Legalcomplex

  • Raymond Blyd

Will lawyers be replaced by GPT-3? Yes, and here’s when
Will lawyers be replaced by GPT-3? Yes, and here’s when 2472 1404 Raymond Blyd

Since legal data is monopolized, technologies like OpenAI’s GPT-3 can’t process legal queries. Here’s when this will happen.

Spoiler: We’ll pass legislation to democratize access to legal data. However, we need the legal industry to draft the law.

Backdrop

This essay was triggered by the many articles written by legal professionals quick to conclude: No, GPT-3 does not replace lawyers…yet. We can’t provide a timeline however we can explore the conditions when it will happen. The A.I. community offered a balanced view of the possibilities and pitfalls of GPT-3. For instance, it can’t do basic arithmetic at scale. Yet, GPT-3 has the ability to learn math from texts. So what happens when it learns the law? Once GPT-3 received a droplet of legal data, it came back with awesome.

Investor Michael Tefula primed GPT-3 to translate complicated legalese to plain English with only a couple of samples. There’s a cool video in the tweet where you see GPT-3 doing this in real-time. Ironically, his first instinct was to build an interpreter to replace lawyers. Is this possible?

According to Wikipedia: GPT-3 is trained on 410 billion tokens and has 175 billion parameters. Basically, GPT-3 learned how to predict the next word from reading lots of texts. As with math, GPT-3 can tackle a specific domain if it has enough data on that subject. A.I. won’t know how many eyes a six-legged purple unicorn has? But it does have data on a spider.

Legal Data

The legal industry operates on legal data. By design, legal data is data compiled by legal professionals to be decompiled by legal professionals. Here are the four main ways legal professionals generate legal data:

  1. Spot legal risks in non-legal documents or society at large;
  2. Find legal arguments in legal documents like legislation or case law;
  3. Construct and draft legal arguments like a contract or judgement;
  4. Explain legal arguments to a client or a judge.

All this can be replicated by a computer. The reason it hasn’t happen is that there is a shortage of accessible legal data to start the process. Why is there a shortage? Legal data sits behind multiple firewalls.

The first layer, just pierced by GPT-3 in the tweet above, is legal complexity. Unfortunately, that isn’t the only barrier. The second fence to block access to legal documents are privacy laws or copyright laws. The first is to prevent unauthorized use, the second to protect commercial interests. Besides virtual firewalls, we also have physical barriers. Usually, legal data is stored on-premise in silo’s and therefore isolated from the real world. A reason GPT-3 works this well is that it learns from reading domain data in context with real-world data.

Once legal data is liberated and connected, we could legitimately judge the impact of GPT-3. This shift to solely rely on tech won’t be a new experience for legal. The legal industry transitioned before when it was forced by courts to adopt eDiscovery: software trained to spot legal risks in massive sets of non-legal documents. Will it replace all legal work instantly? No, because unique or complex cases without prior data can still occur. However, as more data becomes available, these incidents themselves will become unique.

Here’s the best way I can frame this evolution: legal professionals are like traffic cops just before the roll-out of traffic lights. Not every cross-section has a traffic light, but it is harder to find a cop still directing traffic. Traffic lights need electricity and a bit of computing. With GPT-3, we have the computing. Now we just need the grid to come online. Here are the scenarios for how we’ll get there.

Universe One

We produce a law to open up legal data like legislation, government data, and anonymized case law to machines. Once the machines have processed the data, we’ll discover the biases in case law and the inconsistencies in legislation. During this transition period, society will struggle with their own biases before it can fix biases in our legal data. The breakthrough will come once humans surrender and prefer mathematical precision over human emotion. We’ll be smart enough to build a fail-safe and let the machine throw an exception in unique cases. We’ll enter the age of AutoLaw where machines guide us through conflicts the way traffic lights help us avoid collisions.

Universe Two

The world will realize that if we want a safe environment, we’ll need to treat everyone equally fair. What is fair is usually codified in constitutions and has a rich history. This should be taught at school as early as possible. Just like we teach math and coding to kids, we’ll need to feed them laws and regulations. This ensures we understand our rights and obligations when we’re young and practice it when we’re older. More minds on the law will also force improvements across the system. This will drive down the cost of legal education and subsequently the cost of legal representation. In short: no need to hire an $800 an hour lawyer when you can solve your own legal issues. In this universe, the reliance on experts in law will slowly expire.

Universe Three

What if we elect to go the opposite end? If we feel like the world is going too fast, we usually slam on the brakes. Instead of opening up legal data to machines and society, we pass laws to restrict access. Thereby effectively crippling any innovation in the legal space. Society won’t oppose it because collectively we feel comfort in keeping things unchanged. However, in a universe where data is scarce, we aren’t properly educated to make informed decisions. Bear in mind that limiting access to legal data protects a human monopoly on law and a pretty lucrative business model. Thereby making any justice crusade a costly endeavor. Setting in a downward spiral of unjust behaviors with an unpleasant end for all. I already have a law degree. I’ll be fine…for a while.

Bottom line

We often hear about the quality humans can provide in legal. Quality usually originating from ingenuity and not from consistency. Especially the ingenuity to unravel complex legal matter and explain it to laypeople. The process described in point 4 and the one GPT-3 just crushed on Twitter.

Like traffic lights help us avoid collisions, democratizing legal data will help us avoid conflicts. If we monopolize legal data, we make justice unattainable for all. And this principle goes against the very nature of why the legal industry exists.

Just remember, every time we’re dutifully reminded by legal professionals at every new technology breakthrough: lawyers still set the rules to access the law. The question is at what price?

The video below visualizes this post

  • Raymond Blyd

Stability & Endurance: Two New Metrics for The Covid Economy
Stability & Endurance: Two New Metrics for The Covid Economy 150 150 Raymond Blyd

We generated new metrics from our dataset to measure the trajectory of legal innovation. Metrics to benchmark endurance and stability.

