The Biggest Thing Happening In Legal Tech
Why it's such an extraordinary time in the contracts tech space and why most lawyers aren't able to see the opportunity right in front of them
There’s no question about it: The contracts tech space is hot. While the rest of the tech startup world is reeling from a terrible IPO market, lower valuations, layoffs, etc. the the contracts tech market saw hundreds of millions in announced fundraises in the past few weeks. My friend Richard Tromans summarized this trend on Artificial Lawyer:
There are lots of people smarter than me who can probably explain why. For me, personally, it represents validation that I made the right decision in 2019 to pivot out of e-discovery tech to contracts tech. Today I’ll explain why I believe contracts tech (ie. contract lifecycle management, or CLM) is the biggest opportunity in legal tech right now despite the fact that many lawyers and commentators believe it’s overhyped.
What the hell is CLM?
In recent years, we’ve seen the explosion of successful “CLM” startups that have created technology products to help improve the contracting process. Historically legal tech has been dominated by tech that’s primarily designed for law firms and litigators. Think e-discovery, practice management, or legal research. I mean, that’s what I thought of whenever I heard “legal tech” when I was still practicing law.
Fast forward to today. We are seeing huge amounts of interest in CLMs, both on the investor side and on the customer side. It’s attracted more attention and funding than any other category of legal tech in the past few years. Which has led to some commentators making jokes about how overhyped the space is.
It’s not a bad joke. It really does seem like everyone’s starting a new contracts startup these days. It also doesn’t help that a million CLMs were at CLOC (the premier legal operations conference) last week, and it seemed like each one had some big announcement.
But all that activity just underscores how much potential there is in this market. Potential that can be translated into money. Like actual revenue. There are significant budgets dedicated to solving the challenges CLMs solve. There are multiple sources projecting dramatic increases in tech budgets for legal departments.
Which means there’s a massive opportunity for any startup in this space.
“I still don’t get what you guys do”
I get this question from law firm people a lot. I mean they kind of get what the product does. But they don’t understand why it’s so relevant. “How can technology help with complex contracts?” they always ask. “AI is no substitute for a human lawyer.” And that statement kind of explains why they just don’t get it.
Most people in the legal industry live in, or come from the law firm world. The legal profession revolves around law firms. With good reason, by the way. Firms do the most cutting edge legal work. So naturally many lawyers assume firms are also on the cutting edge of legal tech—and if the tech doesn’t solve something they’ve experienced, then it’s probably not that important.
But they’re wrong.
Law firms solve their clients’ law problems. Not their process or tech problems. So they, along with most lawyers, don’t realize what tech focused on corporate legal departments actually do. We’re not trying to automate lawyers. That’s impossible! How are you going to create AI to replace an experienced, sophisticated lawyer? No, the problems we’re trying to solve are more … straightforward. Problems like:
I need to keep my sales reps from signing bad contracts
My inbox is out of control, I need a better way to manage versions
I’d like to see all the contracts I’m working on to help prioritize my work
And yet whenever I speak to most lawyers about what CLM can help with, they’re always perplexed. “That’s it?” they seem to say. “You’re not creating contracts with AI? You’re just streamlining workflows?”
In their minds, contracts tech is like, I dunno, Skynet for lawyers. So when they hear about what our products really solve for, they’re underwhelmed. And then they start to ask questions like, “how the hell did you manage to raise so much money from VCs? This space must be overhyped.”
These are real problems with real dollars behind them
Investors aren’t dummies. Unlike in the dot com era, they’re investing in startups with revenue. Like, real traction. And like I said earlier—the problems CLMs are solving for, have actual, significant budgets behind them. So the potential for revenue is there. And has been translating into dollars. As my friend Noah Waisbergput it so eloquently on Twitter:
While a lot of [money] has come into CLM at high valuations, this is unlikely to be because of mass-VC-hysteria. Growth equity investors act generally act on the basis of good customer traction and revenue growth. Source
That traction is there because CLM promises to solve for important problems that extend beyond legal. Contracts touch every single part of the business. They create risk for organizations that have no idea what’s in their old agreements. They create opportunity for companies that want their sales to not get stalled up in legal, and to have deal cycles move faster.
Contracts are involved in every single company of every single size.
Legal is getting pulled along the digital transformation wave
What’s playing out in the CLM space, and legal tech more generally, has been playing out in other industries for over a decade. Business are being transformed with the mass move to the cloud, leading to huge opportunities within industries to upgrade their capabilities through software.That’s why this category of B2B SaaS (business-to-business software as a service) has experienced such explosive growth.
I strongly believe that legal will follow this trend. It’s taken longer than other industries, perhaps because of our conservatism. I still remember how hard it was my first year of selling legal tech (in 2016) to convince lawyers to use cloud software. But things have changed.That transformation is taking place like, right now. Contracting has gone digital; analysts have even started using the phrase “digital contracting.”
There are so many untold stories of digital transformation, but maybe you don’t believe me. So let me ask you this: How else can you explain the fact that during the worst fundraising environment in decades, while other startups were shrinking and laying off their teams—multiple CLM startups playing in the same exact space were all able to raise hundreds of millions of dollars in funding?
We are seeing an opportunity of a lifetime right now. And most lawyers are going to miss it.
The myopia of lawyers
To a hammer, every problem looks like a nail. As lawyers we are trained to look to the past, rely on precedent, and expect that the future will look very similar to what we see today.This is a useful worldview to have, especially if you’re a lawyer in a traditional practice area that doesn’t experience much change. Which I would imagine is true of many practice areas.
