Legalcomplex

  • Raymond Blyd

Recession Survival Guide for Legal Tech Companies
Recession Survival Guide for Legal Tech Companies 962 514 Raymond Blyd

These uncertain times make an economic recession a growing probability. If a downturn is imminent, here are three practical steps to ensure survival.

I witness the highs of the late nineties and 2000. Then the Dot-com bubble burst and the Great Recession hit. Working at companies at the receiving end of both events gave me a close-up experience. I got a couple of pragmatic lessons being inside a startup and an established company during these storms. Here’s my balanced view within this spectrum.

Economists usually monitor consumer optimism for signals of a slump. There is another clear sign which is the mood of entrepreneurs. Their mission turns from growth at all costs towards surviving at any cost. They are the first to see orders slip, deals delay and their pipeline dry up.

To stave off insolvency, businesses start looking at where to cut costs. Low hanging fruit in cost-cutting are ‘nice-to-have’ subscription services. Especially “innovation” services that promise to deliver savings in the future suffer first. Here’s where the legal industry is specifically vulnerable since contracts are just that: a promise of future safety. Litigation will also take a hit as more businesses will try and steer clear of unpredictable costs in dark times.

The Intellectual Property market, especially patents and trademarks, will be considered luxury expenses for most companies. Across the board, cost-cutting will eventually influence every layer of legal work. Business owners will look at their core operations and customers to evaluate every dollar they spend. With this backdrop, let’s explore 3 measures Legal Tech companies can undertake.

Become a Benefit not an Expense

Being a cost-efficient company is a no-brainer but being perceived as one by your customers is more important. If your customer is doing everything it can to stay afloat, they may want to see the same. Remember when American automaker CEOs flew in on private jets to beg the US government for a bail-out? Once you see it, it’s hard to forget.

Even when you offer a high-value subscription product, the service will get customers fleeing in a recession if the price is too high. Lowering the price or offering discounts will see you enter a race to the bottom with your competitors. One way I saw some survive is switching to a freemium model whereby churning customers may opt to stay with a lighter version. There are two upsides: you maintain your customer in another capacity, and they become cost-conscious about your product.

**Update March 23, 2020: Freemium vs Extended Free Trials:

For those who opted for an “extended free trial” instead of a “freemium” version. The difference lies in the balance between the cost of acquiring a customer (CAC) and sustainability. Even if you converted 5% or 10% to a paid subscription, you may have lost 90% of users forever. Remember, ‘free users’ may be the best source of objective feedback for improving your product.

Make Friends not Foes

The freemium model was also a suggestion by Mary Meekers as we reported earlier. According to her data, the cost of acquiring a customer is already at an impossible threshold. This is especially true when trying to acquire a new legal service customer.

If a freemium model is not an option, then a strong relationship with your best customers is essential. First, figure out which customers are able to pull your company out of an economic apocalypse. Those customers should get exceptional customer care to the point they consider you a friend. When the costs cutting decisions are being made, there is always an emotional connection to the vendors that provide more value than is being paid for. Having been part of both ends of this conversation, I have witnessed this first hand.

Discover your Diversity

Remember, some of the most successful companies were started during a recession like Microsoft and FedEx. Some even thrived during a recession such as Amazon and AirBnB. Which brings us to the final and most pivotal point. The survival of a legal service provider like a law firm depends on two factors: one is the health of their customers and the other is the demand for their legal expertise.

For Legal Technology companies these factors work out slightly different. Usually, law firms heavily rely on specific expertise to service a certain set of customers. If altogether new expertise is required, they will struggle to fulfill that need. Example: if Thomas Cook was your biggest customer, and you aren’t into Bankruptcy Law, you’ll probably join them.

Therefore, smart legal technology should resist becoming too niche and stay flexible to fulfill new needs. Amazon is the most powerful example of this approach. They quickly scaled from selling books to selling virtually everything with the same platform.

To find out which outcomes to consider all you need is some data and your intuition. There are data-driven tools available to help scope sectors, segments, types of customers and evaluate similar products in other sectors.

For example, Legal Design studios normally focus on law firms and designing contracts. A rudimentary CAT scan suggests, that serving corporations in designing compliance is a 5x larger market. Legalpioneer discovered one design company operating in RiskTech which raised $10 million in venture capital.

To summarize this survival guide:

  • Be cost conscience;
  • Care for your customer;
  • Diversify your portfolio.