Spoilers: Trend lines reveal Legal to be a fairly stable industry. Startups generally raise capital every 342 days (Endurance). You’ll need about $1.13 million to start and $8.3 million to grow. Amounts and endurance vary depending on your market, model, and location.

Stability

Our previous post revealed which areas would capitalize on a surge in traffic this year. Examples included the increased demand for e-signatures and claims, which subsequently allowed many to raise funds. After a slow start in January and the world being crushed by corona, we didn’t expect investment to be anywhere near previous year levels. Then we register a blowout in May. Now, why was there a sudden frenzy to invest in Legal? Part of the answer lies in similar behaviors on display in public markets.

What do Kodak, Hertz, Tesla, and Apple have in common? These are iconic brands that saw their stock reach record highs this year. In the case of Hertz and Kodak, the dream quickly descended into drama. While Hertz filed for bankruptcy, it’s stock jumped 1,000%. In the case of Kodak, its stock exploded to 2,757%. In both cases, the SEC had to step in and ask questions. Perhaps the nostalgia behind both brands drove Robinhood investors to view those stocks to be as stable as Apple or Tesla.

We do not provide any investment advice and can not judge the performance of any stock over time. Yet, as legal professionals, we do enjoy analyzing the psychology of trust and the engineering of stability. In volatile times, most latch on to things they trust. Economists call this behavior herding: a phenomenon where investors follow what they perceive other investors are doing, rather than their own analysis. Therefore, a surge is not necessarily a true sign of safety but rather a search for stability.

What is stable? During the production of several graphs, we discovered the legal industry to be fairly stable in comparison to similar sectors. The graphs in the video below display the total investments per month in private companies for each sector since 2018. After inserting a polynomial trend line on each chart, it revealed the stability of each sector. Keep your eye on the teal line and watch the curvature. Despite wild swings in funding totals, the trend line for legal still has less curve compared to the other markets.

Endurance

In may sound contrarian but it’s now easier to get money than to make money. Since 2017 we have had more investors and funds than good startups. On top of that, governments now are stepping in to save businesses indiscriminately. Yet, with all this stimulus distorting the economy, one cannot fool unit economics forever. The main reason Vine didn’t become TikTok is that it simply ran out of cash. Past wisdom dictated that it takes money to make money. Now, the COVID economy is going to teach us to make money with no money. Or worse, with interest rates this low for the foreseeable future, make money with fake money.

We can cook the accounting to stretch runways and split stocks to inflate the valuation of companies. But if the number of new COVID-19 cases and jobless claims remain high, many companies will not survive. Businesses will have to consider pivoting to a new product, model, industry, or hibernate. We explored pivoting towards areas with more traction in the CAT analysis or how to hibernate in our Survival Guide. Here we’ll calculate the financial endurance of startups based on the pre-COVID economy.

We ran a subset of 3036 profiles with a funding history through a few filters. First, we extracted the outliers which contained a healthy mix of large and small, popular, and obscure companies. These outliers had not registered fundraising in over 600 days. While they may hold the key to efficient capital deployment or a healthy business, we can’t guarantee these outliers haven’t received a loan or an undisclosed round.

To simplify the extraction, we created two buckets: seed funding and growth funding. The first is an initial investment or government grant. while the lather is a later stage round or debt financing like bank loans. The near-zero interest rates are making traditional financing options as competitive as venture capital. We excluded initial coin offering but can report they’re making a comeback this year. After the 2017-18 field of ICO dreams, this form of financing went dark in 2019. What you see, in the video below, is the filtered view of median burn rates and average round sizes for the various sectors, markets, and categories.

Bottom Line

The accelerated adoption of tech during lockdowns have pushed companies like Apple and Tesla to become beacons for stability on the public stock market. Yet, the record stock prices and the rush to IPO more companies to the public markets is a worrisome trend. Moreover, we signaled the increased appetite to acquire. That urge has translated into the rise of SPAC (Special Purpose Acquisition Companies). It seems privately funded ventures are dumped on public markets for retail investors to feast on aka “dumb money“. Smart money is unlikely to sit safely in the bank so will be reinvested in stable long term assets. The stability that those impacting the legal industry could offer in the areas with a slow burn.

Remember, the legal industry withstood a decade of “disruption” and continues to operate on a bill-knowledge-by-the-hour model conceived centuries ago.

Btw, we’ll keep bringing you positive but honest numbers. While the world feels like its burning, let’s focus the light it shines and capture warmth it brings.

  • Raymond Blyd

The Surface: $1.08 Billion in 2020 Legal and Tax Funding..so Far
The Surface: $1.08 Billion in 2020 Legal and Tax Funding..so Far 1546 814 Raymond Blyd

On the surface, breaking a billion in the first half of 2020 looks healthy for legal and tax. Yet, if we peel away May, it is a different picture.

TLDR: The legal market is currently operating in a financial distortion field. May stimulus is masking recession-resistant companies. However, tech-infused services fared better than traditional text & talk consulting services. New applications in Risk Tech offer new opportunities for Legal Tech.

Credit

No, credit isn’t a new catalyst, rather a warning from the ‘Rebound’ analysis. One reason we surpassed a billion was Litigation Finance: Parabellum Capital donated a sizable chunk to the overall tally. Check our views on Litigation Funders as Legal Tech in this twitter spat. What’s remarkable is the fact that taken over a six-month period, companies usually eclipsed litigation funds in round sizes. It is perhaps a sign we’ve entered borrowed time.

Now as everyone is slowly running out of cash, most will have to turn to credit. We noted that about 14% of the top US Legal Tech companies took advantage of the Payroll Protection Program (PPP). We didn’t mention that, while doing the analysis, we encountered numerous traditional law firms and justice programs in the list of grants. Justice programs aren’t surprising because it’s rare to find those with a commercially viable business model. Most are born addicted to grants. As for business models: you may recall we encouraged everyone to listen to Kim Kardashian-West. Moreover, the US only released the recipients of over $150k loans, so we’re only seeing the surface.