The real world is very different. The ground is constantly shifting. To survive, you have to listen to what other people are saying and pay very close attention. Then you’ve got to position yourself in a way that solves for the problems that exist—not the problems you expected to find.
This is why I believe most lawyers are too myopic to exploit the dramatic macro forces taking place in the world today. Interestingly, some of the best-positioned people to take advantage of these changes are those without law degrees. During my six years in legal tech I’ve been impressed by the people who have had a lasting impact on the space without having gone to law school.
It’s because most normal people are unencumbered by the past. There’s no sunk cost to confuse you. We lawyers, on the other hand, lean on the past—our credentials and experience—and try to fight uncertainty and unpredictability. When we should be doing the exact opposite. When we should be leaning hard into the chaos. Because amidst that chaos, you’ll find new challenges that need solving.
That’s where the true opportunities lie.
Up Next: My pivot from e-discovery to contracts
I’m a litigator by training. I worked in Biglaw litigation and clerked for a judge. I never expected to work with contracts because I never had any professional experience with them. It’s why I carefully chose to join an e-discovery tech startup when I first got into legal tech in 2016. But during my first three years I noticed a few patterns and trends developing in the world, and decided to make the pivot to CLM in 2019. Even though on paper I didn’t have the background for it.
I’ll share more about my thought process in my next Substack.
I know you probably think I’m just another tech bro pontificating about the future. Maybe I am. But if you don’t believe me, just look at traction (ie. sales) and see if there are patterns and trends that suggest more growth is on the way. Ask around. You’ll probably hear the same thing I’m hearing.
After proofreading this article I wanted to add a caveat. The CLM space will do well, and multiple winners will emerge. But not all will survive. Many startups will be acquired, become zombies, or outright fail. I’m not smart enough to know whether it’s a good time to start a company in the CLM space. What I do know is that if you want to pivot in to legal tech, or if you’re looking to purchase contracts tech, or get involved and learn more—you want to quickly find the leaders in the space and the companies that will probably be most enduring. Raising a lot of money is one sign but you also want to look at other factors too, like who their investors are, how they’re viewed by customers, and what people are saying. In my mind there’s just one clear leader in the CLM space. And I happen to work for them.
It’s not lawyers that confuse value with technical complexity. Lots of other people do too. It’s because most people think people want a better mousetrap, without considering the *actual* problems their buyers run into. Simple user interfaces and integrations don’t seem sexy but they are incredibly powerful when it comes to driving adoption in large complex organizations that have the largest tech budgets.
Noah is the CEO and co-founder of Zuva, and previously co-founded Kira Systems, one of the most successful legal tech companies that was acquired last year by Litera. Somewhere along the way he had the free time to author AI for Lawyers. He knows what he’s talking about.
This, by the way, is exactly why I have so much faith in Ironclad. This probably warrants an entire post in itself but the decisions the company founders made, strategically entering certain segments and use cases (while avoiding others) led them to become the leader in the space. It’s why I decided to join the company last year despite the fact that I was at the time working at a competing CLM. Don’t get me wrong—given the market demand there will be multiple winners in this space. But a lot of the moves Ironclad’s competitors are making today, are copied from moves Ironclad made 1-3 years earlier. Like the decision to invest and build out their community function, which seemed like an unusual decision in 2021. Today, the opposite is true—seems like every legal tech company is looking to build its own community function.
Here’s a 3 year old CNBC article highlighting the explosive impact of cloud software from 2010-2019. I’m sure I could find a more authoritative or reliable source, but this was the first I was able to find.
My theory on what’s changed? A few factors. First, the dramatic rise in VC funding means that the earlier generations of legal tech startups educated the market. Which created an opportunity for a second generation to benefit from all that free education. Second, the rise of CLOC and legal ops, meant that there’s now an easier path to selling to legal departments. It’s not a coincidence the rise in legal ops and legal tech happened in tandem, starting in 2016. Third, the rise in legal and regulatory complexity means corporate legal is has more work to do with limited resources. Plus, outside firms are raising rates and making money hand over fist. All of these factors create this explosive mix that have launched multiple legal tech startups into the stratosphere.
I get a lot of LinkedIn DMs from lawyers considering a career pivot to legal tech but most never make the jump. And I’d bet that with the market slowdown, tech fears, and pessimism, even fewer lawyers will be interested in a pivot to tech now. This has always been my beef with lawyers, especially the smartest ones. They’re so well read that they’re aware of macro trends, but then they apply those trends to smaller markets and niches where very different dynamics are playing out. Their loss I guess.
A random tangent / thought: Some commentators may point to e-discovery as an example of legal tech that showed promise but in the end, never produced more than a handful of large businesses (e.g. Relativity). This is bad pattern matching. E-discovery is fundamentally different than contracts because it’s a far more narrow application of technology. Everyone deals with contracts. Not everyone deals with e-discovery. Plus, in e-discovery you’ve got to sell to buyers who have decentralized organizations with long sales cycles, who hate buying software subscriptions, for a use case that’s one-off in nature vs. on-going. I’ve got more thoughts but I’m gonna save my commentary for my next Substack where I talk about why I decided to leave e-discovery for contracts.
Nowhere in my career has this been more obvious than my experience with social media. I’ve always wanted to be taken seriously for my thoughts and ideas. But I found myself in legal tech sales, so I started posting on LinkedIn and Tik Tok. Years before it was cool, by the way, and only because of what I heard from random people through the grapevine. By making moves early I was able to ride tailwinds when lawyers began getting super active on social media en masses during the pandemic. I never expected to be a social media expert but the world moved where it was gonna move, and I adjusted accordingly.
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