The legal industry now has the luxury of having their own data analytics providers. So if your intuition tells you to brace for impact, there is data to deploy your airbag.

  • Raymond Blyd

CAT scan: Calculating The Market for Any LegalTech Company
CAT scan: Calculating The Market for Any LegalTech Company 1920 1080 Raymond Blyd

How do you measure the market size for any venture? There is everyone’s way and there is a precise way.

How Zune?

According to Harvard Business Review, it’s notoriously difficult to measure markets especially new ones. The article describes how factors like customer passion are ignored in the calculation. For instance: Did you know that 11% of the population suffers insomnia whereas 26% wants to improve their sleep. So if you stumble upon a cure for insomnia, you better off marketing it as just “improving sleep”. Simply because it’s what more people are passionate about.

Another emotion our distorting market estimation is confirmation bias. The failure of the Microsoft Zune music player is a textbook example. Microsoft used the iPod as a confirmation for the projected growth of the portable music market. The reality was that Apple cannibalized its own iPod on purpose with the introduction of the iPhone.

The Zune was a minor mishap compared to Bill Gates biggest mistake: predicting Android and the opportunity of an open mobile platform. Google bought Android for a reported $50 million and went on to capture a $400 billion market. One stunning detail from that story was the fact that Google’s acquisition in 2005 was a defensive measure against Microsoft’s mobile operating system. The winner-take-all open mobile market came into existence only after the closed iPhone ecosystem launched in 2007.

So we should be aware that measuring a market based on existing products, is betting against change.

Fathom TAM

Let’s look at how we can calculate a product market size. Here are three approaches:

  1. Total Addressable Market (TAM);
  2. Jobs To Be Done (JTBD);
  3. Capital Allocated To (CAT).

Total Addressable Market (TAM) is calculated from the number of consumers for similar products or the revenue of those products. But here’s a dirty little secret: almost everyone copies or crowdsource a TAM number from somewhere else. Therefore, that number will be difficult to match to your product since there is no way to validate the underlying data. Worse, a TAM number may not consider evolving consumer behaviors like what happen in the Zune example.

That’s why there’s this other formula: Jobs To Be Done (JTBD). A theory derived from Clayton Christensen famous ‘job of a milkshake’, which he explains in this 4-minute video. By correctly identifying a ‘new’ need, you can deduce the number of potential customers. There is a more detailed look at this method here: Market Sizing with Jobs-to-be-Done.

The beauty of this approach is the ability to envision the change. The JTBD method for market sizing helps reveal new consumer behaviors and expose our biases towards the past. So in the case of Android, the job was to enable handset manufacturers to compete independently with the iPhone. However, JTBD would not have predicted that the size of this opportunity would be $400 Billion since the iPhone hadn’t yet changed the mobile landscape.

Numbers versus Nonsense

How do we get closer to a more precise estimate of an evolving market? By looking at venture capital. A capitalist invests their money in the opportunity to double, triple or even have a 10 times return. They are continuously looking for markets where that might happen. Once they invest in a market, we then get a total amount of capital for that market.

To test this theory, let’s stay in the legal industry and pick intellectual property law (IP law). Traditionally IP Law focus was on protecting data we generate for a commercial purpose. Data we generate and want to keep private doesn’t have such an established set of legal rules for protection. A few tech monopolies like Google and Facebook became extremely profitable because the law didn’t offer much protection on private data.

As the saying goes: we became the product.

IPTech is the use of technology in support of the enforcement of IP law and the monetization of data. We identified IPTech as one of the most lucrative segments in LegalTech. IPTech can also be deployed in defense of your brand, reputation, and privacy. We discuss ways ventures used Blockchain or Biometrics to offer these protections. In that sense, we identify IPtech as RiskTech. Now we discovered that IPTech as RiskTech is way, way bigger. How big? Over three times the size of its counterpart in LegalTech.

Legalpioneer tracked $5.84 billion of capital allocated to 473 IPTech companies. Then we noticed that $1.52 billion of venture capital was allocated in an area were just 50 RiskTech companies operate. The difference becomes apparent when we calculate and sort on the average value per area. One company that employs IPTech as RiskTech is valued at $30 million per company. One LegalTech company in the IPLaw space average value is about $10 million. To see this visualized, just follow the dotted line in the graph below.