In contrast, none of our top 25 Dutch legal tech companies were mentioned in the NOW loans report (Dutch stimulus program). Similar to the US, we did see several law firms and legal service providers in the NOW list of recipients. In any case, Legalcomplex is sticking to the mantra: numbers before names, that is why we won’t mention any names. However, these developments demonstrate the robustness of tech-fused services versus traditional talk & text consulting services. So ‘Starting in Legal Tech‘ may have become just a little more attractive.

Not only did we noticed a shift in where money was allocated but also when it was distributed. Most of this year’s action happened in May which brought in $644 Million. We initially registered SirionLabs in May, but they technically completed the round in April. In contrast, as far back as 2017, we notice that January and the summer months as the time the big rounds come around.

In short: there is a distortion in the market with so much stimulus flooding the economy. It’s hard to calculate how recession-resistant most businesses in the legal industry really are. Especially since we’re still dealing with Corona aftershocks and the second wave.

Conflict

Back to the numbers: $1.08 billion is lower than in previous years. Both 2019 and 2018 had outliers in the first half of the year like Legalzoom, Seal Software, and Onit. Clio happened in the second half of 2019 and doesn’t count in this summary.

This brings us to the conflict: our data reveals mega-rounds aren’t the beginning but rather the end of a trend. These numbers happen when the internal company metrics match up with external perception. These events initialize a final push for a monopoly in a certain space.

Moreover, the innovation capital coming into the legal market isn’t always invested in the players we all recognize. How can we spot the competition? This question led us to analyze ‘Who Are Your Challengers‘. To illustrate, check the Contract 2020 chart above with players in FinTech and SmartTech we excluded in the $1.08 Billion breakdown.

While most see mega numbers as an acknowledgment of a growing market, it’s actually an unreasonable assumption. Meaning, more money doesn’t equate to more market but rather results in less competition. We noticed a correlation between major rounds and subsequent drop in funding for new ventures in those niches. That’s why we sometimes end up in a conflict with legal industry experts. These conflicts stem from the source of knowledge: data versus past experiences or surveys. While these sources are complementary to data, they can be contradictory. Ultimately, when some get wowed by the bang, we’ve already seen data on the ignition.

Case in point: Safehub uses the Internet of Things (IoT) to warn companies to impending earthquakes. Businesses need this to proactively protect their operations and employees (RiskTech). At some point, they can use this model to warn citizens at home as well (CivicTech). And when they scale, they’ll become the benchmark for real estate value (FinTech) in whatever region suffering from tremors. Think tremors are only felt along fault lines? Read this cautionary tale on real estate in Groningen, The Netherlands from The New York Times (EcoTech). At that point, we’ll need a Seismic Witness (LegalTech) similar to Orbital Witness for legal conveyance. Safehub is taking the commercially more sustainable route to Legal. Both companies raised rounds this July, only one counted to the Legal & Tax wrap-up.

..and that is why we chase the Spark and not the bang.

Legal & Tax wrap-up first half 2020
Overview first half 2020 in Legal & Tax

  • Raymond Blyd

Rebound: 10 Growth Areas In Our New Perimeter Prosperity
Rebound: 10 Growth Areas In Our New Perimeter Prosperity 796 436 Raymond Blyd

Investments in contract software dominated last week yet its ranked 13th overall for 2020. Here’s a data-laden breakdown of why and where we see prosperity.

TLDR: For the legal industry we found 10 areas with increased activity based on traffic and traction. And it’s all about finance and freedom.

Is there Growth?

The world suffered mental, physical, and economic shock. One way the legal industry can administer some relief is by nurturing society back to financial health and ensuring we keep our civil liberties. Last March we discussed the impending fight for ‘freedom’ versus contact tracing. Here we’ll explore the stories and stats that signal growth. So is there growth? Yes, according to Clio’s Covid-19 Survey “..14% report a significant increase in the number of people reaching out for legal help..”

Where is the Growth?

This triggered us to delve into the data and find the evidence. We used two sources: web traffic and fresh capital. The first was inspired by Mary Meekers exploration of growth sectors during the crisis such as health, and e-sports. We employed a similar approach and added venture capital to the mix to find the areas that have traction. Traction was exposed by generating a 100% stacked bar chart with investments per sector from 2018 to date. This revealed which sectors received more fresh capital in 2020 relative to previous years. This approach automatically prioritizes the new sectors over popular ones like Contracts. See how that affects the rankings in the bar charts below.

We found 10 areas and since these reinforce each other, we paired them as followed:

  1. Divorce & Estate;
  2. Claims & Litigation Funding;
  3. Fraud & Identity;
  4. Supply Chain & Logistics Risk;
  5. Accounting & Spend.

Divorce & Estate: One of the first reports to emerge from China, when their shelter-in-place took effect, was the spike in divorce filings. Another sad side effect was the increase in domestic violence in many countries. Notable was Chicago partnering with Uber and Lift to provide victims with an emergency code to escape abuse. This was another fine example of how CivicTech has the power to heal. Likewise, final will and testament services shot up during the crisis. In Google trends, the search phrase “make a will online” peaked 11 times by more than 25% in the last 90 days. This sent professionals scrambling to download a solution and E-Notary downloads went up 196%. You’ll find E-Notary downloads in spot 7 on the G2 chart below.

Claims & Litigation Funding: We recently discussed claims as the fourth growth catalyst. Now this will multiply with claims for unemployment or loss of income. In the G7 country’s, a total of about 41.6 million people filed claims for assistance. For businesses, it is estimated that the G20 country’s total stimulus packaged now stands at $6.3 trillion. Within this massive funnel of capital, the legal industry is the linchpin. They draft and assess claims. And where there is volume, there is tech. Perhaps that is why we find funding of claims companies in the Legal & Tax Trends and RiskTech Trends in the number one and number four spot. And when the stakes are high and money is tight, that’s when Litigation funders step in and clean up on claims.

