Legal Tech

There’s a cohort of deeply conservative industries that have, for the most part, decided to ignore the forces of technological progress forcing them to modernize. I’ve written about two industries in this ‘conservative cohort’ already: the Health Industry, and the Construction Industry; why they’ve held onto this conservative streak for so long, and why they’re starting to let go and embrace 21st-century technology.

Another such industry (though many would argue against the use of the word industry, and instead prefer to call it a ‘field’) is the Legal industry. This includes, but is not limited to, both independent law firms, and in-house corporate law teams.

Their conservatism makes sense: the Legal industry deals (though this varies slightly depending on the country) on precedent, and under a rigid infrastructure (i. e. the law) that needs to be followed to the letter. Attention to detail, too, is key here: more often than not, a lawyer’s job is to be the one person in the room who ensures all the t’s have been crossed, and all the i’s have been dotted.

But this is starting to change. There are multiple reasons for this, the first being self-evident: lawyers and law firms are in constant interaction with the larger world and, while they may want to maintain to their old ways and do things at their old, slow speed, the rest of the world won’t bend to fit their wants. If anything, most of the world is embracing (both public and private) are embracing their own versions of technological and digital revolutions—and Lawyers simply need to keep up to survive. A simplistic, yet poignant example: in 2021, a lawyer can’t spend 100 hours revising an employment contract when the startup they work for is currently undergoing hypergrowth, planning to bring in 500 new people in the next year.

And then there’s another reason for the Legal industry’s upcoming (or ongoing, depending on how you measure this) technological revolution, which you may be familiar with by now. Yes, much as was the case with the Health and Construction industries, Covid-19 did quite a number on the Legal industry.

Covid-19 was the hurricane that threw the Legal industry into disarray. But a hurricane here is always just a strong wind elsewhere. Or a tailwind, accelerating the growth of another, tangential industry: The LegalTech (or LawTech) industry.

 
LegalTech

But what is LegalTech, exactly? A catch-all term, first and foremost, that identifies startups working on introducing 21st-century technology into the Legal industry. This includes changes ranging from the minute to the structural.

Let’s stay on the Covid-19 track for a moment: with lockdowns all around the world, and people stuck at home, unable to go see lawyers in-person, two needs arose: being able to contact lawyers from a distance (which was easily solved with Zoom and a few emails here and there) and, more importantly, being able to sign a contract from a distance (while ensuring ID verification).

And so we land on the first, and best known, kind of LegalTech startup, those building E-Signatures & ID Verification platforms. These have been around for quite a while, but Covid’s lockdowns helped accelerate their growth and prevalence. A few European notable companies include:

But E-Signatures & ID Verification is just the tip of the LegalTech iceberg. As mentioned above, these tech changes affecting the Legal Industry range from the minute to the structural. LegalTech startups are hard at work to help lawyers automate many of their tasks, primarily so they can keep up with the outside world’s pace.

One such example: Over the past few years, a number of products and services have entered the market to help lawyers speed up (or even automate) two of their most time-consuming and mind-numbing tasks: Contract Drafting & Management, and Due Diligence. These startups allow lawyers to improve their ability to manage, produce and store contract documents or do due diligence, turning their operations much more efficient, and freeing them up to spend time on what really moves the needle: client work. European companies working on this space include:

A few other examples of Legal Tech startups include startups helping with Governance, Risk & Compliance, such as:

And Law Firm & Legal Department Operations Optimization startups, such as:

But these are just a few examples. In fact, the Covid-19 pandemic has, more than anything, acted as a catalyst, forcing the legal industry to rethink the way it does things entirely: how they communicate with clients, how clients can access what lawyers do for them, what being efficient truly means, etc. Most of these needs were solved through means similar to those of other industries: scrambling to buy laptops and Zoom licenses, purchasing collaboration tools, familiarizing themselves with e-billing and document management software.

And while E-signature & ID Verification, or Contract Drafting technology starting to be implemented more regularly in the Legal industry might be exciting, the truth is that Covid-19 or not, most lawyers remain stuck in the past. What really matters, though, is not these technologies per se, but what they point to: a tipping point, an industry poised for structural change. The question is, now, what will that change look like? What will Law firms look, say, 10 or 20 years from now? In short: we don’t know, but there are several players out there betting large amounts of money on whether they can predict the future.

