Where Perspective Meets Execution

By Chris Hildreth, Managing Director, Marks Baughan

McDermott Will & Schulte, an Am Law firm with nearly 2,000 attorneys and close to $3 billion in revenue, is evaluating outside investment, according to The Financial Times. 

This news signals a sea change in the legal landscape. McDermott Will & Schulte is one of few Am Law firms that have acknowledged interest in taking on outside capital. Firm Chair Ira Coleman is regarded as highly entrepreneurial and innovative, elevating the significance of this development. If the evolution of private equity (PE) and the accounting sector is any guide, this news and other pending deal activity suggests that PE’s entry and expansion in law could be quite rapid. 

If McDermott Will & Schulte does raise outside capital, we believe they’d employ a management services organization (MSO) structure to facilitate the investment. The MSO structure is proving to be the preferred vehicle for outside capital infusions into firms. Check out our webinars Law Firm Value Creation Part 1: Exploring Outside Investment and Law Firm Value Creation Part 2: Securing Outside Investment for in-depth explanations on the MSO structure and how it works.

Although McDermott Will & Schulte’s rationale was not disclosed, many law firms are exploring outside investment to pursue opportunities including:

Access to Growth Capital

Outside investors bring the financial resources needed to scale and grow. Firms can fund internal investments in marketing, technology, and new practice areas — or even seek acquisitions of smaller firms.

Ownership Liquidity

Traditionally, law partners’ equity has been illiquid — valuable on paper, but hard to monetize. The MSO structure changes that dynamic. Investment proceeds can provide liquidity to partners while also fueling growth.

Wealth Creation

In most transactions, partners retain some ownership in the MSO. This arrangement ensures alignment between the partners and the investor, and it also allows partners to share in the benefits from growth through strong returns on their MSO investment — which often exceed 3–4x the initial value.

Tax Advantages

Funds distributed through an MSO transaction are typically taxed at capital gains rates rather than as ordinary income, resulting in significant tax savings.

Brand and Legacy Security

PE investors often see immense value in established law firm brands. Their capital helps extend those brands’ reach — allowing founders to secure their legacies while positioning the firm for sustained success.

The MSO structure has been employed in other regulated industries like medicine, dental, and accounting. It has withstood the test of time — and regulatory scrutiny. In law, that structure allows for both shared ownership and adherence to ABA rules. Nearly all our law firm deals are employing the MSO model. 

If you’d like to learn more about outside investment and whether it might be right for your firm, please reach out to one of our law firm advisory leaders: Chris Hildreth (childreth@marbau.com) or John Martin (jmartin@marbau.com).

We also welcome you to watch our webinars linked above or read the content discussed in Part 1 here.

Legal tech companies raised $1.83 billion in the first quarter of 2025 — an 80% year-over-year increase.¹ It’s a good time to be a founder or CEO of a growth-stage legal tech company as the market sees continued momentum. Innovation is high, and investor interest is higher — ushering many startup founders into financing rounds at a gallop.

Whether a transaction is on your immediate horizon or in the planning stages, it’s critical to avoid common mistakes and keep a few must-dos in mind if you want to make the smartest pre-financing moves. As an investment bank with a finger on the pulse of the legal tech market, Marks Baughan has a tried-and-true set of tips and tricks for companies at this critical juncture. Here’s what seasoned bankers want legal tech CEOs to understand before they raise a dollar.

Avoid these pre-financing missteps

In our 25+ years of experience working with legal tech companies, we’ve seen these all-too-common sentiments hinder founders from making the right moves before raising capital.

“It’s too soon for my business to engage a banker.”
Many founders believe a couple of months or so is enough time to get a banker to help them launch a financing process. While eight weeks isn’t a rush per se, it’s better to spend more time developing a stronger degree of comfort with your future advisor and collaborating with them to hone the full — sometimes nuanced — picture of your story and value. A good banker will sink their teeth into your data and grasp your financial model in short order, but a great banker will become your advisor who understands the deeper details, advocates for your business, and functions as an extension of your team. The more time you invest in developing your banker relationship, the more seamless and efficient the process will be when it comes time for you to transact.

Furthermore, should you discover that your data isn’t up to snuff or requires some revamping, you’ll need time to work with your banker to get it investor-ready. The due diligence process for these transactions can be grueling — and will be all the more so if an investor finds that your data doesn’t hang together. With this risk in mind, there is no “too soon” moment to begin working with a banker. The sooner you get your data in order — and instill processes to keep it in order — the better prepared you’ll be for raising capital and reporting on your business the way investors want to see it done. Founders that start this process months, or even years, in advance lose no time when it comes to launching fundraising efforts.

“I’ve done this before, and I can do it on my own again.”
DIY-ing may be a fine approach for earlier or smaller fundraising rounds, but for more significant rounds, it’s a full-time job to do it right. The goal is to get a maximum market check with minimum executive bandwidth commitment, and the more positive response you receive from your outreach, the more difficulty you’ll have keeping your ducks in a row and addressing that demand.

