Why the MSO Model Works — and Why BigLaw Is Different
Private capital’s first real push into law firms has focused on personal injury and other consumer-facing practices. Most of these investments use a structure called an MSO.
So what exactly is an MSO?
In most states, non-lawyers can’t own law firms or share in legal fees, so investors instead invest in a separate management company that handles things like technology, marketing, finance and HR for the law firm in exchange for a fee. The lawyers still own and control the law firm, while the investors have an economic interest in the business operations around it.
The MSO structure lends itself particularly well to personal injury because the business is so back-office driven.
PI firms tend to have high case volumes, relatively manageable conflicts and a lot of work that can be standardized.
Marketing drives new clients.
Intake can be centralized.
Technology can make the operation more efficient.
For an investor, that creates a business that can be modeled and, at least in theory, replicated across multiple firms.
That’s very different from an elite corporate law firm.
The most valuable assets are often the lawyers themselves. Partners control client relationships and specialized lawyers can be very difficult to replace. Conflicts can make otherwise sensible combinations impossible. And a major partner departure can take an unacceptable chunk of revenue and expertise with it.
Until lately, this seemed to put a natural limit on how far private capital could move up the legal market.
It may not.
In May, Massumi + Consoli, a corporate boutique founded by former Kirkland lawyers, entered into an MSO transaction with Thrive Capital.
And the stated reason for the investment wasn’t advertising or building a bigger intake operation. It was AI and technology.
That may be the more important part of the story.
Next: AI is creating a capital problem for BigLaw that law firms have never really had before. And private capital may have a solution.