IPTech as RiskTech

It’s insomnia versus a sweet snooze

CAT scan

The above example shows how a check on Capital Allocated To (CAT) a market segment or company has the potential to uncover the real needs of consumers. The nature of private companies enables them to pivot and mirror consumers movement in near real-time. A CAT scan sheds light on where investors are taking on new bets and exactly how much is on the table.

The best way to instantly reveal new behaviors is when running continuous CAT scans across areas. That’s why we set up the Ambition dashboard to check major movements in real-time. We also discovered an interesting byproduct of CAT scans called “green pastures”. By running more granular topics and categories, scans will also reveal the areas where little or no funding is registered. Better yet, CAT scan also reveal when these green pastures are suddenly flooded with funding like in the Contract space.

We performed about 18 custom CAT scans for boot camps, startups and corporations around the world and I would like to show my gratitude to all. The insights we shared were invaluable.

So are you wondering what unique ventures are attempting to crack new markets? Where are the ‘green pastures’ in the Contract Management space or is it saturated? And is Security the new black? If one of these questions intrigues you or you have a different question, reach out to us. We have 2 scan slots still open for August so pick a topic or a company and together we’ll explore the future.

  • Raymond Blyd

Meet my first investors
Meet my first investors 1911 832 Raymond Blyd

Life is a collection of choices and starting a company is one of the biggest you will ever make. Especially if you already started a family.

There are two major considerations when you choose to become an entrepreneur: you are not only betting your future but the future of your family’s as well. The other consideration: your startup is your baby and so it will become a family member. This means you’ll have to constantly balance priorities between ‘family members’.

First Pitch to Spouse

There’s this rather funny exchange about the difficulty of choosing between your partner and your company. Ask yourself what’s easier to replace: a good business with revenue and growth or a fiancé? That could be an easy call. However, it’s different if you have a happy marriage of 15 years with beautifully adjusted preteens.

In that scenario, your significant others are also your early investors. Therefore, you’ll have to treat them as such. They are your silent board members with a stake and return on investment of 10x “Happiness”. Your loved ones also need an exit and it isn’t cash.

Your time spend and the Quality is determined by the voting rights of those silent board members. If you are a fair founder, they get supervoting on how you spend your time. If board members love you, they will use their veto with discretion.

Part of the Family

So I took Legalpioneer out of the garage and into our home and said: here’s our new baby, will you help me raise it? You can help me pick out the clothes, dress it up, and we can go to parties together.

After an initial euphoric reception, I dutifully mentioned the disclaimers: it means you will also have to share some toys. Food, shelter, privileges and my love are guaranteed under any circumstances, but we may need to be flexible on allowances and daddy time.

Since we’re still in euphoria, I’m unsure how this strategy will play out in the long run. However, as a father first and founder second I’m committed to teaching both babies to Love and Live the things they are passionate about. And good things don’t always come easy.

Vesting Happiness

The recent loss of Avicii made me pause at a simple fact: happiness is an invaluable asset in any human life. It is something which is virtually impossible to buy. My very first post on this journey was a manual to love the things I may hate about building legal technology.

My family makes me Happy and so does making beautiful products that will help us outsmart robots. Similar to great advice from Jeff Bezos, you shouldn’t balance but rather integrate both to measure your success in each.

If you decide to make your startup your destiny, make sure to recruit your family first, give them the right to veto and share the joys of the journey.

Author note: this article was written right after the passing of Avicii in 2018.

  • Raymond Blyd

According to Mary Meeker, we should be rooting for Kim Kardashian West
According to Mary Meeker, we should be rooting for Kim Kardashian West 1920 1200 Raymond Blyd

The legal counsel business model is nearing a catastrophic end due to a looming economic event. Unless we follow Kim’s example.

Every business has but one real competitor according to Clayton Christensen and it’s called “non-consumption“. Traditionally, legal services came prepackaged with a law incentivizing you to procure it no matter the price. Case in point: Europe’s GDPR legislation hatched an entire privacy protection industry which collected $24.1 Billion in venture capital.

Still, its anyone’s choice to hire a lawyer or to do-it-yourself (DIY). The number one weapon to combat DIY is advertising. Businesses buy ads to push people into a purchase.

The current Cost of Acquiring a Customer, known by the acronym CAC, is nearing an unsustainable rate according to Mary Meeker. Soon you have to pay more to market your products then you are able to earn from your customers. No need to be an economist to realize that’s a formula for disaster.

