and having to rest, too. I’m very passionate about mental health and wellness as part of the journey.” (More on that here.)
Chan, meanwhile, sold his gaming startup in China to Zynga a decade ago, then helped lead a failed attempt to buy Blackberry before founding Operator, a well-funded ecommerce company that closed a few years ago. During the pandemic, he helped create Operation Masks, a nonprofit that has been providing PPE across the US. He’s also an ongoing advisor to Sleeper, Bird, Expa and Flipboard.
The focus will be fully global now. Chan explains that even though you’re seeing more challenges to building a truly global company these days, there’s more space for local startups to win big.
“There’s the US internet, the China internet, the India internet, the EU internet — in some ways it makes those markets more valuable to win, like traditional media. Broadcast and cable are highly geographic but the franchise value becomes higher because of the regulatory moat.”
Chan, on that note, met Kan back when he was a director at [current TechCrunch owner] Verizon Wireless, when Justin.tv was trying to negotiate for free data. When I asked if they had worked out a deal during a phone interview, Kan said “you [expletive] didn’t.”
But it did lead to other co-investments later on, including Ramp, Workstream and others, and now this fund.
Today, Kan says that the focus on teams will be as flexible as the times. “When we started, the internet was America,” he says. “If you weren’t there, you weren’t a company. It’s been a complete reversal of that. Now teams are international, talent is international, more and more companies are building remote first — although you’d seen that before given the costs of the Bay. We have an entirely remote company in North Carolina, Grammarly in Europe… it’s more and more the norm. Smart founders are going anywhere to find talent.
For the two partners, this new fund will be about staying connected to that certain startup feeling that is elusive for anyone trying to build something great.
“There’s nothing more magical than being in the first step of a special company,” Chan says. “That glimpse of the future. We wouldn’t get the same feeling at the growth stage versus working with small teams or a single founder. I think we have the instinct.”
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$75M legal startup Atrium shuts down, lays off 100
Justin Kan’s hybrid legal software and law firm startup Atrium is shutting down today after failing to figure out how to deliver better efficiency than a traditional law firm, the CEO tells TechCrunch exclusively. The startup has now laid off all its employees, which totaled just over 100. It will return some of its $75.5 million in funding to investors, including Series B lead Andreessen Horowitz. The separate Atrium law firm will continue to operate.
“I’m really grateful to the customers and the team members who came along with me and our investors. It’s unfortunate that this wasn’t the outcome that we wanted but we’re thankful to everyone that came with us on the journey” said Kan. He’d previously founded Justin.tv which pivoted to become Twitch and later sold to Amazon for $970 million. “We decided to call it and wind down the startup operations. There will be some capital returned to investors post wind-down” Kan told me.
Atrium had attempted a pivot back in January, laying off its in-house lawyers to become a more pure software startup with better margins. Some of its lawyers formed a separate standalone legal firm and took on former Atrium clients. But Kan tells me that it was tough to regain momentum coming out of that change, which some Atrium customers tell me felt chaotic and left them unsure of their legal representation.
More layoffs quietly ensued as divisions connected to those lawyers were eliminated. But trying to build software for third-party lawyers, many of which have entrenched processes and older leadership, proved difficult. The streamlined workflows may not have seemed worth the thrash of adopting new technology.
“If you look at our original business model with the veritcalized law firm, a lot of these companies that have this kind of full stack model are not going to survive” Kan explained. “A lot of these companies, Atrium included, did not figure out how to make a dent in operational efficiency.”
Disrupting Law Firms Proves Difficult
Founded in 2017, Atrium built software for startups to navigate fundraising, hiring, acquisition deals, and collaboration with their legal team. Atrium also offered in-house lawyers that could provide counsel and best practices in these matters. The idea was that the collaboration software would make its lawyers more efficient than a traditional law firm so they could get work done faster, translating to savings for clients and Atrium.
Atrium’s software included Records, a Dropbox-esque system for keeping track of legal documents, and Hiring, which instantly generated employment offer letters based on details punched into a form while keeping track of signatures. The startup hoped it could prevent clients and lawyers from wasting time digging through email chains or missing a sign-off that could put them in legal jeopardy.
The company tried to generate client leads by hosting fundraising workshops for startups, starring Kan and his stories from growing Twitch. A charismatic leader with a near-billion dollar exit under his belt, investors and founders alike were quick to buy into Kan’s vision and advice. Startups saw Atrium as an ally with industry expertise that could help them avoid dirty term sheets or botched hires.
But keeping a large squad of lawyers on staff proved costly. Atrium priced packages of its software and legal assistance under subscriptions, with momentous deals like acquisitions incurring add-on fees. The model relied less on milking clients with steep hourly rates measured down to six-minute increments like most law firms.
