Michel Narganes and Matthew Melville, partners, Atrium. (Courtesy photo)

Atrium Legal Technology Services Inc., the legal software company backed by $75.5 million in venture capital, may be kaput. But the two lawyers that came on board in January to run Atrium LLP, the law firm side of the hybrid project, in its short-lived pivot to a new business model believe there's still an opportunity for them to provide legal services to startups in a novel way.

Matthew Melville, a corporate lawyer formerly with Goodwin Procter and Lowenstein Sandler, and Michel Narganes, who previously worked as senior corporate counsel at Sitecore, joined Atrium as it moved away from in-house attorneys and towards a network of "preferred" outside attorneys.

But they did not expect founder Justin Kan, the Silicon Valley entrepreneur who previously sold the livestreaming platform Twitch to Amazon for $970 million in 2014, was going to pull the plug on the company just two months later.

"I wasn't aware that the law firm was going to be dissolved when it was," Melville said. "I thought we had a fighting chance to build out a little more of a profitable Atrium." 

Melville and Narganes arrived at Atrium as Kan announced that the company, founded in 2017, was expanding outside of legal services to focus on a "professional services network" supporting startup founders. In doing so, a number of in-house attorneys lost their jobs.

"It was not feasible paying Cravath-scale salaries to junior or mid-level associates and only representing early-stage companies," Melville said. "That only works well if you're a firm like Cooley and doing IPOs."

Instead, as the new managing partners, they started building a platform of providers: roughly 40 to 50 lawyers that included several Atrium in-house veterans, attorneys from Bay Area firms CGL and SPZ Legal, and specialists that assisted Atrium under its prior model.

"We were trying to right the ship. Atrium had negative margins. In a post-WeWork world, that was not acceptable any more," Melville said. "We had to figure out a way to make money on every legal service that we sold."

According to Melville, he and Narganes worked to shore up the firm's existing client base and pitched them on a new subscription model with consumption-based pricing.

"We got to a point where we expected to hit a 45% margin on every hour of legal services we provided," Melville said. "We could see a path to create a valuable tech-focused law firm."

When word emerged last Friday about the prospect of a dissolution, the two managing partners met with Kan and built a pitch aimed at keeping the operation running.

"We felt mildly confident that we could show the new numbers and convince the board that we could move forward," Melville said. "We presented everything. But at the end of the day, the board believed that this wasn't a venture-backable model."

In short, even if the firm could be profitable, it was never going to achieve the scale and deliver the big growth necessary to make it appealing for another round of funding.

But Melville and Narganes still believe the business can be successful as a law firm. Since the announcement of Atrium's dissolution, they say they've had former Atrium lawyers commit to remaining on the platform and clients likewise commit to staying in the fold.

One key step will be putting in capital. Although the pair held the title of managing partners in Atrium LLP, they treated the partnership as a corporation upon their arrival and did not have to put any of their own resources in.

"Now we're going to switch that up," Melville added. "We have all the systems in place to have revenue coming in each month."

There are also plans to create a stand-alone version of Atrium's technology to serve the law firm. But Melville said that Atrium never reached its end goal of building an "all-in-one" technology platform aiding lawyers in serving startup clients. In the absence of a holistic solution, there's plenty of stand-alone options in the marketplace.

"I want to use as much of the technology as possible, but at least initially, we'll leverage all the good stuff that's already out there," he said. 

In the end, the pair believe there is a path forward.

"Atrium was not a successful venture-backed business, but the lawyers are very good," Melville said. "There's still something in the legal market that is missing for startups, and with our knowledge and what we've learned, we've got a lot of great insights."

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