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The Summer of 2016: The Hottest on Record for Legal Startups
The Summer of 2016: The Hottest on Record for Legal Startups 1024 531 Raymond Blijd

Last update: March 17, 2017

You may have missed it but June 2016 broke the single month record set this February with 44 legal startups registering on AngelList. Wait, there is more…

**Update Sep, 2:  Psst, in August we broke 56 **

Last year, I was curious to know how many legal ventures were seeking fame and fortune from the angels. In December, I wanted to know what types of legal operations would deliver us from hell. This June, I still noticed quite a few law firms masquerading but I’m expecting more startups to be aiming for the heavens. So I was pleasantly surprised by the June numbers. More so seeing May and June are historically not known for its highs.

June 2016 did not only break the record but we may have reached a tipping point: It can very well be the first time more startups registered from outside the US on AngelList.

Where do Legal Startups come from?

I first suspected Canada but a closer look revealed India making quite a surge. However, if we break it down in continents, the western hemisphere, specifically the Americas, still outweighs the rest…with a little help from South America.

Where to track more Legal Startups?

Recently, there has also been a flurry of legal startup trackers. Here’s a list of communities and enthusiast chasing startups:

I’m a member of the Legalpioneer community and since I couldn’t find similar listings, I created the last 2 Charts and Hunt lists. In doing so I realized that it’s particularly challenging to tag and categorize legal startups. Stanford and ‘Legal Tech – Mapping Disruption’ both have about 8 categories but differ on topics e.g. only eDiscovery, Research and Practice Management appear in both. In 2013, a Quora member listed 11 submarkets in the legal space but this was before the AI and Machine Learning era. Same goes for tagging: Stanford has 237 tags and Lawhackers around 69 after de-duplication. In short, we are in the midst of figuring out the Fog of Apps and after the dust has settled, we’ll know who solved the real pains.

Meanwhile, it’s great to see that we’re back on track in making this a summer to remember.

 

**Update Mar, 17 ’17: Fixed Australia tracker **

**Update Feb, 13 ’17: Germany and Australia tracker **

**Update Dec, 20: Robert J. Ambrogi**

**Updated Dec, 7: Y-combinator**

**Updated Aug, 5: Added Spain tracker**

**Updated Jul, 18: Canada  & CB Insights as trackers**

Legal Startups Charts
Legal Startups Charts 1024 520 Raymond Blijd

Last updated: September 23, 2018

Corrected: Do Legal Unicorns Exist? Yes, They Will
Corrected: Do Legal Unicorns Exist? Yes, They Will 698 393 Raymond Blijd

Sometimes we make bold statements just to challenge our own assumptions. Dare ourselves to look closer and see if our reality is just a lie. While charting 912+ legal startups I wrote: “I did not spot a unicorn…yet“. How would I know what a legal startup unicorn looks like? What is a unicorn anyway and could these ever roam in a legal startup landscape?

What is a Unicorn?

A unicorn is a venture-backed private company worth more than a billion dollars…on paper. For argument’s sake, let’s pick the top unicorn valuation ($47+ Billion) and benchmark this amount against the market value of the #1 rank company in the world ($270+ Billion)*. A unicorn would be about 17 % the value of the industry pinnacle. With this number we can now measure a unicorn in any industry. So when a startup valuation ventures into the 15-17%  bracket of the industry leader in revenue or market value, it becomes a Unicorn.

An additional observation: the name Startup implies that it’s a young company. Meaning we’ll need to set a time constraint so we’ll state that they shouldn’t be older than 5 years.

 

unicorn2*Note: Apple has the biggest market cap however its numbers are just too crazy to use as a benchmark.

What is a Legal Unicorn?

Looking at the list of the biggest players in the legal service market, the #1 Law Firm has a reported $2.5 Billion in revenue. So according to my scientific ratio a legal startup with a $45.9 Million $459 Million  valuation would be a Legal Unicorn. You can also do this exercise on neighboring industries such as legal information providers. However, this would raise the bar to $214.2 million $2.142 Billion but I shall not dwell on this track. For this exercise, we’ll stick with looking at companies trying to displace the Practice of Law e.g. Law Firms not the Business of Law e.g. Legal Information Providers.

Do Legal Unicorns Exist?

When I said: I did not spot any unicorns, my reasoning was clouded by ego devoid of data…and this happens often 😉. I believed I would know it when I see it, even when camouflaged and hidden in the 912+ legal startups on Angel.co or anywhere else. Now that I devised this yardstick, I can more accurately assess if my intuition was correct. So between 40-50 million dollars valuation a legal startup would reach Unicorn status. Do we currently have legal startups with valuations in this range?

