Shares of CS Disco (NYSE: LAW) plunged about 20% on Tuesday as investors digested reports that Legora, a legal artificial intelligence startup, is in talks to secure $400 million in new funding at a valuation north of $5 billion.
The drop in LAW stock comes amid what market participants have labeled an "AI scare trade" - a pattern in which established public companies experience selling pressure following news that venture-backed AI entrants are drawing substantial private-market capital. Recent instances of this investor behavior have affected firms across multiple industries, including software, private credit, real estate services, wealth management, insurance brokerage and freight transportation.
Reporting on Legora’s fundraising discussions indicates that, if completed, the round would be the startup’s third capital infusion in roughly six months and would bring its total funding in that span to $600 million. That tally reflects a $150 million raise in October at a $1.8 billion valuation and an $80 million raise in September at a $675 million valuation.
The same reporting also noted momentum around rival legal AI companies. One rival, Harvey, was reported to be in talks to raise $200 million at an $11 billion valuation, following a funding round two months earlier that valued it at $8 billion.
CS Disco’s selloff occurred even though the company recently unveiled what it described on February 9 as "the industry’s first scaled agentic AI tool for fact investigation and eDiscovery." The timing highlights a disconnect between product announcements from public legal tech firms and investor reactions to private-market moves by startups deploying similar AI capabilities.
The episode illustrates a tension between robust private-market valuations for legal AI startups and negative price action for incumbents in public markets as investors reassess competitive dynamics. It also reflects broader investor sensitivity to large, well-funded entrants across several sectors that rely on software, data and automation.
Context and implications
- Legora is reportedly pursuing $400 million at a valuation exceeding $5 billion, which would be its third raise in about six months.
- Prior Legora financing rounds included $150 million in October at a $1.8 billion valuation and $80 million in September at a $675 million valuation.
- A rival, Harvey, is reportedly in talks for $200 million at an $11 billion valuation, following a recent round that valued it at $8 billion.