Fraud & Identity: This one is pretty straight forward: more claims more fraud. It took a single tweet to get a $69 million government contract. Defrauding government is up 93% according to one study. Fraud is closely linked to identity. That’s why AI & Analytics companies, like Resistant.ai, have seen increased investor interest. Governance, Risk and Compliance (GRC – $286M), Identity ($267M), Know Your Customer (KYC-$190M), Biometrics ($152M), and Fraud Detection ($58M) all got love from VC’s in 2020. Luckily, the Privacy sector received the most with total of $549M in 2020. This is the sector, conceived by the legal industry, as a counterweight to Identity and Fraud. See them all in the RiskTech 2020 Investment donut chart in the gallery below.

Supply Chain & Logistics Risk: In reopening the economy one obvious obstacle has been companies having a shortage of supplies. When it became apparent that testing for Covid-19 was pivotal, we all became reluctant experts (video) on its supply chain. From the test machine, liquids all the way to the specific length of cotton swaps. However, it also highlighted the importance of proper risk assessment and service level agreements with vital suppliers. Investment for Supply Chain & Logistics Risk in 2020 grew 180% from $98 million to $176 million (Chart: RiskTech 2020 Investment).

Accounting & Spend: Now why was contract management suddenly so popular? E-Signature software downloads shot up +511% during corona according to the TrustRadius chart. Companies want to get their spending under control and to seal deals airtight. Most lawyers may have felt rejuvenated by the funding reports of Contract Lifecycle Management (CLM) providers. However, this was mostly a win for accountants. In Breach: New Players in Contract Management, we explored the different deployments of contract software. Contracts software used by the legal professionals for drafting and reviewing ranked 13th. While accounting ranked number one and CLM with E-Signatures ranked 7th in RiskTech Trends. In short, companies are employing CLM and E-Signatures to get a grip on finances and not necessarily to get more legal support.

Encore

Copyrights: streaming is set to become the lifeblood for entertainment powerhouses like Disney and tech companies like Apple. They will, therefore, step up efforts to protect their intellectual property. Case in point: Netflix sent out half a million take-down notices in one week (!). That would be impossible if they employed lawyers to draft each one.

M&A: On the one hand, many mergers are on the verge of being scrapped due to the pandemic. Some have even gone to court to get a reprieve from a judge. At the other end, cash-rich companies, like Facebook, will go bargain hunting for promising companies on the brink of bankruptcy. Either way, lawyers will get a bump.

Automation: The corona crisis also accelerated the replacement of humans with robots to lower costs. While generating the charts for this analysis we kept seeing Robot Process Automation (RPA) popping up near the top. It’s number two in Legal and three in RiskTech.

In closing, we all will have to accept and adapt to this new reality. One positive I enjoy is the extra space, especially living in a crowded place. Likewise, because of this pause, we’re going to see new opportunities. We just need to be ready when they appear.

Btw, need more tactics? Check the Recession Survival Guide to see how you can outlast the downturn and extend your runway.

  • Raymond Blyd

CivicTech vs COVID-19: The Use And Abuse Of The Power To Heal
CivicTech vs COVID-19: The Use And Abuse Of The Power To Heal 150 150 Raymond Blyd

If we knew how fast this coronavirus was spreading, we could have saved lives. CivicTech has the power to really help or really hurt this cause.

TLDR: Every expert will agree that the reported rate of infection by the coronavirus COVID-19 is by far too low. We can get a more precise number if CivicTech triangulated data from self-reporting on smartphones and analytics on searches or social networks. Yet, while doing so we may awake an authoritarian state and suffer totalitarian abuse.

We gathered over 290 CivicTech initiatives with an average valuation of $6 Million per company. This number puts it ahead of LegalTech in terms of value and behind RiskTech. Based on current events surrounding the contagion, let us have a fresh look at the CivicTech landscape.

Democrat

CivicTech is the technology in support of government action or to combat their inaction. We usually see it when apps crowdsource valuable information like Covid-19 tracking or government spending. And we feel it when communities crowdfund for good causes. The main goal is the safety and sustainability of our society by addressing a social change. CivicTech also can act as a warning system for abuse of powers or an attack on justice. In the same manner, it can also act as a conduit to abuse powers and attack justice.

One reason CivicTech is so effective is that it is immune to red tape. There are numerous reasons that governments aren’t able to act decisively. Most obstacles are rooted in regulations that aim to protect citizens but have the opposite effect due to unforeseen circumstances. Example: In The Netherlands and France, according to the letter of the law it is illegal to cover your nose and mouth in public. This law is commonly known as the Burqa ban. Let’s ignore the constitutional irony but focus on the medical facts: now it’s a deadly sin if we don’t cover our face in public.

The data that CivicTech is able to gather will help everyone make informed decisions. This includes government and political decisions we can all judge on the same facts. That’s why we treat CivicTech as the most valuable technology of all markets. It is the only segment within the legal family with the immediate capacity to save lives at scale.

Dictator

The gathering of data to inform opinions can also be deployed to control crowds. Forbes reported a couple of governments deploying corona trackers as spy apps. They stated that Israel will unleash cyber tech “usually used for counter-terror” to enforce quarantines and to check the movements of people testing positive for the virus. The country will actively track citizens by geolocating their cellphones. Similarly, one of the most effective corona tracking efforts was a collaboration between Chinese officials and Tencent. The New York Times called it a: “..template for new forms of automated social control that could persist long after the epidemic subsides,..”

These draconian measures during times of crisis aren’t nefarious by nature. However, their impact over time does have the tendency to become diabolical. The US approach to swiftly lockdown borders has been widely applauded. Meanwhile, the UK slower tactic was equally admired. Their protracted reaction, scientists argue, will accelerate the immunization of the masses. Nevertheless, like in France, the decisions to lockdown or slowdown seem to depend on whenever a nation is in the middle of an election or not.

Make no mistake, these events provide a blueprint for stripping liberties at scale. The laws enacted after the 9/11 attacks 20 years ago, allow the installation of mass surveillance technology which is still operational today. Therefore we must stay vigilant towards how fast our freedom will return. We’ve seen videos where authorities threaten citizens for disobeying the emergency precautions. We heard officials gently encourage to watch each other in these trying times. As someone who has survived a dictatorship, I also recognize these subtle signals. I’ve seen what happens once rulers get a grip on absolute power, it’s hard to let go.