Yet eliminating the busy work for lawyers through its software didn’t materialize into bountiful profits. The pivot saught to create a professional services network where Atrium could route clients to attorneys. The layoffs had shaken faith in the startup as clients demanded stability lest they be caught without counsel at a tough time
Rather than trudge on, Kan decided to fold the company. The standalone Atrium law firm will continue to operate under partners Michel Narganes and Matthew Melville, but the startup developing legal software is done.
Atrium’s implosion could send ripples through the legaltech scene, and push other entrepreneurs to start with a more focused software-only approach.
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Justin Kan opens up (Part 2)
Greg M. Epstein is the Humanist Chaplain at Harvard and MIT, and the author of The New York Times bestselling book “Good Without God.” Described as a “godfather to the [humanist] movement” by The New York Times Magazine in recognition of his efforts to build inclusive, inspiring and ethical communities for the nonreligious and allies, Greg was also named “one of the top faith and moral leaders in the United States” by Faithful Internet, a project of the United Church of Christ and the Stanford Law School Center for Internet and Society.
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Justin Kan was talking about the systems in his life. The serial entrepreneur/founder, who recently announced a pivot and significant layoffs at Atrium, his latest venture, came to speak at last fall’s TechCrunch Disrupt in high-fashion black sweats and an extremely colorful pair of Nikes.
After Kan wrapped up his panel, we sat down for a wide-ranging and philosophical interview. And as we left off in part one of our conversation, Kan was explaining his self-described Buddhist philosophy of life.
But in the second part of our interview, I wanted to focus more on Kan’s thoughts about systems in society as a whole. There’s a difference, after all, between working mindfully to change oneself and doing so to change society. As we’ve seen with Adam Neumann, among others, there is a certain class of “spiritual” Silicon Valley entrepreneurs who use their platform in tech to assuage their own inner suffering — and perhaps gain influence by helping similarly influential people alleviate their own. WeWork, for example, cultivated associations with everything from Kabbalah to Deepak Chopra to mindful eating before the company melted under the heat of its own ethical challenges.
I don’t know that there is evidence to place Kan in the above category; maybe he is better understood as a legitimate, if unconventional, Big Thinker. But either way, it would be important to ask: What good is it when tech leaders like Kan seek a Buddhist alleviation of suffering, if the industries that sustain them are, at scale, currently creating enormous and very tangible suffering for countless millions of less fortunate people?
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Justin Kan opens up (Part 1)
Greg M. Epstein is the Humanist Chaplain at Harvard and MIT, and the author of The New York Times bestselling book “Good Without God.” Described as a “godfather to the [humanist] movement” by The New York Times Magazine in recognition of his efforts to build inclusive, inspiring and ethical communities for the nonreligious and allies, Greg was also named “one of the top faith and moral leaders in the United States” by Faithful Internet, a project of the United Church of Christ and the Stanford Law School Center for Internet and Society.
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I am a chaplain trying to understand the tech world, and to me, that means I need to understand people like Justin Kan.
Who, after all, most “represents tech?” There are the obvious answers: secular deities like Bill Gates, Elon Musk or the late Steve Jobs. Or there are the often-marginalized figures on whom I’ve often preferred to focus in writing this column: the immigrant women of color who built the industry’s physical infrastructure; social workers and feminist philosophers who study how tech really works on a subconscious level, and how to fix it; or the next generation of leaders who represent the future of tech even as they worry about the inequalities they themselves embody.
But you can’t understand what has come to be the power and mystique of tech without also understanding the minds of its enigmatic founders. Justin Kan is a serial entrepreneur and founder who, whether you appreciate his public voice or not, certainly stands out as one of the most interesting examples of that classic Silicon Valley archetype: a tech entrepreneur ostensibly doing much more than just selling technology.
Kan famously started his business career not long after he graduated from Yale in 2005 by creating Justin.tv, a tech platform from which he broadcast his own life 24/7. Fifteen years later, Kan’s original idea seems quaint, given the level of self-promotion and oversharing that’s become commonplace. And yet, as he was arguably the first person to turn surveillance capitalism into not only overt performance art but also a noteworthy career in startups and venture capital, one can’t help but take the idea of Justin Kan seriously, at the very least as a harbinger of what is to come.
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Atrium lays off lawyers, explains pivot to legal tech
Seventy-five-million-dollar-funded legal services startup Atrium doesn’t want to be the next company to implode as the tech industry tightens its belt and businesses chase margins instead of growth via unsustainable economics. That’s why Atrium is laying off most of its in-house lawyers.
Now, Atrium will focus on its software for startups navigating fundraising, hiring and collaborating with lawyers. Atrium plans to ramp up its startup advising services. And it’s also doubling down on its year-old network of professional service providers that help clients navigate day-to-day legal work. Atrium’s laid-off attorneys will be offered spots as preferred providers in that network if they start their own firm or join another.
