Annual review 2017

A Fuse has been lit

The launch of Fuse, A&O’s tech innovation space, and an exciting tie-up with the fintech start-up, Nivaura, are helping us understand how to harness the power of disruptive technologies that can transform our own and our clients’ operations.

Avtar Sehra

CEO, Nivaura

Shruti Ajitsaria

Head of Fuse and Counsel at Allen & Overy

Jonathan Brayne

Chairman of Fuse and Head of A&O’s Innovation Panel

Philip Smith

Partner, Allen & Overy

A corner of A&O’s Bishops Square headquarters, standing on the border of Shoreditch and the City of London, has this summer been transformed into a new, largely open-plan, collaborative workspace.

But behind the physical redesign lies a bigger piece of construction work – building a strategy to understand and harness the disruptive technologies that will undoubtedly transform the way the firm works and allow it to meet our clients’ needs in faster, smarter, more cost efficient ways.

Welcome to Fuse, a collaborative tech innovation space, set up to explore and develop practical technology solutions in three interconnected areas – legaltech (helping in-house lawyers and law firms operate and deliver their services in smarter ways), regtech (supporting businesses in complying with law and regulation) and dealtech (developing new ways for businesses to negotiate and transact with each other).

Jonathan Brayne, chairman of Fuse and head of A&O’s Innovation Panel, explains the genesis of the project. “We know that both what we do and what our clients do is going to be quite radically changed by technology in the coming years and we know that will throw up a lot of opportunity.”

“But we felt that we weren’t nearly knowledgeable enough about the emerging technologies, how they are going to affect us and our clients and, therefore, how we could take advantage of those opportunities.”

It’s a dilemma that faces businesses across many sectors and recent times have seen many look for ways to invest in the very technologies that threaten to disrupt their business models, often by setting up incubators or accelerators to nurture promising technologies and the entrepreneurs behind them.

When thinking through its response to the disruptive forces impinging on the legal sector, A&O judged it needed to take a slightly different approach if it was to really make progress in creating relevant solutions.

The idea was to tackle the challenge from three different angles by bringing together A&O’s own technology group, tech companies and clients. Collaborative thinking and development, within a vibrant physical workspace, looked like the best way to proceed. Fuse was born.

But this is new ground for the firm, and when the invite went out in May asking tech companies to apply to join, there was little way of guessing what the response would be, says Shruti Ajitsaria, head of Fuse.

In fact, the response was overwhelming, with 84 start-ups applying to join the first cohort, 12 chosen to go through the final selection stages, and with seven eventually joining Fuse when it opened its doors in September.

Redrawing the mapRead more

“One of the few things we had by way of market analysis when we began looking into this was Legal Geek’s start-up map, which sets out the current categories of legaltech, and the names of some of the companies addressing those categories. That map names about 65 companies, so receiving 84 applications was a very good result for us.”

“That’s a key part of why we are doing Fuse,” says Jonathan. “We are now beginning to be able to map the market for ourselves and build a database of the sort of companies out there and what areas of legaltech, regtech and dealtech they are engaged in. That’s market information that anyone who doesn’t have something like Fuse just won’t have.”

Was the team surprised by the sort of companies applying to join?

“I’d expected to have tonnes of AI and regtech companies to apply, but actually some of the dealtech companies are doing things that I’d never really thought about or considered,” says Shruti, adding that there were fewer applications from companies using technologies like blockchain than A&O would have liked.

For Jonathan that points to one of the clear issues the firm faces in identifying promising collaborators and why it was so important to recruit a group of outside experts to join him and Shruti on the selection panel, including representatives from Amazon, JP Morgan, Funding Circle and Balderton.

“It’s really quite hard without extensive research to get to the bottom of the technologies these companies are using. It’s very different from doing a commercial partnership with an organisation, so you have, to some extent, to follow the wisdom of the crowd who are with you making the selection.

“And you have to be realistic. There will be some successes and there’ll be some that may not realise the potential we thought was there.”

First to knowRead more

Clients have been very receptive to the project and the team is now working on a number of ways to bring some of them into the project, to complete that collaborative community.

“The response has been universally positive, because it’s just such a novel initiative for a law firm to be doing,” says Shruti. “I think clients are very interested to find out what we are learning – which companies are looking good, what technologies they are using. They want to be among the first to know.”

Through Fuse, A&O will hope to match a technology and a provider directly to a challenge being faced by a client. It may also look to target issues common to a number of clients in the same sector and then, in later cohorts, invite tech companies that can propose a solution – or even just part of a solution – to that challenge to apply to join.

“Between those two ends of the spectrum you could imagine all sorts of ways our clients might get involved,” says Jonathan. “But, crucially, the knowledge we are gaining through Fuse should hopefully spread throughout A&O and equip us to engage with clients much better in all sorts of situations where technology can be part of the solution to the challenges they face.”