Double Agent

So when does CivicTech work best? When we deploy it with honest intent and safeguards against abuse. We should treat CivicTech as a double agent that can provide us with both the powers to heal or to damage our trust. Especially the trust we have in institutions that need to guide us in times of crisis. Democracy only works when information is correct and transparent for all. If a society operates on lies, it literally suffers and dies.

If more people knew the exact velocity of Covid-19 infections and the stress on a nation’s healthcare system, collectively we would have been able to ‘flatten the curve’ sooner. Instead, we witnessed institutions haplessly misjudge and misinform us on a simple metric. A metric I’m still hoping we can obtain with CivicTech. Now we have to enter an undetermined period of unfamiliar powerlessness. And since we lack the compass of correct data, we have no clue how long it will last.

  • Raymond Blyd

The Fall of Legal Tech And How To Pivot Out
The Fall of Legal Tech And How To Pivot Out 150 150 Raymond Blyd

There has been a 532% drop in legal tech funding in January 2020. Perhaps it’s time to entertain a 4-step plan to pivot to a market with measurable growth.

TLDR: The previous decade has proven that no amount of money, technology or talent can disrupt the legal industry…from the inside.

The Fall

Admittedly, January 2019 was unique with a haul of $613 million. January this year had a total of $97 million with $75 Million going to Personio — an HR platform that also generates contracts. Another outsider breaching the contract space as a challenger. While we noticed most stats trending downwards, funding was our last metric of hope.

If we took an honest look at where venture capital for the past decade was allocated, we may come to a harsh conclusion. Most of the money evaporated in broken dreams of products with no fit or it’s being used to prop up legacy systems. Yet the funding metric may not be the only alarm we kept hitting snooze on.

Some may remember CB Insights and Crunchbase extensive coverage of legal tech back in 2017. Except for some reports on individual companies, we haven’t seen the same level of interest since. On Twitter, hashtag #LegalTech peaked on December 11, 2017. According to Google Trends worldwide, Legal Technology peaked even earlier. One positive: it seems we are steadily climbing back towards the tip of January 2011.

We consolidated this data in the Decade Dashboard and visualize the growth and subsequent decline in over 800 locations. A bit more optimism: we are still net positive in terms of new ventures versus the fallen. Meaning we register more new companies than we can detect that went out of business. It is not the most accurate way of measuring growth. It’s more like adding sugar to your coffee to get an extra boost.

The Dynamic

Let’s forget about the long sales cycles and the culture of risk aversion for a moment. Here’s why the legal industry is impervious. There are two historical drivers of change in legal:

  • A change in the law or;
  • A technology that enhances the charging capabilities of professionals.

The Law

The quickest way the legal industry can be disrupted is when we change the law. Here are two obvious candidates: in most parts of the world, access to case law and codes is supposed to be free. However, through a weird marriage of copyright and publishers, they are mostly pay-per-view. Worse in France, you risk a five-year jail sentence if you analyze cases at scale. In short: no country on earth allows easy access to all cases or codes to analyze them at scale for inconsistencies.

Another outdated constraint is the illusion of impartiality. That’s why lawyers can’t recommend technology [dutch] in The Netherlands. This restriction also discourages non-lawyers from owning a law firm and obstructs the marketplace model of charging for leads. These limitations harm the distribution of justice. It creates an artificial economy partial to the few with enough money to get a fair day in court.

The combined fact that we can’t analyze all court data and that lawyers are insulated from normal economic dynamics creates a virtual monopoly on legal knowledge. A rebellious lawyer may even argue that it’s an unconstitutional one. Who wants to step forward to liberate and democratize law?

The Bottomline

The other detonator for disruption is a technology that enables lawyers to charge more for less. The pager, email and the blackberry were eagerly adopted by lawyers. These technologies increased communication which directly translated to more billable hours. Whenever a technology was able to fuel the bill-by-the-hour model, it became an instant success. Unfortunately, not everyone got the memo.

Marketplaces and Technology Assisted Review (TAR) weren’t warmly embraced but had to fight their way through a decade of court battles. Why? Because they flipped the dynamic and forced professionals to charge less for more. Any technology embodying this principle shouldn’t expect a red carpet in Legal. That’s why we monitor the profiles in our dataset that promote efficiency. Just to see if they can stay afloat.

The Pivot

It would be a sad waste to have all of these wonderful ideas die in oblivion. Especially when there are other sectors in desperate need of driving down costs. Particularly unpredictable legal costs in a volatile economy. So here’s a 4 step plan to help any company at least experiment with the idea of a pivot:

Let’s start at the bottom. In an industry where precision is sacred and quality is holy. None of these attributes are easily measurable in the context of the law. At some point, we’ll have to trust the numbers. More capital is being spent to avoid legal work. Most of it vanishes in non-legal tech sectors. Fintech, WealthTech, RiskTech, and SmartTech are the biggest beneficiaries. Although business requirements may differ wildly in each of these sectors, at its core software is data and math. Once we view it through this prism, we can see the possibilities.

The Mindset

Now that we’ve adjusted our lens, let’s take a close look at legal tech. We’ve discussed the many flavors of contract tech in two posts. From storing raw contract data in databases all way up to using contract text analysis for financial and security purposes. We also ran through over 400 research platforms that fetch answers on the law. Each of them supports the ‘better decision’ making process in various ways. The largest legal tech company is essentially a clone of SalesForce CRM. Maybe they’ll replace SF altogether? Relax, it won’t happen but it’s technically possible.

Now let’s stay in this dream state for a moment. Software is here to support our decision-making in life and so is every law ever created. No matter in which niche you have planted a flag, zoom out to see the big picture. Practically any software that supports critical decisions is legal tech. What critical question is your legal tech providing an answer for? Better yet, who is asking the question? Is it a lawyer or a client? If it’s a client, are they in trouble? Finally, do they often end up in trouble?