Especially for programmatic ads. The most expensive programmatic ads are those for legal counsel services. Why? While any lawyer, on paper, can earn more than $800 an hour, only a few do. The reason is that only a rare selection of legal services merit such a price. Looking at you, mega-merger lawyers.

Then why does it feel like we need to pay $800 an hour to become an attorney? The law of economics dictates you can’t charge such a rate for getting someone out of a parking ticket. Yet, most attorneys need to ask a lot in order to manage a decent living.

The main cause is the hefty investment it requires to become a legal specialist. To get a prestigious education in law, most will plunge themselves in debt. Among the richest private companies in the Legalpioneer dataset is SoFi: an online personal finance company that provides student loan refinancing. End of May they quietly raised $500 million bringing their total in capital raised to $2.1 Billion. Yes, quietly.

It’s a myth one can easily repay any study. Especially one that doesn’t properly train you to be efficient.

One person, with the means to pay but not the patience to go through a bloated legal education, found a way. You only need to pass the bar to approach the bench. Kim Kardashian will take 18 hours a week apprenticeship to pass the California Bar exam. This will allow her to plea cases for inmates by 2022.

Solving injustice does not require an Oxford law degree, it requires determination. No need to bribe anyone or donate millions to get in. Looking at you, Dr Dre. We can skip the AI, bypass the VC and realistically boost A2J if we do the following: make education affordable and inject law in every curriculum. This will enable most to avoid courts and receive justice at a fair price.

Mega-merger lawyers can save wrongly accused from death row. However, the costs of producing legal expertise may eventually force them not to. That will be a sad side effect of a rising CAC.

So, Go Kim! We all need you to succeed for society’s sake. With Mommy’s marketing skills and Daddy’s legal DNA, you’ll be a precious addition to the profession.

The current US President believes you’ll be the best of the West and I agree.

  • Raymond Blyd

Hey Google! What’s your Legal Endgame?
Hey Google! What’s your Legal Endgame? 1160 725 Raymond Blyd

Early April Google snapped its finger and unleashed their A.I. on corporate contracts. What’s the Endgame?

While watching the cool voice services being unveiled at Google IO, I couldn’t shake the one they did a couple of weeks earlier at Google Next on documents understanding A.I. It slowly dawned on me why they entered the legal industry specifically through contracts. This move can be viewed from a couple of angles but here’s the one I see really moving the needle.

Shortgame

Let’s address some concerns many echoed when the news first hit about Google doing contracts. Can the Legal Industry trust Google with corporate data? Wouldn’t they just sell it to the highest bidder and post ads alongside your contract like in Gmail? In the short term, that would backfire right away. The legal industry can not relinquish data in that fashion, lawyers are bound by ethics.

However, here’s the paradox: 2 of the top 4 most expensive keywords globally in Google AdWords are the ones lawyers buy. If you run a traffic check on any of the popular LegalTech companies sites that recently raised large sums, you’ll notice that a significant chunk of their traffic isn’t organic. Like many other businesses, they heavily rely on AdWords, Twitter, LinkedIn, and Facebook. So even when professionals have ethical standards, the unit economic reality remains harsh. The Legal industry needs Google to prop up volume and drum up demand.

So as creepy as it may sound, showing ads on your corporate data is as crazy as renting your couch to a stranger. In the future, an algorithm can anonymously pick the name of the most suitable professional or firm to handle a certain legal matter. Of course, you’ll have to opt-in and adjust the permissions on your corporate data like any other privacy setting. From the perspective of a consumer of legal services and the eventual file owner, this will be different. They may not mind an objective mathematical suggestion of the best legal provider. Especially if the suggested provider is cheaper than your current one.

Midgame

At the other end of the spectrum sits Data Security. One of the most famous data leaks in human history (Panama Papers) originated from a reputable law firm. Attorneys may be adept at securing legal risk but IT ones aren’t their forte. The medical industry has elaborate laws like HIPAA to handle health data, while the legal industry operates on a pinky swear. Data breaches can happen to anyone but many rely on Google, Apple, Microsoft & Amazon (GAMA) to secure documents. They possess enough engineering expertise and financial firepower to protect our files against breaches or ransomware. Professionally, we’ll be reluctant but remember, personally we already entrust GAMA to secure our most intimate photos.

Another argument states that Google may not have the expertise to handle the legal heavy lifting. Google’s goal is to have everyone play and apply their A.I. on any data. And if they want their machine to take the lead in legal they need to feed it as much legal data as it can. Specifically of the ‘dark matter’ variety meaning data behind corporate firewalls.