“It’s a natural evolution for us to create a sustainable model,” Atrium co-founder and CEO Justin Kan tells TechCrunch. “We’ve made the tough decision to restructure the company to accommodate growth into new business services through our existing professional services network,” Kan wrote on Atrium’s blog. He wouldn’t give exact figures, but confirmed that more than 10 but less than 50 staffers are impacted by the change, with Atrium having a headcount of 150 as of June.
The change could make Atrium more efficient by keeping fewer expensive lawyers on staff. However, it could weaken its $500 per month Atrium membership that included some services from its in-house lawyers that might be more complicated for clients to get through its professional network. Atrium will also now have to prove the its client-lawyer collaboration software can survive in the market with firms paying for it rather than it being bundled with its in-house lawyers’ services.
“We’re making these changes to move Atrium to a sustainable model that provides high-quality services to our clients. We’re doing it proactively because we see the writing on the wall that it’s important to have a sustainable business,” Kan says. “That’s what we’re doing now. We don’t anticipate any disruption of services to clients. We’re still here.”
Justin Kan (Atrium) at TechCrunch Disrupt SF 2017
Founded in 2017, Atrium promised to merge software with human lawyers to provide quicker and cheaper legal services. Its technology can help automatically generate fundraising contracts, hiring offers and cap tables for startups while using machine learning to recommend procedures and clauses based on anonymized data from its clients. It also serves like a Dropbox for legal, organizing all of a startup’s documents to ensure everything’s properly signed and teams are working off the latest versions without digging through email.
The $500 per month Atrium membership offered this technology plus limited access to an in-house startup lawyer for consultation, plus access to guide books and events. Clients could pay extra if they needed special help such as with finalizing an acquisition deal, or access to its Fundraising Concierge service for aid with developing a pitch and lining up investor meetings.
Kan tells me Atrium still has some in-house lawyers on staff, which will help it honor all its existing membership contracts and power its new emphasis on advising services. He wouldn’t say if Atrium is paid any equity for advising, or just cash. The membership plan may change for future clients, so lawyer services are provided through its professional network instead.
“What we noticed was that Atrium has done a really good job of building a brand with startups. Often what they wanted from attorneys was…advice on ‘how to set my company up,’ ‘how to set my sales and marketing team up,’ ‘how to get great terms in my fundraising process,’ ” so Atrium is pursuing advising, Kan tells me. “As we sat down to look at what’s working and what’s not working, our focus has been to help founders with their super-hero story, connect them with the right providers and advisors, and then helping quarterback everything you need with our in-house specialists.”
LawSites first reported Saturday that Atrium was laying off in-house lawyers. A source says that Atrium’s lawyers only found out a week ago about the changes, and they’ve been trying to pitch Atrium clients on working with them when they leave. One Atrium client said they weren’t surprised by the changes because they got so much legal advice for just $500 per month, which they suspected meant Atrium was losing money on the lawyers’ time as it was so much less expensive than competitors. They also said these cheap legal services rather than the software platform were the main draw of Atrium, and they’re unsure if the tech on its own is valuable enough.
One concern is Atrium might not learn as quickly about which services to translate into software if it doesn’t have as many lawyers in-house. But Kan believes third-party lawyers might be more clear and direct about what they need from legal technology. “I feel like having a true market for the software you’re building is better than having an internal market,” he says. “We get feedback from the outside firms we work with. I think in some ways that’s the most valuable feedback. I think there’s a lot of false signals that can happen when you’re the both the employer and the supplier.”
It was critical for Atrium to correct course before getting any bigger, given the fundraising problems hitting late-stage startups with poor economics in the wake of the WeWork debacle and SoftBank’s troubles. Atrium had raised a $10.5 million Series A in 2017 led by General Catalyst alongside Kleiner, Founders Fund, Initialized and Kindred Ventures. Then in September 2018, it scored a huge $65 million Series B led by Andreessen Horowitz.
Raising even bigger rounds might have been impossible if Atrium was offering consultations with lawyers at far below market rate. Now it might be in a better position to attract funding. But the question is whether clients will stick with Atrium if they get less access to a lawyer for the same price, and whether the collaboration platform is useful enough for outside law firms to pay for.
Kan had gone through tough pivots in the past. He had strapped a camera to his head to create content for his live-streaming startup Justin.tv, but wisely recentered on the 3% of users letting people watch them play video games. Justin.tv became Twitch and eventually sold to Amazon for $970 million. His on-demand personal assistant startup Exec had to switch to just cleaning in 2013 before shutting down due to rotten economics.