We just went through all 4 steps in this exercise. Open mind, generalize tech, made an inventory of possible markets and explore the growth opportunities. Let’s try it on something more concrete like a contract clause recommendation engine. If you ever used spell check while writing texts, you’ll recognize this concept. Now imagine your spell check also suggested you don’t write “funding secured” in a tweet. Elon Musk was lucky enough to afford representation otherwise, those two words would have landed him in jail.

The Price

Our continued concentration on defining legal tech makes us lose sight of what matters. The impact of law goes beyond lawyers and is bigger than the business model of law firms. Holding tech and talent hostage in legal tech is an attack on justice everywhere. We should explore the many ways legal tech can make a difference and it only takes 4 steps.

  • Raymond Blyd

Did Legal Grow in the Last Decade? Here’s an interactive map
Did Legal Grow in the Last Decade? Here’s an interactive map 1020 574 Raymond Blyd

Did the legal industry grow in the last decade? Yes & No, depending on which continent and which metric we measure. Here’s a new interactive map to explain.

Numbers before Names

If you are new to this site, here’s what we do: since 2014 we have been collecting data on companies aligned to the legal industry and producing monthly analysis. In July 2015 our analysis showed that 2010 had only 2 startups while 2015 had 337. The question: did the 2009 recession inspired the growth of legal? The answer was inconclusive. In July 2016 we noticed new companies popping out like popcorn. We’ve been recording records being set and broken all through 2017. And then those records stood, and they could not be broken.

In July 2018 there were new records being set in terms of venture capital invested. In our latest video, we showcase the investment numbers from 2019. Along with the capital came a startling number of investors interested in legal. We’ve witnessed amazing early exits but also unexpected endings and spectacular pivots. According to our calculations, it takes about five years for a typical legal tech company to hit market fit. It takes five more to hit profitability. Nevertheless, the CAT scans did uncover niches and sectors that produce hockey stick growth as seen in this video. Funny enough, these examples aren’t grabbing headlines or getting chatter on the channels.

Overall, our industry is in a better shape with more companies getting created and more capital available than in 2009. We have more experts and events cheering the entrepreneurs. Yet, there’s a tendency to dwell on the names and not the numbers that drive our future. That’s why we’re very selective in our examples, and avoid making subjective claims like “Best” or “First”. We stick to more measurable qualities like “Most” or “Average”.

Method in Madness

To gain a better understanding of the past decade, we aggregated 6,590 companies founded between January 2010 and December 2019. These are companies in LegalTech, RiskTech, Tax, Law, and CivicTech. Here’s a primer on each:

  • LegalTech & Tax: tools used by legal and tax professionals to manage their practice, research and process laws;
  • Law: marketplaces which help boost the volume of valuable work for professionals;
  • RiskTech: tools companies build to evaluate and secure data in order to comply with the law;
  • CivicTech: tools to create and protect citizen’s rights and privileges.

These markets impact the way society handles conflicts and manage safety. Basically, they supplement or replace the role of legal in many facets of our lives.

In order to wrap our head around the question of growth, we elected to split the decade into two parts: First and Second and use three dimensions:

  • Total number of companies in a given market and region;
  • Sum of total capital raised by all ventures in any given market and region;
  • Average Valuation: the number of companies divided by the sum of all capital.

Average Valuation (AV) has some drawbacks as a marker. If one company raised a lot and similar companies raised zero, they all get the same valuation. However, we use AV because it’s the closest proximity to an exact amount of cash needed to mount an offense against your challengers.

Not only does AV provide a reality check, but it also offers some indication of growth. For example, the valuation for Law ventures globally reached $5.3 Million in the first part of the decade. This occurred when everyone was madly chasing the ‘Uber’ model in every sector. In the past five years, the valuation dropped to just around $350K.

Sharing is Caring

You can look up and compare over 870 cities..for free. Now you can zoom in from a global scale all the way down to a local level and measure a decade of growth in each locale. If you find something, please do share it with the community #legaldecade.

We’ll go first.

Here are some of our most notables of the decade:

  • London only rose to the top in the last five years, before it was 3rd behind San Francisco and New York;
  • Paris & Chicago seem to be declining giants overall;
  • Tel Aviv is top in Asia but second to Sydney if we add Oceania as a continent;
  • Singapore jumps to second and Tel Aviv drops to 3rd in Asia and Oceania combined for the final five years;
  • Beijing had the most prolific growth in both numbers and valuation;
  • Africa: while Kenya rules, South Africa has the most companies able to raise capital.

How did we uncover these? Check out the clip below

Want to try it yourself? Here’s Decade. We’ll keep it fresh all through February so enjoy and share.

Personal note: we lost two inspiring souls in innovation and basketball last week. Decade is our way of honoring their spirit.

  • Raymond Blyd

The Fourth Catalyst in Legal: Claims
The Fourth Catalyst in Legal: Claims 1920 1080 Raymond Blyd

Contract, Copyright, Cannabis were the first three catalysts for the legal industry and now we’ve spotted a fourth in this illustrious line called: Claims.

TLDR: The catalyst behind all C’s is a technology break-thru to process volumes of legal work. Contrary to the other C’s, the volume in Claims are transactions with a financial and emotional value.

The Genesis of C

DocuSign rode the first catalyst of contracts all the way up to a public offering. They are still the only legal tech company we’ve seen in recent memory to list on a public stock exchange. Better yet, DocuSign is one of the best of the 2018 IPO class with a stock price almost double its initial value. Now, there are over 1080+ companies with Contract Tech trying to follow in their footsteps.

This is different for the next two C’s: Copyright and Cannabis. We tipped-off our followers on Copyright in the past. We noticed the high seed capital these startups receive. They have the most VC capital in legal tech, the quickest exits and fetch the highest acquisition prices. And all of these records came during the audio streaming wars but before the video streaming wars began.