 
Investors’ Appetite

Investment interest for the LegalTech industry is starting to blossom. Up until very recently LegalTech startups barely saw any investment at all, raising $82 million (across 75 rounds) globally in 2017, and $247 million in 2018 (across 103 rounds). But in 2019 we see a huge jump, with LegalTech raising over $980 million across 147 rounds. And while things slowed down during 2020 ($510 million across 129), we can easily attribute that to the impact of the pandemic on VC investment as a whole, mainly because, as of September 23rd of 2021, LegalTech startups had already surpassed the mark set in 2019, raising over $1 billion (across 91 rounds), with still a whole quarter left in the year.

According to the Crunchbase News report this chart (and its numbers) stems from (and the industry insiders they interviewed), this sudden uptick in investor interest is due, in fact, to the “challenges brought about by the COVID-19 pandemic and what was already a plodding, but steady, change in the legal world to accept cloud and other technologies that are attempting to bring the sector into the 21st century.”

What’s more, another reason why we might be seeing a sudden interest in VC investment in the LegalTech sector is that spending on LegalTech has increased (and is predicted to increase) dramatically over the past few years. In the financial sector alone, companies spent upwards of $10 billion on LegalTech products in 2017, and that number is predicted to increase by roughly 700% percent to $76 billion by 2022. And that’s exactly the kind of growth curve all investors love to see.

Here’s a list of notable investors actively funding or helping LegalTech’s growth in Europe:

 
Funds

 
Angels

  • Marcus Krüger (invested in Scrive)
  • Sebastian Siemiatkowski (invested in Scrive)
  • Michel Akkermans (invested in Connective.eu)
  • Gigi Levi (invested in Barrel Protocol)
  • Thomas Glocer (invested in Clausematch)
  • Cristobal Conde (invested in Clausematch)
  • Brent Hoberman (invested in Onfido)
  • Greg Marsh (invested in Onfido)
  • Khaled Helioui (invested in Onfido)
  • Taavet Hinrikus (invested in Onfido)

 
Challenges

As mentioned above, even despite the effects of the Covid-19 pandemic on the Legal Industry, LegalTech startups (and their services) are far from being ubiquitous. Our friends at Sifted put it best: LegalTech “remains in an embryonic state, with a fragmented ecosystem. Some law firms are developing tools purely for internal use and an ever-increasing number of startups are often developing one particular product for one particular law firm client.” The challenge for LegalTech, then, is to go beyond just catering to one law firm here and another there, and try and tackle the Legal industry as a whole and, in so doing, paving the way for further technological disruption and/or adoption.

Another challenge LegalTech startups face is one of optics: much as is the case in the no-code world, many lawyers (particularly those on the bottom rungs) still see LegalTech as more of a threat than an aid. Many lawyers fear being replaced by software that automates their day-to-day work responsibilities, rendering their jobs unnecessary. But this is, as mentioned above, mainly an optics problem: LegalTech startups need to make sure they are seen not as replacing or competing directly with lawyers, but instead as a friendly helper, helping them win and support clients, and freeing up time previously wasted on easily automated tasks, such as drafting contracts.

A third challenge is one of disparity between the speed at which the law world, and the tech world operate. Law is an extremely regulated profession that moves slowly to ensure well, the legality of their every action, while the Tech world likes to ‘move fast and break things’. While a pandemic might have forced the Law industry’s hand, forced them to speed up the way they operate and adopt new technologies, lawyers will most likely go back to their old, safe ways unless we can offer them reassurance that they can implement these new technologies into their processes without opening themselves up to negligence claims or breach of professional duties. The Sifted piece quoted above illustrates this clearly: “For example, lawyers have duties of confidentiality to clients; if a tech solution is collecting data there needs to be clear guidance whether similar duties need to apply.”

And finally, there’s a practical challenge: earlier in the essay, I mentioned how conservative the Legal industry is in terms of technology. Most lawyers (at least those not of the new generation) are not particularly used to technology in general, and in many cases don’t trust technology to do their work for them. A recent study from Oxford University, for example, found that most lawyers still struggle to adopt AI-based technology; just 16% of respondents leverage AI to expedite their due-diligence processes, and barely 27% use LegalTech at all, be it for research, e-disclosure, regulatory compliance, or anything else. So in short: LegalTech startups need to work hard at educating lawyers on how to and why use their products if they want to pass the threshold of everyday implementation necessary for the industry’s flourishing.

Gonz Sanchez

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