Rather than deny the inevitable and wait until the last minute, with Atrium Kan tried to make the hard decision early.
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Pachama launches to support global reforestation through carbon markets
The world’s forests are ablaze, under threat from illegal logging and disappearing due to the less dramatic environmental degradation wrought by drought and other signs of climate change.
It’s part of the negative feedback loop that seems to be accelerating climate change as greenhouse gases accumulate in the atmosphere, but one startup company is trying to facilitate reforestation by supporting carbon offsets that specifically target the world’s flora.
Pachama has raised $4.1 million to create a marketplace where companies can support carbon offset projects. The company is backed by some big names in tech investment, like former Uber executive Ryan Graves, through his private investment firm, Saltwater, and Chris Sacca, a prominent early investor in Uber, through his Lowercase Capital firm.
Founded by Diego Saez-Gil, a serial entrepreneur whose last company was a startup selling a “smart-suitcase,” Pachama is aiming to bring reforestation projects to the carbon markets whose impacts can be independently verified by the company’s monitoring software to ensure their ability to offset emissions.
“We were making a smart connected suitcase which got banned,” says Saez-Gil. “After that I decided to take some time off and I was quite burnt out. I wanted to do some soul searching and tried to decide what I wanted to put my efforts [into].”
He traveled to South America and did a trip through the Amazon rain forest in Peru. It was there that Saez-Gil saw the effects of deforestation in an area that represents a huge carbon dioxide offset for the planet.
“There are about 1 billion hectares on the planet that could be reforested,” says Saez-Gil.
That opportunity — to contribute to the perpetuation of independently validated carbon markets around the world — is what convinced investors like Paul Graham, Justin Kan, Daniel Kan, Gustaf Alströmer, Peter Reinhardt, Jason Jacobs and Chris Sacca from Lowercase Capital, as well as funds such as Social+Capital, Global Founders Capital and Atomico, to contribute to the company’s $4.1 million funding.
It’s a pretty big consortium to finance what amounts to a small capital commitment (given the size of the funds under management that these investors have at their disposal), but investors are right to be a little wary.
Carbon markets are driven by policy, and policymakers have been reluctant to draft legislation that would put a high enough price on carbon emissions to make those markets viable.
“Pachama’s carbon credit marketplace is launching at a pivotal moment when awareness of the climate crisis is reaching an all-time high, and businesses are increasingly looking to become carbon neutral,” said Ryan Graves, Pachama’s lead investor and new director said in a statement. “What attracted me to Pachama was the company’s use of technology to bring trust to an industry that desperately needs it, and gives the verifiable results to the purchasers of carbon credits.”
Awareness doesn’t equal political action, however, and Pachama needs the political will of both governments and consumers to move the needle on creating viable carbon trading markets.
Pachama’s business becomes profitable only when the price of carbon moves beyond $15 per ton of carbon dioxide (or similar emissions) offset. Currently, there are only two markets in the world where that threshold has been reached — the California market and Europe, according to Saez-Gil.
For Pachama’s founder, forest preservation and reforestation projects can have outsized benefits. “There are only 500 forest projects that are certified today… we need tens of thousands,” says Saez-Gil. “There are one billion hectares on the planet available for reforestation without competing with agriculture.”
The restoration of native forests can contribute to replenishing global biodiversity, and captures more carbon than cultivating forests for industrial use, but both are better than destruction to grow row crops or support animal husbandry, Saez-Gil says.
Pachama sources projects that are approved by existing certification bodies, but offers its customers monitoring and management services through access to satellite imagery and sensors that provide information on emissions and carbon capture on reforested land.
It’s a potential solution to the problem of deforestation that’s plaguing countries like Brazil. “The government in Brazil, they want to generate income for the country,” says Saez-Gil. If carbon markets paid as much as ranching, it would reduce the need for animal husbandry and plantation farming in Brazil, Indonesia or places like Peru.
Today, most investments in reforestation projects are done through middlemen, which increases opacity and the chance that projects are being double-counted or sold, according to Saez-Gil. Pachama has a person who is contacting forest project developers so that they can list the projects independently. Then the company verifies the offsets with satellite imaging systems.
The company currently has 23 forest projects — three in the Amazon rain forest in Brazil and Peru and projects in the U.S. in California, Vermont, New Jersey, Connecticut and Maine .
Saez-Gil has high hopes for the future of carbon markets based on demand coming, in part, from new regulations like those imposed on the airline industry.
“Airlines will have to offset part of their emissions as part of CORSIA,” says Saez-gil. That’s an offset of 160 million tons of emission per year. “There is all this demand coming for different offsets for different markets that will make the price go up.”
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Professional network for women Elpha raises seed funding
As slow-moving LinkedIn leaves room for startups to flourish, Elpha aims to create a tailored online network for women in tech.