Here’s an interesting stat: the money spend to create original scripted television exceeds the defense budget of Australia. As the writer puts this so eloquently: it cost “Jeff Bezos $6 billion to take his new girlfriend to the Emmys“. Now, how do you manage copyright? We found 125 young companies with $1 Billion CAT aka ‘capital allocated to’ Copyright Tech. These companies represent just 10% of new companies. Yet, as illustrated in the video below., they managed to raise 39% of all the new capital in legal tech.

It gets better in Cannabis Tech with only 35 companies and a $1.02 Billion CAT. It seems well respected legal counsels still feel uncomfortable sharing at a soirée that they help sell weed. Trust me, you’ll be the life of the party if you do. We did aim to break the taboo with our analysis and maybe I should have struck a more serious tone. Now recent data indicate a slow down in Cannabis ventures citing the high costs of legal, license and compliance.

The Fourth Wave of C

However, we are here to discuss the fourth wave. The ‘Claims’ category surfaced from the CAT scans we’ve been performing on the legal industry. Claims are a special species within the law. Some examples: you are entitled to cashback within 7 days after purchase. Another is when you have been unlawfully terminated, you can claim for monetary damages. The highest seed capital raised by a European legal tech company is processing labor law claims.

Most claims aren’t easy to exercise. They are also difficult to identify. Here’s where the machines play a part as pointed out in “Who are your Challengers“. Not only with spotting claims but also processing them. Like recovering your ticket price upon delay of your flight or refunds on taxes paid on travel purchases. In the lather, one company was able to raise $12.3 million in venture capital to help recover taxes.

Once you know you have a claim, it may take a little capital to extract it. That’s why there is a burgeoning insurance industry surrounding these risks. Another avenue is to sell your claim to litigation funders, who will proceed to monetize your right. This happens when claims are bundled in a class-action suit against an entity. These are the cases we see in newspapers like data breaches, equal pay, sexual harassment or environmental accidents.

It starts with the discovery: where to spot claims? Courtrooms are a good place to start. A use case for AI is when litigation funders or insurance companies employ it to discover claims and calculate outcomes in court cases. One way of identifying claims in court records is simply looking for the numbers. By checking the amounts in damages awarded, one can start speculating on the value of certain types of claims.

Triple D

To summarize the above, the business of claims centers around three areas:

  • Discovery;
  • Damages and;
  • Dispute.

Translated into questions: Do we have a claim? How much can we claim? And how do we settle it? We touched upon the companies that discover and recover claims. They received some substantial investments along with most of the spotlight. However, these companies operate at the tail end of an conflict after the damage is done. Most of the value actually lies in helping to avoid claims from materializing.

That’s why companies that suffer from employee or customer claims went looking for ways to suppress claims. Many used the legal quick fix of forced arbitration or mediation clauses in contracts. Some employed alternative or online dispute resolution platforms (ADR – ODR). ODR platform classics like Modria, in turn, benefited by getting acquired. More recently, companies have been developing smarter solutions on Blockchain. They are able to program ODR directly into payment platforms.

CV equals VC

As noted as early as the Roadmap analysis, payment platforms are set to become the next network to rule our lives. And to prevent claims on these platforms, they need legal tech components like:

  • Fraud detection;
  • Identity management;
  • Contract management;
  • Conflict resolution and;
  • Brand protection.

That’s why Amazon now offers a legal marketplace to support merchants with copyright and trademark claims.

We’ve found about 567 Claim Tech companies with $3.34 billion in CAT, who address claims with tech. While the overall growth of new legal tech ventures is slowing, the C areas are growing., especially Claim Tech.

Now it’s ironic these legal business catalysts all start with a C. Perhaps the underlying message came from the ultimate C. Customers! No silly, Citizens. The largest source of disputes globally stems from estate or custody battles. In those conflicts, the emotional claims far outweigh the financial ones. So when an investor is calculating the market, they should not only count the volume of claims or the value but also look at the void it fills within our society.

Resolving claims is a vital legal process that powers world peace and a fair society.

  • Raymond Blyd

Who are your Challengers?
Who are your Challengers? 1920 947 Raymond Blyd

Google launched a bank, Apple has a credit card, Facebook wants you to pay with or without their own money. Are they Legal Industry challengers?

Ready, Aim, AI

Big tech companies are striking at the heart of the financial industry: transactions. The finance institutions are hitting back by becoming the biggest investors in AI companies according to HBR. These AI companies will help them better assess risk in terms of missed opportunities, compliance or fraud. Risks are hidden within documents describing these transactions. These technologies mimic the traditional eDiscovery platforms that legal professionals use to uncover legal risks in documents. Practically it’s LegalTech applied as RiskTech. By the way, aren’t accountants or tax professionals hired to spot risk in finances?

What we may finally be experiencing are the effects of software eating the world..and especially the world of professional services. The first symptom is the struggle to identify the competitors. This problem gets worse because every industry is becoming fluid and the barriers to entry are eroding. Once the pain is located, one can aim and train AI on it. This opens the door for any tech company to venture into any market. And it’s well documented how very adept tech companies are at raising capital.

Every business needs to grow. Companies can achieve growth within their market or in an adjacent one. If growth becomes harder in your current market, you’ll notice the luscious green grass at the neighbors. The grass your neighbor still cuts with a toenail clipper while there is a fleet of Robo lawnmowers sitting idle. This is why big tech can go after finance. That’s why accounting software is looking at legal billing and eDiscovery providers also do contract management.

Competitors

Many centuries-old banks are reluctant to view tech companies as competitors so someone coined the term “challenger bank“. We’ve noticed a similar stance within the legal industry. Law firms don’t compete against legal tech companies and legal tech companies only compete for the adoption by lawyers. However, data paints a stranger picture. Here’s a breakdown of the forces the data implies to have the most impact:

  1. Non-consumption & adoption;
  2. Automation & AI;
  3. Competitors & challengers.

We discussed the cost of acquiring customers is set to become exorbitant which will drive down consumption and adoption. The next big nemesis is automation. IBM’s latest prediction is that 100% of jobs will be impacted by automation. Here is where the world gets weirder: automation in legal usually originates from outside the industry. The most successful Dutch legal research platform was originally a medical search engine. The largest contract managers started as extras of a customer relationship management (CRM) platform. Most of this stuff wasn’t created by lawyers for lawyers. They challenge our belief of what the competition should look like and where it comes from.