That is why Google partnered with corporate data custodians that could provide it with access to dark matter.

  • Accenture ($119B);
  • Iron Mountain ($10B);
  • DocuSign ($4.5B);
  • Box ($2.7B);
  • UiPath ($440M);
  • Taulia ($176M) and;
  • Egnyte ($137M).

Combined with Google ($890B), they represent about $1.3 trillion of consumer trust in them handling documents of any kind. Now, why would they pick contracts and agreements?

Longgame

One reason Google and others choose contracts is their immediate impact on a company’s bottom line. All companies need to track income or manage their spend and most of those numbers are buried in contracts. The Legal Industry tends to get wrapped up in the minutiae of legal problems. However, companies have more pressing practical issues like is this a profitable deal or am I being defrauded.

As we hinted in our previous post ‘Breach‘, the new players aren’t so much interested in legal hazards but rather the financial analytics. We provided some samples of Sales and Enterprise startups managing customers contracts. In the last months, some curious new services latched on this trend of managing subscriptions. G2Crowd recently launched a service called Track to manage software spend, usage, contracts, and compliance. Similarly, Product Hunt offers Founders Club: a single membership with access to a group of tools and services. In short: a single contract to manage others.

Bottom line, more players are getting into the ‘contract management’ game to support better financial decisions. This ever-expanding group understands that the facts and figures matter just as much as the legal clauses. Better financial management starts with good contract insights. Yet, getting into corporate contract management may not be the most lucrative space.

Endgame

We live in a subscription economy where both our professional and personal well-being are tied to periodical payments. Instead of purchasing stuff, we are moving to a licensing model for our everyday needs. We all feel the soft squeeze of fees impose by these subscriptions. And that is because recurring revenue became an I.V. drip for most companies.

So the bigger market for contracts isn’t corporate, it is consumers. They may not have the means to acquire elaborate vendor management expertise but the same principle applies. That is why credit services, insurance companies, and personal finance apps will bypass banks and go straight for the contracts. Yet understanding these particular documents still mostly resides with a human legal professional, not a machine. And due to the massive scale for this need of understanding, makes this endeavor economically unsustainable.

Let’s forget about the technology or the industry for a second. Picture yourself in your living room when you suddenly get a spark: can I lower my insurance costs today? Where can I stream Avengers: Endgame for the lowest price? Or how about all my vendor contracts that have 90-day payment terms?

Your smart speaker wakes up…

  • Raymond Blyd

CannaBiz: aRe wE hiGh yEt?
CannaBiz: aRe wE hiGh yEt? 1920 774 Raymond Blyd

How can a strictly regulated industry become the fastest growing and among the most lucrative? Hold this bud while I explain..

For those of you who have never indulged in some weed and are curious about the experience? Stop reading now and Watch Bob Ross (R.I.P) for about an hour. Once you’re totally relaxed, you can return to reading this post.

So, founders got curious.

Standard advice to any founder was to never build products in regulated markets…That attitude is about to change…The most exciting billion dollar companies in the last 10 years have been launched in heavily regulated markets.

Steve Blank and Bradley Tusk

I lifted this wisdom from Steve Blank and Bradley Tusk. We see this theory of investing in regulated markets play out in the Legal Industry as well.

[ Fun fact: I found 224 synonyms for Ganja. ]

Now, investors and corporations are interested.

According to CB Insights, a total of $2.2 Billion was invested in marijuana in 2018 alone. Maybe because the market size is everyone over the age of 16 with anxieties. Since we are living in an increasingly uncertain age, there is little doubt that smoking herb will be a hit. Before the recreational use of Cannabinoids was only legal in a few circumstances around the world. Now acceptance is growing and the largest economy on our planet just legalized Kusk. So it is safe to assume that demand will outstrip supply very soon.

[ Fun fact: In Switzerland, you can get a little THC in any supermarket or tobacco store. ]

Why should the Legal Industry care?

We recently processed 10.000 of the fastest growing companies worldwide ranked on LinkedIn employee growth and Indeed job listings. Within this list, we identified the companies impacting the legal industry (1009) and noticed a small number (44) are distributors of Hemp. Here’s the insight: there were no Law Firms or Legal Tech companies within the top 20 fastest growing companies. However, we did encounter two handling the Purple Haze respectively Canopy Growth – #5 and Medmen – #14 .