The company is not only a graduate of Y Combinator, but was conceived of behind the scenes of the San Francisco accelerator program. Cadran Cowansage, the co-founder and chief executive officer of the startup, was a software engineer at YC from 2016 to early 2019. It was during that stint that she created Leap, a tool meant to help her and her colleagues communicate. Soon enough, she’d granted the entire YC network of female founders access to the tool. Then earlier this year, she decided to spin the company out of YC entirely, rebrand and relaunch as Elpha.
“There’s a velocity that comes with building a startup and the pressure of funding that keeps you moving very fast,” Cowansage, who counts Kuan Luo as a co-founder, said of her decision to make Elpha an independent business.
“I had the idea for a long time,” she told TechCrunch. “I didn’t feel like I really had a big enough network of women who were at my level or a bit further along than I could go to for advice. Things like how do I get this promotion? Or my male peers, they are being paid more than me, what do I do about that? The conversations that are difficult that you really want a woman’s perspective on.”
A hybrid social and professional network, Elpha is meant to offer women in tech a dedicated space to communicate via public forums and direct messages, foster relationships and build their careers. The company, which completed YC this summer, is today announcing a $1.1 million round with participation from Y Combinator, the accelerator’s co-founder, CEO and president (Jessica Livingston, Michael Siebel and Geoff Ralston, respectively), as well as Maveron, Moxxie Ventures, JaneVC, Friale, Kabam co-founder and visiting YC partner Holly Liu, Block Party founder Tracy Chou and Breaker co-founder Leah Culver.
The “LinkedIn for women” charges $12,000 in annual subscription fees to companies who use Elpha to identity potential hires. Cowansage said the company currently has 20 paying customers, many of which are venture-backed startups like Lambda School and Webflow. The Elpha team plans to use the seed investment to hire, host events and continue the development of new products, including a mobile app expected out next year.
Ultimately, Cowansage hopes Elpha will bring together women in media, science, medicine and more.
“There’s a huge opportunity to bring women together across different industries and also create those sub-communities,” she said. “There’s a ton we can do from here.”
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The boring genius of how Atrium kills legal busy work
Law firms have little incentive to build or buy software that will save their lawyers time because they often bill clients by the hour. Tasks like tracking down legal documents, extracting key information and drawing up hiring offers or funding term sheets add up to make lawyers expensive, even if they’re constantly repeating mindless busy work.
That’s why legal startup Atrium is so exciting — even though it’s developing tech that might seem boring on the surface. After raising $75 million from Andreessen Horowitz and General Catalyst while growing to 400 clients, today Atrium is announcing its first customer-facing products.
Atrium Records creates a collaborative file locker for you and your lawyer so you always have access to the latest versions of corporate documents. Atrium Hiring automatically generates hiring offers and contracts from details you add to a form, and tracks everyone’s approvals and signatures.
Atrium Records
Rather than having to pay for these tools separately, they come as part of a subscription to a bundle of Atrium’s legal services, with special projects like counsel through an acquisition costing extra. This business model incentivizes Atrium to work as efficiently as possible instead of bilking hourly rates, and build tools to eliminate less-skilled work or assist with common corporate duties. That’s allowed it to speed up legal work on incorporations, financings, M&A and contract negotiations.
“One of the reasons we partnered with Andreessen Horowitz on the last round [a $65 million Series B] was we really align with the way they approach venture capital,” Atrium co-founder and CEO Justin Kan tells me. “Marc’s initial observation was . . . let’s not just provide capital but also other services like a talent network. We have kind of done the same stuff. Not only are we helping people with the legal stuff they want to get done but with the other stuff surrounding it.”
Atrium CEO Justin Kan at TechCrunch Disrupt SF 2017
For example, Atrium’s Fundraising Concierge service provides assistance to startups for defining their narrative, setting up investor meetings and generating fair term sheets. Atrium has to date aided startups with raising more than $1 billion, from seed rounds of $200,000 to huge $50 million rounds
Developing drab but useful software for enterprises is a drastic shift for Kan. He pioneered life vlogging by strapping a camera to his head at his startup Justin.tv that eventually blossomed into Twitch and sold to Amazon for $1 billion. It’s been quite an adjustment for Kan going from making video-game-streaming consumer apps and angel investing to Atrium. “Two years. It has been an interesting and crazy ride. I wanted to get back to starting companies. That was the fastest learning I’d ever had. But I forgot learning means failing a lot,” he says with a wry smile.
Whatever tribulations they required seem worth it now that Atrium’s new products are ready. Atrium Records improves on the clumsy status quo where clients have to dig through emails from their lawyers hoping to find the most up-to-date versions of important corporate documents. If they can’t, they wait around after emailing their lawyer who has to hope they remember where they buried that term sheet or cap table in their firm’s file tree. This messy process can rack up billable hours, lead to data mismatches and let important signatures or approvals fall through the cracks.
