Are legal tech startups back?
Some thoughts on the recent uptick in funding announcements
Over the past year, there’s been a lot of media coverage (see here and here) about the slowdown in legal tech funding. But in the last month I’ve started to notice that there’s quite a few legal startups that have gotten funded. For example:
Fileread, an AI powered e-discovery tech company, raised $6M (July 2023). The round was led by Gradient, Google’s AI fund. Users can upload massive sets of documents to the platform, and ask it questions like “who was involved in the transactions” and receive a list of possible answers. Full disclosure: I’m an investor.
Tangibly, a cloud-based trade secrets management platform, raised $6.5M (July 2023). The company is focused on helping customers “systematically identify and catalog trade secrets and transform them into protected assets” in part through its proprietary AI.
Dealcloser, a transaction management platform, raised $2.5M (June 2023). Notably the product doesn’t seem to incorporate generative AI but instead involves lots of workflows. According to one of Dealcloser’s executives, “[w]hat we’re focussed on is making lawyers the most efficient they can be, and right now that isn’t touching AI.”
Draftwise, an AI powered contract drafting company, raised $5M (June 2023). Investors in the company now include Mischcon and Orrick. They appear to be focused on law firms, as you can tell in their comments to the press. All of their talking points are about security, which is probably the number one concern about AI for law firms—which might not be true of other legal personas.
ECFX, technology that processes ECF notices, raised $7M (June 2023). I haven’t heard of many companies in this space, and they don’t seem to rely on generative AI. However, they do boast a large roster of Biglaw firms as clients. Raising such a significant amount suggests they have a robust valuation, which means they likely have substantial revenue.
Rumors of a contract management technology company (that shall remain unnamed because they compete with my favorite CLM) raising a significant round of funding.
Some thoughts on all this funding news
Every time a wave of funding hits the legal tech space, we see the same pattern. Lots of competitors crowd into the same niche. Startups, that have up until then been pretty selective on hiring, lower their standards to focus on increasing their headcount. For legal professionals looking to pivot into legal tech—this is a great time to “get in” the game. Incidentally this is how I got my first start in legal tech, joining a startup right before they raised their Series A.
For startup CEOs though, it’s a tricky time. Usually when investors flood a sector, there’s a ton of increased competition. Each startup that raises is focused on growing revenue quickly, so they hire a bunch of people on their sales and marketing teams. There’s a belief that you can replicate the efforts of the founders/early employees, and generate similar results. For example, if the startup had two sales reps before funding and got to $1M in revenue, tripling the number of sales reps will lead to 3x the revenue. Right?
Well, not really. Because when the funding environment heats up, competitors raise money too. And everyone adds to their sales teams. So the environment changes. Buyers are suddenly flooded with cold emails and unsolicited DMs in their LinkedIn. There’s a ton of noise. So the same old methods won’t work any more.
This problem is compounded by the need for more internal coordination among employees, which requires hiring full time managers. Often these folks come from large established teams with skillsets that have limited value at startups. Plus, all these new hires—many of whom likely have no experience in the legal industry—still need to get ramped and comfortable in their roles.
Having a hot funding market isn’t the unmitigated good news that it appears to be.
This is especially true in light of this generative AI frenzy among investors. I know it’s an exciting time to see VC fundraising announcements bounce back, and I think there will be lots of career pivot opportunities for ex-lawyers to move into the space. As for the startups themselves though—well, it’ll be interesting to see how it all plays out.
Elon Musk has sued Wachtell over its $90M success fee. As I mentioned on Twitter, the case “forces everyone to explain why other firms are unable to copy [Wachtell’s] lucrative billing practices. All without Wachtell saying a single word. A true masterclass in marketing.”
Some consolidation is taking place in the ALSP world, with HBR Consulting’s investor acquiring KP Labs. Based on the media coverage, it seems that the acquisition was driven by KP Labs’ presence in the corporate legal department market (which apparently is complementary to HBR’s focus on the law firm market).
Fastcase/vLex announced this year’s award winners, who are “law’s smartest, most courageous innovators, techies, visionaries, and, lawyers, and leaders.” Oddly enough the list included me, which was a pleasant surprise. Shout out to all of my fellow winners both this year and in years past—it’s an incredible honor.
Premium Members - Slack Chat
Earlier this week I launched a private chat on Slack for premium members. It’s still very small group, which has allowed me to share a bit more than I usually do on the newsletter. For example, I shared openly about my compensation during the first few years of my career pivot into legal tech sales. Other topics include commentary on careers, sales, and other topics interesting to the group, and we have a channel for you to introduce yourself to each other as well. If you’re a premium member who would like to join, let me know and I’ll add you to the chat!
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