To answer this question, I needed to descent into this absurd world of venture capital, fundraising,  Pre-money or Post-Money Convertible Notes etc. In short, there seems to be no limit on valuations, yet there is a sanity on the willingness to fund. And the logic reveals itself in so-called rounds. Herein lies the key to my argument: funding usually starts with seeding after which follows a series A, B rounds and so forth. I stated that there are few rules on limits but it appears that each round of funding has a virtual ceiling e.g. 100k-$1million usually is considered Seeding. And between $1 million- $5+ million is considered to be Series A. Now stay with me: when you are entering in Series funding than investors expect at least a 10x return on investment. Example: a successful $2 million series A round will put a company at a minimum $20 million valuation.

However, companies aren’t bound by this limit and they can set their valuations much higher e.g. Buffer raised $3.5 million at a valuation of $60 million post-money. By this reasoning, if a legal startup receives $2+ million or more in VC money, it’s roaming Legal Unicorn meadow. And if they are able to get between $500k – $1+ million then we can call them Legal Centaurs.

Yes, eventually we will have Legal Unicorns . One example: Shake raised a total of $4 million before it got acquired. This would put its valuation between $40 – $70 million, according to our Buffer Theorem.

There is one more thing: above I briefly mentioned age but did not elaborate on how it equates to the value of startups. Looking back at my previous post, I was searching for a correlation between the creation of legal startups vs economic events. I may have been looking at it all wrong…bold statement 💪.

 

[updated: July 8, 2015. Thanks to Ron Friedman for pointing the error of my ways 😔].

Who will beat Law Firms
Who will beat Law Firms? An Interactive Chart
Who will beat Law Firms? An Interactive Chart 1024 576 Raymond Blijd

** Charts updated: Dec, 2015 **

In my previous post I wondered: If the increased demand for legal services is shifting away from law firms, where is it heading? Some believe it’s mostly heading back to corporate counsels and law departments. But that’s basically rebuilding a law firm within a company. Moreover, it seems wasteful to me to produce expensive legal solutions for a single company and not reuse it for others. There may be another option and I’m curious to see if it could replace Law Firms?

Legal Startups

Venture Capitalist are rolling dice in a global casino in search for unicorns, centaurs and sacrificing dinosaurs. I listen to them explain why incumbent businesses will go extinct and be replaced by startups. So I went charting the landscape of legal startups and across databases such as CrunchBase, Kickstarter and Wefunder. I even checked out Dutch crowd funders such as Symbid to see if I could find a category “Legal”. While CrunchBase seems to have the largest database (2,191), it also includes DLA Piper which I hardly consider a startup. So I settle on Angel.co and thus began a journey with unexpected turns but rewarding discoveries*.

Numbers

The question which initially fired my legal Producthunt (22) was: Did the 2009 crash or any other event influenced legal startup activity? I’m undecided, but it has been a steady growth of new startups on Angel.co from 2010 (2) through 2014 (337).

There are approximately 900+ registered startups and in the last couple of months we’re averaging one startup every day. The most popular month is February (Average: 27) and but if the chart below is any indication, we have a nice streak (July, August, September) ahead of us.

Note that Angel.co has two categories: Legal  and a newer one: Legal Tech. Startups can register multiple tags so there was overlap between the two categories. In the above chart, both categories are included.

I questioned if this division of tech vs traditional is normal or unique among ‘dinosaurs’ such as finance. It seems the 80/20 rule is more pervasive than we think. [update: June 15, 2015]

Since Legal Tech is the freshest category I was curious to see if growth would be more dramatic but it looks too early to judge.

Observations

 

I’ve been reading weekly alerts ever since I registered with Angel.co and here are a couple of observations:

  • Compared to other industries, it seems the Legal Startup scene is still in its infancy with 900+
  • Specifically, Legal Tech is just 150+ compared to Fin Tech 1500+ and growth seems slow.
  • The sheer volume may not be enough to produce unicorns and thus attract high rollers.
  • The most popular models seem to be Management (149) and Marketplace (72) e.g. Legalzoom
  • I was hoping for more Compliance (40) e.g. Lawbot.co or Access to Justice (20)  startups like Modria. Models which replace not support legal processes.
  • This leads me to believe that the majority of legal startups don’t chase markets that can not afford legal services. Not even the ones that can afford, but mainly the ones that benefit from the complexity of legal services.

Back to my initial question: Will startups beat law firms? I did not spot a unicorn…yet. I believe the numbers need to go up to attract more Bondrew’s and investments. I wish the legal startup scene would stop chasing its tail and finds its tennis ball.  That’s why I applaud any initiatives that stir passion and reignite the practice of law.  So while I’m certain disruption is imminent, it may not go as fast.


*This was a labor of love over the last 4 months. Along the way, I learned to use API’s, understand JSON and even getting JSON feeds into Google Spreadsheet. But my proudest achievement was born out of a simple desire to display the numbers above in interactive charts . I thought I could only do that by controlling the platform so I needed to build my own site.  I was probably wrong to think I could not do it any other way, but I’m glad I was .