Atrium Hiring
Kan says he’s seen some grisly situations. “You never signed your equity documents so you actually have no equity in this company. And now that there’s financing, there could be a taxable event. There’s often surprisingly serious problems that happen.” Atrium’s senior product manager Sahil Bhagat walks me through how Atrium can help clients avoid an issue like, “Maybe you hired 10 employees but didn’t update your cap table and then you’re hiring the 11th employee but you don’t have any equity to grant so you have to go through the hassle of increasing your options pool.”
Atrium Records acts like your searchable legal Dropbox. The startup works with your last law firm to ingest your documents around equity, taxes, employees and IP, and make sure they’re all up to date. Machine learning extracts critical data about financings and cap tables so that’s instantly available in the Atrium dashboard and you don’t have to dig into the original docs. Plus, you don’t have to pay for lawyers or paralegals to do that manually. And your lawyer can build a task list of documents for you to edit or sign so you always know what to do next, which is a relief when you’re wrangling approvals from all your existing investors.
Atrium Hiring operationalizes one of the biggest founder time-sucks. Instead of writing hiring contracts from scratch each time, you fill out a form and use menu selections to set the salary, share count, vesting schedule and offer expiration. Looking across its anonymized data set of contracts, Atrium can recommend the best clauses and most common set ups, like four-year vesting with one-year cliffs. You can see the status of the contracts every step of the way, from drafting and finalizing to getting employees to accept.
Kan tells me Atrium’s goal is to continue building on its archive of more than 100,000 legal documents to develop aggregated pools of data clients could opt into. If they’re willing to share their salary data, vendor contract pricing and more, they’ll get access to that of Atrium’s other clients. “You’ll be able to see if you’re on the high end of being paid by Salesforce for a contract,” Kan explains. That’s a much more data-driven approach than when most lawyers just think of the last few salaries they saw for that position and give you a rough average.
“Being able to tell what the market norms are is a powerful negotiating tool.” The startup has even been offering its tips for free as part of fundraising workshops it uses to attract clients. The challenge for the company will be ensuring efficiency doesn’t mean cutting corners.
Atrium has grown to 150 staffers split between legal practitioners and its product team in its two years since launch. Kan is trying to build a culture where everyone cooperates, unlike infamously cutthroat law firms where partners can compete for cases. He hopes that talent will stick with Atrium because it’s deleting the most tedious parts of their jobs. “No one wanted go to law school to review 1,000 hiring docs.”
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Atrium raises $65M from a16z to replace lawyers with machine learning
Let the computers do the legal busy work so attorneys can focus on complex problem solving for their clients. That’s the lucrative idea behind Atrium LTS, Twitch co-founder Justin Kan’s machine learning startup that digitizes legal documents and builds applications on top to speed up fundraising, commercial contracts, equity distribution and employment issues. For example, one of its apps automatically turns startup funding documents into Excel cap tables.
Automating expensive legal labor has led to a rapid rise to 110 employees and 250 clients for Atrium, including startups like Bird and MessageBird. Atrium only came of stealth a year ago with a $10.5 million party round before going into Y Combinator last winter. Today it announces it’s raised a $65 million round led by Andreessen Horowitz.
In characteristic dude fashion, Kan tells me “I’m pretty stoked about that because of having more resources for Atrium.” The venture firm’s partner Andrew Chen is taking a board seat and famed co-founder Marc Andreessen is joining as a board observer. “I wanted a visionary who’s always going to be pushing us to build something really big,” Kan says. General Catalyst, YC’s Continuity Fund and Ashton Kutcher’s Sound Ventures are also joining the round.
With the massive influx of cash, Atrium will be able to develop more internal tools it can use to crank out client work faster than its traditional competitors. “We can ultimately be this platform on top of which you’re building these legal businesses and eventually other professional services and software services,” Kan explains.”They’re all sitting on top of the platform that understands legal documents.”
In more Atrium news, Y Combinator’s leading partner Michael Seibel will join the startup’s board, too. And it’s acquired Tetra, a YC artificial intelligence startup that had raised $1.5 million to analyze voice, “to help us build our platform that understands and structures data,” Kan tells me.
What Kan didn’t initially mention is that two of Atrium’s co-founders, CTO Chris Smoak and legal partner BeBe Chueh, have left. He later admitted they had transitioned out of the company several months before the new funding. “BeBe wanted to spend time working on family (she just got engaged); Chris and I disagreed on his job role” regarding the definition of the CTO position, Kan tells me. He’ll now be running Atrium with remaining co-founder Augie Rakow, formerly of mega-law firm Orrick, and Kan’s long-term business partner and former McKinsey analyst Nick Cortes.
