Core Insights - CS Disco is currently valued at approximately 1x ARR, a significant decline from its previous valuation of nearly 20x ARR in 2021, reflecting a broader trend in the B2B SaaS market where companies are facing severe valuation compressions due to decelerating growth and leadership instability [2][7][12]. Company Overview - CS Disco is a legal tech company specializing in cloud-native eDiscovery software, operating in a market valued at over $15 billion [4]. - The company went public in July 2021 at $32 per share, initially seeing a market cap of $2.25 billion when it reached $120 million in ARR with a growth rate of 67% [4][6]. Financial Performance - As of Q3 2025, CS Disco has a market cap of around $250 million, with approximately $110 million in cash and no debt, leading to an enterprise value of about $140 million against $155 million in revenue [6][8]. - Revenue growth has sharply declined from 67% in 2021 to 18% in 2022, and is nearly flat in 2023, with projections of only 5% growth in 2024 and a potential re-acceleration to 10% in 2025 [9][14]. Leadership and Governance - The resignation of co-founder and CEO Kiwi Camara in 2023 amid misconduct allegations has contributed to a loss of trust among investors, further impacting the company's valuation [9][12]. Market Dynamics - The current valuation of CS Disco reflects a market sentiment that prioritizes cash on the balance sheet over revenue, indicating a lack of confidence in future growth prospects [8][12]. - The company faces competition from well-funded AI-native startups like Harvey and Legora, which are growing rapidly and commanding high valuations, further pressuring CS Disco's market position [15][42]. Growth and Profitability - Despite challenges, CS Disco has shown signs of improvement under new CEO Eric Friedrichsen, with software revenue growing 17% year-over-year in Q3 2025 [11][14]. - The company has a solid balance sheet with $113.5 million in cash and zero debt, providing a runway of over seven years at current burn rates [14]. Competitive Landscape - CS Disco's current valuation contrasts sharply with competitors like Harvey, which recently raised funds at an $11 billion valuation, and Legora, valued at $1.8 billion, despite CS Disco having higher revenue [37][39]. - The market is increasingly favoring companies with high growth rates, as evidenced by Harvey's rapid ascent from $10 million to over $100 million in ARR within two years, while CS Disco's growth has stagnated [42]. Industry Outlook - The legal AI market is experiencing significant investment and growth, with companies like Filevine demonstrating the potential for rapid revenue increases driven by AI capabilities [29][33]. - The disparity in valuations between established players like CS Disco and emerging startups suggests a potential arbitrage opportunity for investors, as the market reassesses the value of pre-AI SaaS companies [46][47].