Legal Tech in October 2022

Startups are killing it, small community events are in, and why I'm so bullish on legal tech

Me hosting the American Legal Technology Awards in Nashville last weekend

There’s a lot of doom and gloom out there about legal tech. For some reason all of the journalists in this space keep writing about how the sky is falling. Which is interesting, because the focus is really only on investment activity and valuations. Or as I put it in a comment on LinkedIn yesterday:

So today I wanted to share a few things that I’ve personally seen and heard in legal tech, as of October 2022.

1. There are startups that are killing it out there

I mentioned earlier that most of the legal tech media covers investment activity. Personally I think that’s because journalists in this space tend to lack nuance—most of them are from outside of this space, and just “passing through” so their articles are very general.

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As someone with a large audience in legal tech, I have a lot of off the record conversations with founders in this space, and what I hear is a lot more bullish. Yes, fundraising in this environment is tough, but the startups’ underlying business performance is incredibly strong.

I think there are 3 reasons for their outperformance:

• They’re solving real problems with product market fit. Let me explain: Fast growth is “easier” when you’re early stage. Late stage startups, on the other hand, have a harder time with growth—it’s easier to go from $1M to $2M ARR than $10M to $20M ARR. Having said that, early stage startups face unique challenges too, namely unclear product market fit. The early stage startup outperformance isn’t a sign that we’ve “turned the corner” on a macro level necessarily (caveated by the next point) but that the problems these startups are solving are real ones, that buyers will pay money for.

• The legal economy is more resilient. Having been part of this industry for over a decade, I’ve noticed that it’s just different here. Legal doesn’t operate under the same buying supercycles as, say, sales and marketing—whose budgets get slashed when the economy is weak. Legal on the other hand, often buys more tech during downturns because the work (e.g. bankruptcy, litigation) is resilient or countercyclical. See this article by Mary O’Carroll titled Economic Pressures Likely Will Be Catalyst for Even More In-House Tech Adoption

• They don’t “fit the narrative” which helps them fly under the radar. You know how sometimes founders can get attention easily if they’re from Stanford or ex-Stripe? Well, those folks have it easier from a fundraising perspective. Founders that don’t fit the mold (whether they’re from an underrepresented demographic, or have work history outside of what you’d expect) have to scrap extra hard to get the same level of attention. So their “outperformance” is actually ordinary, expected performance—observers just aren’t calibrated to their potential bc of stereotypes.

There are probably more individual, specific reasons why these startups are killing it too. I went to Nashville last week for two days and heard a lot of these stories. In fact, there are also some “slow growth” small businesses serving legal that are absolutely killing it. Growth rates are must slower than the typical venture backed startup, but these are profitable, enduring businesses that have created significant financial outcomes for their founders.

In conclusion, even though we’re seeing valuations drop for late stage startups just because of investor sentiment—that hasn’t had an impact on early stage startups or niche companies that serve a smaller number of customers profitably.

2. Small community events are hot

There have been some great writeups of Clio Con over the past few days, and one of the biggest themes is that the size, scale, and success of Clio hosting its own conference has led to a weaker experience for attendees. This is a common trend for all events. I remember during the pandemic hosting my own virtual meetups. As the number of attendees grew, the experience became weaker for everyone.

This is why everyone complains about all the major legal tech conferences. LegalWeek is probably the best example of this.

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Programming is weak, everyone feels sold to, and it feels more like work than it does friends hanging out.

On the flip side, smaller gatherings are doing really well. People want to connect with one another, and don’t want to be pitched to. Incidentally this is how Ironclad found its early customers—our founders would host small intimate community dinners, and *never* discuss the product. It turned out to be an incredibly effective way to promote the product—perhaps because the goodwill generated from the small events outweighed their lack of scale.

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This year I sought to attend more in person events since things were “going back to normal” after COVID, so I attended several conferences and events.

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Every single one of them were overwhelming. But the best experiences and memories, and relationships, were formed at small gatherings “next to” the main conference. Dinners, drinks, random hanging out—that’s where the action’s at.

3. Buyers are more receptive to tech now

The heavy focus on investment activity obscures the fact that attitudes towards tech in the legal industry have changed dramatically. When I first got into the game back in 2016, everyone was skeptical of the cloud. Many of my sales pitches had little to do with our solution—it involved convincing lawyers why they should move away from legacy “on premise” solutions and to the cloud.

Today, everyone in legal knows that technology and the cloud are the future. So removing that barrier will have a huge effect. Interestingly, it seems that all of the first generation startups (founded before 2015) in the competitive niches (e-discovery, contracts, practice management) did so much outbound sales that they educated the market about tech/cloud. The second generation startups (founded after 2015) had it easier because someone else had “taught” the market about the cloud.

Another tailwind includes the growth of CLOC and other trade organizations.

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They hold conferences, events, webinars, that teach the market about technology. They also make it easy for startups to efficiently educate buyers about their solution, and the potential for tech to drive business outcomes. By making go to market more efficient, it let tech companies evangelize the benefits of b2b technology more easily.

There are so many reports of tech buyers increasing budgets in the coming years. Although I do think that some legal buyers might struggle especially if they’re tied to the public markets in some direct or indirect way (e.g. legal depts at late stage startups, law firms that service VCs/startups) everyone else is going to be trucking along.

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Machine Learning Kelly @Undersized_5

@heyitsalexsu I think the recession will also force folks to do more with less, which possibly means leveraging tech where it's possible

In conclusion, I’m incredibly bullish on legal tech startups. If you read the legal tech publications out there that only focus on financing events though, you’re going to miss the boat. That’s what inspired me to write this Twitter thread that inspired this article.

Anyways thanks for reading this article. If you’re interested in hearing about the specific startups that are crushing it, subscribe to my newsletter here. I’ll use your interest (or lack thereof) to see if I should reach out to the founders to help spotlight them.

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1. One notable exception is Richard Tromans who publishes Artificial Lawyer and is hands down the best outlet for legal tech commentary.

2. Everyone bonds over complaining about Legalweek.

3. Community dinners are a tradition we continue even today

4. I also tried to host my own events. For example, in February, I hosted my first happy hour in LA to invite friends I’d only known online. You can see me promoting this event in my Substack article back in Feb here.

5. I wrote about my personal experience at CLOC this year here.