Justin Kan (Atrium) at TechCrunch Disrupt SF 2017
The law firm business model has left the door open for disruption by technology companies like Atrium. “Law firms generate revenue from hourly billing, and lack an incentive to vastly improve efficiency,” Chen writes. “Many law firms dividend out all their profits at the end of each year, making it hard to invest in the expensive investment of building software. Software is hard to build inside a software company, much less a law firm.”
But Atrium is an engineering company with a legal clientele. It takes the most common and time-consuming activities — often related to ingesting mountains of documents — and builds machine learning workarounds. Atrium’s lawyers can focus on advising their clients on what to do, rather than burning the midnight oil doing it as they look for tiny quirks in the paperwork. The legal services get faster, cheaper and more predictable, so Atrium can offer upfront pricing. It’s been using fundraising workshops and other educational materials to drum up leads.
For now, Atrium’s tech is limited to a narrow band of use cases. But “over $300 billion is spent per year in the enterprise legal market,” Chen writes, so there’s plenty of room to grow now that Atrium is well capitalized. It will have to convince big corporations to ditch the old way and let computers lend a hand. Luckily, Atrium isn’t a SAAS company forcing clients to use the tech themselves. Done right, they shouldn’t even know that it’s machine vision software, not junior associates, pouring over their docs. It will have to out-match fellow legal tech startups like Ravel, CaseText, Judicata, Premonition and more, though they’re often just tools rather than software-equipped law firms.
Kan also cops to his lack of experience in legal. “I think for any full stack vertical startup started by a non-subject matter expert (i.e. me who is not a lawyer), there is a risk that you come in and are very prescriptive on how things work. Then you build software that says ‘the providers must do it this way!’,” Kan tells me. “But the practical reality is that it doesn’t work with the nuanced, non-linear workflows that providers already have. So the technology doesn’t get adopted and fails to provide value. That to me is the biggest upcoming risk.”
Justin Kan, from lifevlogger to legal giant
Yet if Atrium can ease clients into this new world service by service, it could generate network effects that fuel the whole business. It’s just a matter of prioritization. “One of the things I always need to be focused on is…focusing. That’s sometimes a blind spot.” From Justin.tv to Twitch to its acquisition by Amazon to his role as YC partner, Kan delivers, but can be frenetic. “As an entrepreneur, I have a tendency to take on too much.”
But after leaving YC because “I had felt like I’d stopped learning,” Kan has found the legal space so full of knowledge and opportunity that it can hold his attention. “Part of why I like this business is because it was so different. I didn’t think it was something that would be as easily competed with,” Kan recalls. “I had this calendar company and Google came out with something similar. I told [Twitch co-founder] Emmett ‘We have to do something no one can compete with. At least Google will never do this.’ Then they did.”
But unlike with that game streaming startup, Atrium doesn’t have to worry about beating or getting bought by some legal tech giant. Instead, it wants to become one.
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Here’s what you’ll learn at Atrium’s fundraising workshop
Justin Kan is qualified to teach you how to pitch, and isn’t shy about it. Having raised about $90 million for a few companies and sold his startup Twitch to Amazon for almost a billion dollars, not being shy is actually part of what Kan teaches. His legal services startup Atrium today officially launches Atrium Scale, its free Series A fundraising workshop that’s helped eight startups raise $100 million since it started in beta five months ago. The two-day in-person seminar includes pitch coaching, intros to investors and mentors, follow-up online pitch deck help, legal advice, Amazon and Google Cloud credits and tax and accounting services.
I went through Atrium Scale myself, pretending I was the founder of a hypothetical startup that replaces your phone’s contacts app. While the lectures were full of valuable tips, you can get a lot of those from instructional blog posts by Kan and other VCs. But the small group Q&A and coaching with entrepreneurs who’d successfully raised did a remarkable job of improving attendees’ pitches and the esoteric song-and-dance necessary to get investors to part with their cash.
Atrium co-founder Justin Kan
Here’s a breakdown of how Atrium Scale works:
- When: Once per quarter over a Saturday and Sunday
- Where: Atrium’s offices in downtown San Francisco
- How much: Free, but Atrium hopes you’ll end up using its legal services
- Who: Startups planning to raise their Series A in the next six months, the sooner the better, who fly themselves in from all over the world
- Who gets in: Atrium selects the 10 percent of applicants most ready for venture funding. Applications can be submitted here
- Investors involved to date: Sequoia, General Catalyst, Accel, Venrock, Social Capital, Signia, KPCB, Lightspeed
- Mentors: Justin Kan (Atrium, Twitch), Holly Liu (Kabam, Y Combinator), James Richards (Teleborder, TriNet), Andrew Trader (Zynga), Ashu Desai (Make School)
What Atrium Scale teaches
The Atrium Scale method revolves around the concepts of how to pitch and when. While there are plenty of ways to show off a business, Kan recommends a calculated approach to storytelling. “When should you raise? When you can convince investors to give you money and when cash is the constraint to scaling your business,” Kan said to kick off our program.
