There’s an interesting debate on the issue of investment in solicitors continuing on the Law Society’s LinkedIn group. I think it’s worth looking at the issues here too.

The basic question that started the debate is ‘what impact will private equity have on the legal sector?’ Will venture capital (VC) and private equity businesses invest in legal services firms? For the majority of firms, I think not.

To assess this, we need to look at the legal services world from the outside and, I would suggest, also in more detail at the structure of the market for legal services, before we look at where VC money will go. Who are the future potential clients and how will they benefit from well-financed law firms or the alterative suppliers?

The market suppliers could be grouped like this: the large law firms (top 100), regional firms, local high-street general practice firms, and special or small one- or two-partner firms. That’s a rough guide to the different types of traditional law firms.

Each of these types of firms services different client groups with different requirements. Personal injury is different to matrimonial work or domestic conveyancing. For a VC investor to unpick all of this in an attempt to find the key to exceptional profits sounds to me like a lot of hard work, compared with starting from scratch with a brand name legal or lawyer (not solicitor) offering in non-reserved activities.

However where are the examples from other markets for professional/artisan services? Accountants, surveyors and architects; builders, plumbers and decorators are other groups that don’t appear to be attractive to a process of collection, branding, developing and selling that VCs look for.

There are several other issues that will have a bearing on this issue. Prof Susskind has raised the interesting idea of a large latent market for legal services that could be serviced by the right offering. The nature of personal and business legal services makes recommendation as important as price in consideration of where to go for legal help.

The traditional sector (outside the top 100) will be left out of the potential investment bonanza. VCs will go for ‘new’ legal service providers, mass market, high volume, IT driven, branded offering. This is an attempt to crack Prof Susskind’s ‘large latent market for legal services’. Traditional firms are high-cost/high-margin operation at present, therefore too costly to buy into.

The increase in supply of legal services will put pressure on price/margin/profit, so traditional firms will have to work hard to justify their high prices. To achieve that justification of higher fees, solicitors can build on the very personal nature of legal services that favours the traditional firm approach.

However, firms must start to compete on marketing and promotional terms with the new branded alternatives. General practice firms have a bright future if they address their management and marketing issues. Accountants, architects, surveyors and dentists still band together in less-regulated service markets – though it is sobering to remember that we have lost almost all high-street insurance brokers to Direct Line and its ilk.

I could go on… But instead, why not tell me what you think?