Why are investors pouring money into legal technology?
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When Lehman Brothers collapsed in the 2008 financial crisis, Jason Boehmig lost his job at the US investment bank.
Unlike many of his colleagues, Boehmig knew what his next step would be. He headed to law school, which had always been his plan. But it was with the benefit of having worked first as a trader at Lehman, where he saw first-hand the transformative potential of new technology.
Now he is co-founder and chief executive of Ironclad, which develops automated contract management software for law firms and companies. The San Francisco-based venture is among a number of legal tech unicorns — businesses valued at more than $1bn — that are raising funds from leading start-up investors.
After law school he did a stint as a technology lawyer at Silicon Valley law firm Fenwick & West, while studying coding at the weekends, and concluded that properly designed tech could change how lawyers approach contracting. “Technologists, when they made software for lawyers, didn’t get it — and lawyers didn’t really use technology because it wasn’t what they wanted,” he says.
Ironclad launched in 2014, winning automated contract work from companies such as L’Oréal, Mastercard and Dropbox. Clients can create contracts and negotiate with parties using a digital platform, with the software able to extract data from the contracts that is useful for the rest of the business. It can handle all types of contract, from sales deals to complex non-disclosure agreements.
Ironclad has been valued at $3.2bn, and won backing totalling about $333mn from leading venture capital firms such as Y Combinator, Sequoia Capital and Accel.
Other legal technology unicorns include Clio, which provides cloud-based legal tech, and cloud-based ediscovery firm Everlaw. Disco, which is located in Texas and provides AI-powered software for ediscovery, floated in July 2021.
Backers pour in
Since then, venture capital money has been pouring into legal tech start-ups particularly in the US. External investors are waking up to the potential rewards from tech that makes a lawyer’s life easier, whether that is esignature tools or software to draft and review contracts. Also, the legal sector’s former laggardly approach to adopting tech means the potential for growth is deemed that much bigger.
Last year, data provider Crunchbase calculated that legal tech companies had topped $1bn in venture capital investments in the nine months to September 2021, beating the previous high of $989mn in 2019.
A report by LawtechUK, a government-backed initiative to help modernise legal services, found that regulatory compliance and legal document management attracted the most cash. It estimated that greater use of digital technology by legal service providers could bring them overall productivity gains worth up to £1.7bn annually.
Perhaps inevitably, the growth of legal tech is compared by some to the explosion of innovation in financial services technology. But it is still small when measured alongside the fintech sector.
Christina Blacklaws, chair of the LawtechUK advisory panel, and managing director of Blacklaws Consulting, notes that the hype in which “almost every legal job would be replaced by robots” has given way to something “much more realistic”. Nevertheless, she adds that younger lawyers expect greater use of technology as a matter of course.
Jerry Ting, co -founder and chief executive of US-based Evisort, is one beneficiary of the enthusiasm for legal tech. His company, which uses AI to help digitise the contracting process and then organise and analyse the data, announced a $100mn in fundraising in May. He argues that lawtech start-ups have a future in their own right. “Before now, the attitude was that you might build a business with a couple of million dollars of revenues and then sell it to one of the big incumbents,” he says.
One legal tech company with that level of ambition is UK-based Luminance. Valued at $100mn in 2019, it uses AI for the legal processing of contracts and documents. The tool can form an understanding of the meaning in documents in any language. Eleanor Lightbody, chief executive, explains why the timesaving potential of AI appeals: “The contract landscape can be complex as there has been an increase in regulation and an increase in compliance, and companies need to comply with all of these.”
She cites the pressure on companies after western governments imposed sanctions on Russia after its invasion of Ukraine in February. US-based Luminance client IDEXX Laboratories was able to review all its contracts quickly to assess its contractual ties to sanctioned entities. Working out its exposure to Russia took about half an hour, using the tool, compared with potentially weeks without it, Lightbody says.
As well as saving time, legal tech is being adopted to facilitate new work practices, such as the shift to remote and hybrid working spurred by Covid lockdowns. Blacklaws points to esignatures as an example. “Prior to the pandemic, most signatures were ‘wet signatures’ . . . ink on paper,” she says. “Now the vast majority are signed electronically.”
As for the lawyers themselves, suffering burnout as they toil over important but time-consuming and mundane tasks amid a wave of deals, one hope is that technology will free them to undertake higher value work such as strategic advice instead.
As Evisort’s Ting puts it: “If you are a lawyer in your late twenties . . . and you are going through pages and pages of contracts you are going to become disillusioned quickly.”