To provide some context: the first LegalTech companies we found ranked in spot #771, #912, #1305 on the list of 10.000. Rejoice! All three were so-called, “A.I.” infused ventures within the LegalTech space. Nevertheless, if growth is measured by the companies hiring as mad, the Trees are reaching the sky. No wonder there is a thriving cottage industry of services all catering to La Cana. We see News Trackers, Legal and Compliance services, as well as Human Resource providers all focused on one substance. Both Wurk – #59 and Vangst #2121 are riding this high on the staffing front.

This brings me to my first point: a high growth but regulated industry needs skilled labor. Legal professionals are best positioned to help unravel regulation. Lawyers would be the stable underpinning for this blooming business. One reason the cryptocurrency craze was so chaotic wasn’t the lack of laws but the absence of legal sense. If you read up on all the crypto crashes, most likely cause was a security gap in the “smart contracts”. Usually, these ‘loopholes’ were the result of logic an engineer would use but a lawyer would never agree too.

[ Fun fact: Uruguay and Canada are the only countries were farming, distribution and, sale of Sinsemilla is legal. ]

Puff, I digress…where was I?

My second point: the Dutch may be the foremost experts in the authorized sale and distribution of ‘the Dutchie’. The Netherlands were legal pioneers in decriminalizing the possession of Pot back in 1972. While many still think this is a bad move, stats and society have proven otherwise. Every first-time tourist to the Netherlands will confess, Dutch Coffeeshops are one of the safest places to chill. And that is by an intricate legal design of do’s and don’ts. Maybe this expertise can become Holland’s next big export.

Reality is that the legal industry earns the bulk of its income servicing other businesses. Therefore growth for the legal industry needs these businesses to not crash but to safely reach a new high.

Now, don’t Bogart and pass it along..on the left-hand side.

[ Fun fact: I had way too much fun writing this post. ]

  • Raymond Blyd

Breach: New Players in Contract Management
Breach: New Players in Contract Management 1920 1080 Raymond Blyd

Update 2: April 19, 2019

Traditionally, managing contracts was a byproduct for lawyers. The real money was in drafting new or reviewing existing ones. Not anymore and here’s why.

Gates

Our society is glued together by agreements. Contracts are the engine of our economy. At the top we have treaties and at the lowest level, we use courtesy. In between these levels, we have thick layers of agreements drafted by legal professionals. Ranging from the simple employment contracts to the endless user agreements we all click thru. The more money is at stake, the more intricate the contracts become and the harder they are to manage.

Understanding contracts and their financial impact are vital to any successful enterprise. Most company revenues depend on having signed contracts with their customers. Likewise, the value of a company is measured by the signed agreements with the correct stakeholders. Therefore, two essential economic elements are the text in the agreement and the signature of the parties.

Barbarians

While the text part sat comfortably in the realm of the lawyers, the signature section provided an opening for everyone to storm the gates. We previously discussed the DocuSign IPO and Dropbox acquisition of Hellosign in the larger context of LegalTech.

Update 1: Docusign invested $15 million in Seal Software

Better yet, even Apple demoed their eSign solution on stage back in July 2017.

However, there are more pathways into this universe of contracts and these are provided by the text sections. More precisely: the facts and figures parts of a contract like names, dates, and amounts can be fed to a machine. New entrants armed with machine learning skillset are now able to fire at this fortress for lawyers called contract.

Breach

These new players in the contract management space can also draw on great entrepreneurial skills. They position themselves more attractively as a Google for your enterprise and appeal to a broader market. This enables them to raise a war chest of capital.

Managing your contract has now become this juicy add-on for any text or data analytics company in the world. Any data point which can harm your enterprise is a risk to be analyzed with SmartTech. So after millennia of dominating contracts, attorneys may have to capitulate to machines on reviewing and managing them.

Arena

Now once we took this lens and calibrated it to find contract management solutions, we discovered dormant LegalTech companies. We started looking at these creatures in May 2018 and revealed the first draft landscape in December. Like Jane.ai, their ammunition is hidden in mission statements, product descriptions, use cases or customer testimonials.

If we round them up and calculate their collective investment capital, you see the numbers in the image below. We mentioned the battle-harden gladiators from the Sales (Quote to Cash) and Customer Relations Management (CRM) arena in the Exits analysis.

LP Contract Landscape 2

Unchained

Now every Cloud Storage, Document Management or Machine Learning solution looking for a problem will have a peek at contracts. It will get tougher to explain to an engineer that a contract is not a math problem. Especially when lawyers created endless fields of text for a machine to mine.