Challengers

The companies that operate in the legal industry will face two sets of adversaries: competitors and challengers. Here’s a rule of thumb: you will see the competitors coming, but you won’t recognize the Challengers right away.

Competitors are usually the incumbents with an established name they bankrolled with marketing and sales. They are listed in Google search between the ads you can’t afford and you read about them on the review sites you refuse to pay for. Your competitor is the first name that comes to your customer’s mind when they see you. They are the ones you have a prepared response for once you’ve entered into a sales conversation.

Challengers come in two sizes: large and small. Large challengers are big players looking for a new game. They have already gathered feedback from your customers but haven’t yet revealed their new offering to them. Small challengers are the nimble startups looking to disrupt. The small challengers are talking to the investors and are a raising war chest of cash. You would never mention a small challenger to your customer. If they do enter the conversation, we get into a ‘dismiss and defend’ mode.

How We Play

Why are challengers so difficult to spot? Here’s where data comes into play. Matching companies based on how they describe themselves is a real challenge. Every founder will aim to differentiate and that seeps into how they articulate their solution. Owler and CB Insights solve this by using the Spotify method of customer recommendations. That approach works when you have a large and engaged audience. In new segments, this approach delivers diminishing results.

And there is an extra complication when identifying large challengers. Some are so far removed from the legal industry that it takes a while before they pierce our bubble. The other factor is their size: they create so much noise making it difficult to capture the signal. Many, like me, were pleasantly surprised Google’s play for contracts this year. Yet we’ve found a frequency and are able to lock-in on their signal.

Here’s how: there are 163 contract managers at Capterra. We’ve registered 1076 private companies dabbling in contracts at various stages. Not only the ones that review or draft, but also handle the ‘before’ and ‘after’ of a contract. From the procurement, negotiation, and signature stage all the way up to the dispute and entity management of contracting parties. Whenever this is in the construction sector or content licensing, these ventures provide a wealth of data on trends within a particular area. Challengers free up more capital and reveal new opportunities.

Ultimately companies thrive with many challengers but little or no competition. So before we ‘dismiss and defend’ let us ‘discover and distill’ the data from our challengers.

  • Raymond Blyd

DoA: Data on How Many Legal Tech Companies Rise & Die
DoA: Data on How Many Legal Tech Companies Rise & Die 1920 1080 Raymond Blyd

[updated November 3, 2019: Clearspire]

Around 992 legal tech company’s sites vanished since 2015. About 328 may be in trouble as well but the good news is that the world founded 2.4 new startups every day in that same time span.

In April we announced embarking on a dark quest: to figure out how many legal tech companies were still alive? The concern was that there were more companies vaporizing than were materializing. We started in 2015 and have collected over 11000 links to companies, projects and, communities worldwide. We ran them all thru a custom build ‘Linkwasher’ which followed a cycle of cleaning, deduplicating and testing on repeat.

If you are wondering what there is to clean about URLs? Plenty. For example, many sites upgraded to a secure sockets layer (SSL) and redirect to an HTTPS-protected domain. Others changed their top-level domain or pivoted to a different name. Asian sites often offer an English version that wreaked havoc on our “washing machine”. While in the USA, some use Cloudflare geo-blocking to prevent non-US visitors from accessing their site. We’ve spoken to them, and they have their reasons. The fact is that the legal industry is in a constant state of flux which is on full display in these links.

So how did we determine the health of a venture? If they are still available on a domain. Those who have a glass-half-empty mentality may argue that many sites are zombies waiting to expire. We took a more optimistic approach and surveyed the machines that run the internet. Server responses can vary wildly. Some servers respond rudely or didn’t want to respond at all. Others are lazy and take their time. Maybe man and machine aren’t that different after all. Eventually, we got answers, and we threw the responses into four big buckets.

Surprisingly, the majority of sites provided a server response of 200 which we considered excellent. The second-largest group was reachable with some redirection and responded with a 300 message. The smallest group responded with something within the 500 range, which indicates trouble with the site itself but the domain should still be there. Finally, the third-largest group came back with nothing, 404 or a GoDaddy domain for sale ad.

In the above analysis, we excluded the Fintech and Wealthtech sites and just worked with the Law, LegalTech, CivicTech, Tax and RiskTech categories. There are more revealing details when you divide these up into companies we registered as bootstrap and haven’t raised capital versus those who did. At a glance, the largest failures raised their cash with an initial coin offering. Remember those ICO fields of dreams? Yet, regularly funded companies also folded and I applaud those like Dealwip and Tali coming forward to share their stories. Note that both of these ventures are still in our ‘Excellent’ column but will inevitably move into our ‘smaller’ ones to the right.

Both stories remind me of the Atlantis of legal tech startups Clearspire: a well funded and much-praised company that disappeared. Clearspire was mentioned as recently as this October even thou they shuttered 5 years ago. This proves the challenge of finding the truth. Both we and machines do our best to represent the world but the reality is always more colorful.

Here’s the good news: we may have lost well over a thousand legal tech ventures in the last five years, but the world also founded 4298 companies with $22.7 Billion in venture capital. If we perform a simple glass-half-full calculation, this comes down to 2.4 new startups each day aiming to impact the legal industry. To reiterate, this includes RiskTech and CivicTech companies as well as Tax and Law. Better yet, according to the Status – Live dashboard, this rate slightly increased to around a 2.7 daily average in the last year. Other metrics like seed funding are trending up as well.

So dead or alive, all companies collectively made an impact on the legal industry. Even in their brief existence, they showed us all the different paths that can lead to a fair society. Therefore, we have to erect a museum where we can honor and learn from them.

..working on it…

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