Pro tip: even if you’re embarking on an early or small round, get a banker to sanity-check your presentation. A banker worth their salt will do so for “free” — viewing it as an investment into building the relationship with you.

“I know how to get the best deal for my business out of this transaction.”
Going without a banker also means you miss the creative, out-of-the-box thinking they provide and the market intel they have about what investors find exciting. As the CEO, you may be focused on the transaction at hand, but you may lack the time and brain space to contemplate a bigger-picture approach that earns you more down the line.

A banker has the know-how and market intel to see and propose more options such as acquiring a competitor, exploring an adjacent technology, or pursuing a complementary platform that may be for sale. By taking different creative steps ahead of the next round, you could potentially raise more at a synergized valuation and give your company a bigger market profile — all while adding real value to your offerings. CEOs who tackle transactions singularly may miss what a banker sees: the opportunity to upsize a financing round.

What financial sponsors really care about

Every financial sponsor, whether it be a private equity or venture capital firm, wants to see proof of growth and a large total addressable market (TAM) — these are table stakes. Beyond these basics, they prioritize similar-but-different elements.

How Investment Criteria Differ Between Venture Capital and Private Equity

Private equity firms look at larger, somewhat scaled platforms to identify opportunities for more growth. They also look ahead — almost from day one — to begin positioning the platform for the next buyer. For these reasons, future exit strategy is of greater consideration when positioning your company’s value to private equity investors. It’s never too early to start thinking about your approach to these funds. A banker gives you a strategy framework, and potentially actionable targets, that will resonate with private equity investors.

Private equity firms are also looking for concrete, defensible projections. They aren’t interested in seeing the so-called “BHAG” (Big Hairy Audacious Goal) financial models that often resonate with venture capital investors. Your models need to strike the proper balance between prudently aggressive, attainable, and substantiated. Sometimes it’s even strategically advantageous to “sandbag” your growth projections so you’re outperforming during critical negotiation stages of the transaction. The right banker helps you achieve this balance and design your model to speak to this audience.

Venture capital investors, on the other hand, tend to focus entirely on the “organic” aspects of the investment — product-market fit, the ability to scale and build an organic go-to-market machine, and more. They want to understand the BHAG and are more accustomed to lofty projections that reflect your fundamental mission in a broader way and usually over a longer horizon or hold period. But don’t discount the value of communicating a longer-term M&A strategy with these investors. It’s still critical to demonstrate that you are thinking about M&A and have it in your roadmap. This is where a banker helps you augment your positioning to make it clear that you have strategic options on your radar.

Your pre-transaction checklist

If you’re looking ahead to a financing process, consider these your five must-dos:

• Cleanse your data: Ensuring your data — especially your customer queue — is clean and ready for investor scrutiny is non-negotiable. Doing so ultimately requires your organization to adopt an internal discipline to be able to report certain metrics in an auditable fashion.
• Know your metrics: Familiarize yourself with the key metrics your investors care about so you can present them with confidence and in formats those investors expect.
• Start developing sponsor-ready reporting: Once you’ve cleansed your data and internalized important numbers, you can create reports fit for the eyes of your financial sponsors. Developing board reporting and dashboarding sooner rather than later gives you a leg up.
• Build a bulletproof transaction model: Investors don’t want “finger-in-the-air” projections; they want financial models grounded in reality. Be prepared to present a thoughtfully constructed model built from credible, defensible core assumptions — especially for private equity investors
• Develop the right investor relationships early: It can be tricky for founders to detect which potential investors are just kicking the tires and which are serious. Your banker should act as your investor relations firm — triaging the interest in your company, honing high-potential opportunities, and weeding out false overtures.

The banker advantage: guardrails, guidance, and deal certainty

These five must-dos are part of a broader strategy founders should apply to any transaction process. Savvy founder CEOs realize that the full scope and intensity of work required to run a highly competitive transaction process is too great to take on alone. Having a banker at your side is a win-win; you’ll get further price discovery and maintain the bandwidth to run your business while closing a successful transaction.

You’ll also get a bad cop to your good cop at the negotiating table. A banker like Marks Baughan provides the guardrails for the discussions — strategically deciding when to give over certain information and when to withhold it. They act as an advocate for your company, ensuring the transaction is completely de-risked and has maximum certainty and clarity to close.

Marks Baughan is experienced in helping growth-stage legal tech companies scale toward greater valuations and bigger transactions. We widen the lens for CEOs — enabling you to tell a more powerful growth story and set a trajectory for significant financing in years to come. We leverage our unique market intel in the legal tech space to guide both your immediate transaction and your roadmap for long-term value and opportunities. Learn more about our services and team on our website, or get in touch with us here.

Sources:

1. ¹ Legal tech sees 80% funding surge amid AI boom – Law360 Pulse. (n.d.). https://www.law360.com/pulse/articles/2321847/legal-tech-sees-80-funding-surge-amid-ai-boom