Update 2: Google came to party

In the end, this should not be a clash but a collaboration between industries. For the sake of a safe society, having more clarity in contracts would be beneficial to everyone.

Especially when we realize that this legacy mechanism of a contract in text is in a race against a smarter competitor on Blockchain.

  • Raymond Blyd

Exits: Actual $ Value of LegalTech [Infographic]
Exits: Actual $ Value of LegalTech [Infographic] 1296 421 Raymond Blyd

We’ve collected 194 acquisition exits since 2016 to find out: what is a Legal Tech company actually worth?

Law vs LegalTech

Dropbox bought HelloSign for $239 million to kick start the year. Crunchbase unpacked the deal and estimated that HelloSign’s latest investors got 2 times their investment back. Some may not consider HelloSign a “LegalTech” company but if you do, is it a profitable investment? Let’s run the numbers..

Most of the merger and acquisitions action happens in the non-technology space aka Law. In this space law firms get acquired or litigation support services buy up court reporting or translation companies. We also encountered online marketplaces buying the last mile by acquiring boutique litigation firms (Divorce Online > UK OLS Solicitors) (DepoTexas > Jensen  Litigation Solutions).  

Even consultancy firms are getting into the game of buying vanilla legal (Norton Rose Fulbright > Chadbourne & Parke LLP). We even saw the reverse where a LegalTech company bought a law content provider (Fastcase > Law Street Media). 

However, if we look at the sum of spending per disclosed acquisition transaction in each area, most of it is spent in technology impacting law aka LegalTech & RiskTech. LegalTech racked up $3.91 Billion in buyouts. RiskTech $3.34 Billion with just 23 transactions as seen in the image below.

LP activity vs spend

Moreover, the new owners of legal technology companies aren’t Law Firms. Consultancy firms are frequent shoppers for LegalTech (Ernst & Young > Riverview Law, Citizen,  E-STET) and RiskTech (Ernst & Young > Aspect Security).

LegalTech vs The Rest

As many legal experts are staring one-eye straight at the middle of the legal pie others, like Dropbox, are biting off the crust. Google and Facebook are creating, investing or acquiring technology with an impact on society and the law. These other area’s we classify as either CivicTech or RiskTech. Facebook made a couple of acquisitions such as Bloomsbury AI to combat fake news (CivicTech) with AI and Confirm.io to combat fake people with biometric ID’s (RiskTech).  

One of the more interesting acquisition patterns we witnessed was by Tyler Technologies who acquired Modria. From afar, it seems scattered across practice management (CaseloadPro), IoT data (MobileEyes), law enforcement  (SceneDoc), security (Sage Data Security), and raw data analytics ( Socrata). If you stack these technologies the right way, you’ll get the perfect law firm. CivicTech may offer us the best window into the future of the legal profession. Governments and the legal industry both suffer bureaucratic inefficiencies stemming from procedures. However, one has a commercial incentive to keep it as-is, while the other has a civic duty to speed things up.

If you’re going up the ladder of risk, security companies are buying vision technology to beef up their biometric tech (Two Hat Security > ImageVision). Downstream they can then serve financial institutions with protection against fraud and money laundering. Just ask ING why they had to settle their money laundering case with a $900 million fine, the largest in Dutch history.  

Other players, with a more practical angle, are swooping in and go straight for the cherries in LegalTech. 

Conga, a Quote to Cash service surfing on top of Salesforce, acquired Counselytics and made 5 other acquisitions in a space of 2 years. All of them geared towards helping those in sales to contract faster. Fiverr.com bought AND CO to help freelancers draft contracts and pay taxes. Stripe build their own legal stack to onboard entrepreneurs to their payment platform by incorporating their company, assisting in accounting and taxes.

Exit

Now to our initial question: what is a Legal Tech company actually worth? In very few cases it can be worth a lot. Here’s why: out of the 194 transactions we tracked, we could only trace the sale price for 86 companies. From these 86 acquired companies, we could only find 27 listing how much investment they had raised before the buyout. 

Stay with me: out of the 27, we could tag 21 as LegalTech. And out of the 21 LegalTech, only 8 had a positive return on investment. Meaning: the sale price was more than the sum of all disclosed investments in that company. 

Here’s the key: those 8 acquisitions were huge payouts if you ignore burn rate and debt the acquired company may have had sitting on its balance sheet.