Seven case studies
The companies below showcase different ways in which technology is being used by in-house legal teams and law firms to improve speed and transparency in business processes. Source: RSGI
This Germany-based company’s automation software enables lawyers, whether in-house or private practice, to build their own applications without the need for coding. This means they can automate business processes without relying on support from software developers, allowing legal teams to solve client problems more quickly, and with greater flexibility to make modifications and improvements. French state-backed utility group Engie is using Bryter in several areas of its business. The software was first adopted by Engie’s legal team; following a two-hour training session, lawyers who had never used the tool before were able to automate documents.
Established in 2013, Texas-based electronic discovery provider Disco is improving the process by focusing on the user experience. WilmerHale, a US law firm that uses Disco software internally as well as to provide discovery services to clients, says it was impressed by the speed of the technology and how intuitive it is to use. One feature that stands out for lawyers is the way the artificial intelligence tags documents. The AI can learn from how a lawyer has tagged documents and apply that to others related to the same matter, speeding up the process of organising evidence.
This Chicago-based document and email management company was founded in 1995 and creates technologies to help professional services firms share knowledge within their organisations. Over the past five years iManage has integrated AI into its tools to automate processes such as contract review and repapering, or esignature management in a transaction. Using AI also makes the search function more sophisticated, which helps clients better access data in the document management system. The pandemic accelerated iManage’s acquisition of new clients threefold, primarily among companies.
Following a series of acquisitions, the California-based cloud software company has built a connected suite of technologies for legal and professional services firms. Its products include software to manage client relationships, risk and compliance, finance and operations. Through its 2021 acquisition of content management provider Repstor, the company also offers a tool to help law firms and in-house legal teams collaborate and manage content using Microsoft Teams. By connecting its own suite of tools, it is helping clients to combine data, generate new business insights and speed up processes. For example, law firms can see more clearly what work they are doing for which clients, the source of the work, and track key client relationships. Intapp listed on Nasdaq in June 2021.
Legatics is a London-based transaction management platform used by a number of global law firms. Instead of tracking the progress of a transaction by manually creating a checklist in Microsoft Word, lawyers and other parties involved in a deal can use the web-based platform to see clearly the status of each document in the transaction process. Lawyers at law firm Dentons say this feature allowed them to close an acquisition financing in a matter of hours rather than days because all parties could easily see what remained to be done. This cut out confusing and time-consuming email exchanges that are normally involved in the process.
This New York-based legal services procurement platform is used by several Fortune 100 companies to buy services from law firms through a transparent and real-time bidding process. It acts as an intermediary, enabling clients to make faster and more informed decisions on which law firms to choose. With data from close to $6bn of request-for-proposals to law firms on its platform, Persuit can provide a market rate for complex legal services, such as patent litigation in the US. Along with data on price, the platform also collects and shares intelligence with buyers on law firms’ case strategies, as well as performance on diversity and inclusion metrics.
The Chicago-based legal and compliance software business regularly invests in new technology in order to stay ahead in areas such as AI. Its most recent acquisition, of text analysis software company Text IQ, helps identify if a document is legally privileged, which determines whether it can be withheld from a third party. Relativity is also investing in sentiment analysis, a form of AI that looks for context and emotive language when reviewing documents. This technology is allowing the business to expand into new areas of investigation such as identifying and investigating bias and harassment in organisations by analysing the text in, for example, emails and virtual chats.
RSGI, a legal industry think-tank, selected the seven companies above, taking into account third-party market commendation and interviews with these businesses and their clients.
What to ask when buying new legal technology: four key questions
1. Can existing technology do it?
Technology that is already easily available for business use is increasingly favoured over new software, particularly among in-house legal teams with limited budgets. For example, many teams are using modified versions of Office365, G-Suite or workflow systems such as ServiceNow to triage and assign work.
2. Can the tool work with existing systems to access data and new insights?
Where relevant, the technology should connect and integrate with existing systems, so data can be shared between them and silos broken down. This enables an organisation to connect and pool bigger sets of data to generate new insights and achieve a more complete picture of its business, clients and work.
3. How close is the user experience to consumer technology?
Several of the tech companies featured in the case studies above took time to understand their end user and ensure that the tool would be as compatible as possible with current working habits. This involves having a user interface that is easy to understand and processes that feel intuitive. Check that the technology has enough flexibility to adapt as processes change.
4. Does the proposed tech make your people’s jobs more enjoyable?
With ever stiffer competition for skilled workers, technology can and should be a tool to make jobs more interesting and rewarding. Tech that automates laborious, low-value tasks will encourage adoption. Data from the tool should also enable the business to deliver higher-value work to clients by providing new, deeper and more accurate insights.
List compiled by RSGI
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