Another collaboration modelRead more

A&O’s growing partnership with the fintech start-up, Nivaura, has provided another way to explore tech collaboration.

Although the company will become ‘Entrepreneurs in Residence’ at Fuse to help mentor and support other start-ups involved in the programme, the link developed entirely separately, as Phil Smith, an ICM partner in London, explains.

Associate Michael Zdrowski suggested that business development manager Rose Hall have a conversation with Nivaura’s COO, Vic Arulchandran, at a conference they both attended. Vic mentioned that the company was developing a tech solution in the private debt, private placement space. Rose suggested he talk to Phil and his colleague, Richard Cohen, who were heavily involved with A&O’s work in this area.

“Because she was there and aware of what we were doing, it was a case of being able to join the dots,” he says. A meeting was set up which proved immediately fruitful.

“Within five minutes of talking to Vic and Nivaura CEO Avtar Sehra it was clear to me that what they were working on, and how they were approaching it, could be very, very interesting.”

Nivaura is developing a tech solution that makes it affordable for SMEs to access the capital markets. In doing so they were potentially creating a new asset class and, in the process, offering investment banks a new line of business. Given that funding of smaller businesses has been such a hot political topic since the financial crisis has made it all the more interesting, he says.

“I was sitting there and thinking this is all the stuff we’ve been looking at in the conventional space but actually one of the prohibiting factors has always been cost. Here they were offering a product that would reduce that cost significantly.”

From this starting point the relationship has quickly developed with A&O helping Nivaura commercially, not least in supporting it to test its system in the Financial Conduct Authority’s regulatory sandbox environment and in preparing documentation for its automated process.

Supporting the company as it contemplates raising new finance and offering pro bono support for its efforts to raise research grant funding is also part of the growing relationship. Phil will also be joining the Nivaura board as a non-executive director and A&O is now preparing to make an equity investment in the business.

Control and experimental solutionsRead more

Avtar explains that the Nivaura team has gained restricted clearance under the MiFID/CASS regulations to trial its system in two Financial Conduct Authority sandbox test environments, the second of which got under way over the summer.

It is testing a control solution using traditional financial services infrastructure and, more radically, an experimental solution using a public blockchain infrastructure to register and hold client assets and money. The hope is that the experimental approach will prove that Nivaura can build significantly on the cost efficiencies it is achieving with the control solution.

Reflecting on the FCA sandbox work, Avtar says: “One of the aspects tested from a compliance perspective was how a public blockchain can be used to register and manage the custody of client assets in a way that would be acceptable in the UK’s regulatory and legal framework.”

Progressively, the insight has deepened for A&O. “The more closely we looked at the business it became clear to me that Nivaura was attracting significant third party investors and a number of big organisations were taking an interest in the technology.

“Among them was Capita Asset Services (CAS) whose traditional business is the provision of custody, agency and trustee services for bond issuances which have until now had to go through clearing houses using third parties to manage bonds and payments. Like us, CAS realised pretty early on that if the Nivaura platform gained traction it could remove the need for certain third party service providing. Capita has engaged closely because it realised this could well be their future and that their past may well just disappear.”

“Nivaura is a great example of why we are doing Fuse,” says Phil. “You’ve got a company creating something new which could be completely transformational using a range of technologies including AI, blockchain and smart contracts.

“In one microcosm they are looking at all the stuff we’ve been scratching our heads about, wondering how this will affect our business. It’s a brilliant way of getting really close to where the technology might take you.”

Jonathan agrees: “In a way it’s exhibit A when you talk about dealtech because they are creating an end-to-end process that sees the deal from conception, through completion and performance, to termination using a full suite of technologies. It’s potentially disruptive but very complementary with A&O’s relationship with its clients, so, in many ways, it’s a great example of what Fuse can help facilitate.”

From Nivaura’s point of view the partnership is also proving successful.

“With A&O we immediately saw the level of expertise we could tap into,” says Avtar. “Some corporate investors will have an agenda that’s different from start-ups. With A&O it was more of an intellectual engagement – it was, like, let’s understand where this industry is going, try to develop a good product and see where it can go.”

So much to learnRead more

It also illustrates that on both sides there’s a lot of learning to do, and the collaborative approach enshrined in the Fuse project creates an ideal environment for that learning.

“I think that is a key part of Fuse,” says Jonathan. “There’s an awful lot we can learn and even if we stopped the project today – which we don’t plan to do – there is an awful lot we’ve learned already.”

Working with a company like Nivaura also gives you a view into the very tight-knit ecosystem of tech companies, says Phil. “They all know each other, they all do the same circuits and conferences, they know who’s doing what and how well different technologies are progressing.

“Through Fuse we are getting a privileged view on a world that is new to us, and, perhaps we’ll get a better overview of the landscape – or, at least, see enough of the picture to have a good crack at grasping the opportunities coming up.”