Lex Machina

By Anne Beyer, Robert E Siegel, Donna Bebb
2022 | Case No. E792 | Length 13 pgs.

Lex Machina, a legal analytics start-up, needed cash to drive its continued growth trajectory, and had an appealing Series B term sheet in hand. Founded initially as a joint public interest project between SLS and Stanford’s computer science department, Lex Machina had spun off to create a language processing software and machine learning platform to glean insights from legal documents, to support decision making at each stage of the litigation process. Similar to other start-ups, Lex Machina’s investors held preferred stock, its founders held common shares, and employees received options granting them the right to buy common shares.

After an informal acquisition offer from Bloomberg, the Lex Machina board explored competing acquisition bids. LexisNexis, a longtime leader in the legal database field, emerged as the highest bidder. Should Lex Machina pursue the Series B — or was this the right time to consider acquisition offers? What would be the best option for the company’s future — and for the existing stakeholders?

Learning Objective

This case is designed to help students understand the pros and cons of expansion vs. acquisition, and how to determine the optimal course — one that keeps existing stakeholders satisfied while solidifying a path to continued rapid growth and transformational product development.
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