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So, where's all the legal tech VC?

By: Drew Amerson

 

Congratulations! You built your product, successfully administered a beta, and iterated based on the new data. You're ready to start raising, but are not quite sure where to start. Read on for LexLab Director Drew Amerson's thoughts on the current legal tech funding climate.

 

What a difference a year makes!

 

It was just last October that columnists were explaining how investments in legal tech had stalled. From a peak around $426 million in 2015, it seemed the pool of venture capital available for innovation in the legal sector had all but dried up by the end of 2017. But that downward trend has not held steady. 2018 has seen more than $400 million in funding deals closed so far.Led by the likes of Logikcull and Everlaw, which each closed $25 million Series B rounds, investments in legal tech have bounced back and look to be on track for their biggest year ever.

 

That’s not even counting LegalZoom’s half-BILLION dollar investment round that just closed at the end of July. Funding in legal tech is on pace to pass the $1 billion mark this year.

 

But even that astounding figure does not account for the full range of investment in the legal tech sector. For one thing, it doesn’t include investments in companies outside the United States. Nor does it capture the full scope of investments made by angels, friends and families, and bootstrapping entrepreneurs. The number also fails to account for investments in internal research, development, and product deployment being made innovative law firms.

 

Firms around the country are beginning to recognize the importance of applying innovation to their practices.The firms pushing technological progress within the legal profession can be sorted into three levels of commitment. The first and largest group includes those firms developing their own in-house services and solutions. Of these, perhaps the most innovative is Atrium. What makes the Atrium model so interesting is that rather than being a law firm being forced to adapt to technological change, it was essentially founded to complement a Legal Tech Solutions company. Together, Atrium LLP (the law firm) and Atrium LTS (the legal tech company) promise to develop symbiotically, helping each entity thrive in its own space.

 

A smaller subset of law firms has taken the next step by directly investing in the companies delivering technological solutions. For instance, U.K.-based firms TLT and Slaughter & May have invested in companies providing automated contract review services. Finally, a few firms have become so convinced by the promise of legal tech that they have launched their own incubators. These include Denton’s Nextlaw Labs, Allen & Overy’s Fuse, Mishcon de Reya’s MDR LAB and Reed Smith’s GravityStack.

 

Aside from the small number of law firms who have been investing in tech start-ups, you might be wondering where all this money is coming from. But, unfortunately, it’s not easily answered. I recently spoke with the CEO of legal tech company that was just closing its Series A financing. We both had given some thought to this issue, even trying to reverse engineer the answer by digging through Crunchbase. Ultimately, however, this CEO told me that outside of the law firm incubators, nobody is focusing solely on legal tech.

 

Perhaps this is for the better. Your best chance for long term success will come from creating a great product, regardless of whether its legal tech angle. That’s the only way to ensure interest – and funding – even after the current wave of legal tech investment crests.

 

Questions? Comments? Concerns? You can reach Drew at amersond@uchastings.edu

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