The song
“It all starts with a narrative — 99 percent is the work of building the business, but an important 1 percent is convincing people,” Kan relays.
First, explain how the world is a certain way. Describe the problem, why it’s big and who in the market would pay for a solution. Demonstrate that you’re an expert.
Second, explain how the world is changed by your solution to the problem. Frame what’s possible for businesses or consumers once they have your product.
Third, explain how the world is new now that your solution exists. Provide metrics on traction and mechanisms for growth, and show why your team is uniquely equipped to succeed. Identify adjacent markets your product will conquer.
Unlike the frothy days of yore, “people are no longer willing to lose money on a per-unit basis,” says Kan. VCs will demand to understand your unit economics and scalable customer acquisition strategy that turns cash invested into more cash earned.
Perhaps the most important part of the pitch is practice, though. Pitch to fellow founders, investors or angels, but explicitly tell them you want feedback, not money. Running through the pitch over and over boosts confidence, A/B tests narratives and unearths questions. Know your numbers by heart so you always seem sure of where the business is heading, and define a personal pitching style that plays to your personality strengths.
Kan says it all comes down to making investors see your vision for how you’re going to become a massive company.
Atrium Scale helps here by letting you pitch in groups, as well as one-on-one with mentors. Simply being surrounded by people all trying to improve creates an atmosphere conducive to progress rather than getting defensive about criticism. There could be better homework or takeaway materials to help startups continue to improve after the workshop ended, but I heard entrepreneurs work out kinks and trim off tangents that could have derailed their pitch during a real meeting.
The dance
Where Atrium Scale shined brightest was digging into the cadence of the fundraising process. Anyone can work out a decent pitch in their garage, but it takes special know-how to navigate turning that pitch into money in the bank. This is the kind of in-group knowledge that often makes it tough for outsiders to break into Silicon Valley.
You should pitch wide, planning to talk to at least 10 to 20 investors, but knowing it can take 100 ‘nos’ to get a ‘yes.’ Pick investors not based on their firm’s name recognition but their expertise and track record in your industry. Contact investors at least three to four weeks out and schedule meetings in as rapid succession as possible. The goal is to be able to get term sheets back at the same time so you can play firms off each other and pick the best deal.
You’ll start with single partner meetings. You’ll hear back within 24 to 48 hours if they go well, and you can assume they didn’t if you don’t hear back soon. Those that like you will set up multi-partner meetings, and you should ask them what their colleagues will want to know. If that goes well you’ll be brought in for an exhaustive full-partnership pitch where they’ll try to poke holes in your business. Lots of questions means lots of interest, while few questions and VCs bored on their phones means you’re toast.
If the partnership believes in you, you’ll quickly receive a term sheet, but you don’t have to sign it right away. Since you can’t fire your investors, be sure to call their references so you’re sure which you want to work with forever. This also gives you time to go back to other firms you’ve pitched. Don’t say who it’s from, but use your existing term sheet as leverage to get them to give you one or one with a better deal.
Aim for a lead investor that will put in at least 25 percent of the round volume and then fill it out with other firms, strategics and angels. Know that the median delay for investor due diligence is 41 days, so make sure you have enough runway to wait that long after you complete the pitch process. The fundraise should last you 12 to 18 months, but be careful because your spending will expand to take up what’s in the bank. Be ready by then to show you’ve hit new milestones that de-risk your business.
The program also reviewed more advanced topics like raising money from strategic investors, equity versus SAFE financing, crooked deal terms like ratchets and liquidation preferences and how to manage your board. That one-size-fits all info is certainly helpful, but thanks to the small class size, Atrium Scale’s Q&As let founders get answers to industry-specific questions and their own edge cases.
There are plenty of people looking to help startups in Silicon Valley, but few are giving away this high-quality of education for free. Accelerators can charge 7 percent of equity and advisors can charge a percentage point or two. That can be worth a lot if the startup does well. Consultants want cash that pre-A startups rarely have. But Atrium is merely looking for lead generation and it needs them to raise money to be able to afford its legal services. That aligns the workshop well with the outcomes for the companies.
If you have a dumb business idea, no amount of turd polishing will get you legitimate funding. But for startups on to something that just need help communicating, Atrium Scale could be a quick and cheap way to boost their chances of getting picked from the crowd.
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