There is some debate on how these numbers are compiled and perceived so see them as proxies to the truth. Here’s a good article to start understanding the mechanics behind investment data. In any case, these numbers provide one more data point we’ll put to good use in our engine for world peace.

By doing this analysis here’s what we learned:

  1. LegalTech acquisitions are increasing in frequency;
  2. Outsiders buy more and spend more;
  3. Compliance (RiskTech) is increasing in value;
  4. Government Technology and CivicTech may be a perfect role-model for the Legal Industry.

And here’s what my gut tells me: Salesforce, Microsoft, Apple, and many others are ready to get in on the action, and we’ll first notice it by their strategic acquisitions in..RiskTech. 

Enjoy the Infographic and send me questions on Twitter, LinkedIn or email. 

Legalpioneer Exits
  • Raymond Blyd

Why I left my job? To power world peace
Why I left my job? To power world peace 1650 873 Raymond Blyd

If I could ever offer a small contribution to world peace, then this data-driven approach may be my best chance yet.

Sentry Syria is an early warning system for air strikes based on crowdsourced intelligence. It is one of the 170 CivicTech examples harvested in the Legalpioneer dataset. Bark, another company in this category, is battling cyberbullying and also registered as one of the best-funded CivicTech ventures of 2018. Finally, Google pledged about $300 million to fight fake news. But considering its revenue of $31 billion, it hardly seems enough compared to the damage misinformation can inflict on its customers.

Conflicts usually start with a misunderstanding or miscommunication. Nowadays our communication channels aren’t private but ruled by commercial interests. Channels that tyrants can purchase to bully citizens and eliminate dissent. If we could avoid being misled and expose bullying at any level, maybe we wouldn’t need air strike warning apps.

While the above CivicTech enterprises offer us a graphic example, LegalTech and RiskTech usually camouflage their impact on a fair society. They’re technologies that infuse the law across industries and help them to distinguish right from wrong. They ensure legal principles are embedded into operating systems. Principles like privacy by design or decentralizing authority aren’t just efficient, they are essential human rights. If we don’t implement them we’ll end up confused and at war with each other when using any service.

We now have more data and facts at our disposal than at any time in human history. We have better communication channels and more computing power than any generation before us. Maybe we just need a smarter way to find the best ideas and concepts that help keep us safe. With an analytical approach to constructing a startup idea, maybe we can insert more civility across services we use daily. I sincerely believe a world, not at war is a good long term investment. And we can incentivize those who pioneer peace in their respective areas.

We started looking for pioneers in 2016 and collecting data. Now we have gathered enough to start building a tool to empower the next generation of entrepreneurs that aim to build an ethical aware enterprise.

What if we had a way to craft and then test unique business ideas. What if you could benchmark your concept against a dataset of over 7000 startups. Find similar ventures based on market, location, and technology. By matching existing companies, to your own startup, you can calculate costs and estimate the investment needed. Imagine a tool to assess the strengths and weaknesses of competitors based on mentions and traffic. Finally, an app where you can shop for pricing, terms, use cases, business models and customers on comparable companies. Wouldn’t it be magical if it helps you craft a pitch, generate a business plan and slide deck in just 3 clicks?

Thanks to Nathalie Dijkman, the new incubator at the Amsterdam Law Hub from the University of Amsterdam will be one of the first to pilot this platform. It may hopefully inspire fresh minds to strategize their ideas, estimate their value and tweak until it is unique. By providing a statistical basis we can empower pioneers to contribute to the impossible: world peace.

Why now? Our numbers show that legal startups have been declining for a second year in a row. Moreover, funding of legal ventures is skewed towards mature later stage companies that only tend to serve traditional models.

After realizing the potential impact and the work that lay ahead, I couldn’t treat this as a side project any longer. This cause matters so it deserves to be a mission with a full-time dedication. I’m one startup willing to help more start up and keep the peace.

Will you join me?

  • Raymond Blyd

2018 Rewind: Facts, Fantasy and The Future of LegalTech
2018 Rewind: Facts, Fantasy and The Future of LegalTech 1060 560 Raymond Blyd

The year 2016 was the hottest year in Legal Tech and 2017 was all Blockchain. This year was about the investments. And that may have been a distraction.

Facts

Fact is, 2018 was pretty weird and much of it was caused by the enormous injections of capital into the industry. It also revealed the investors behind the scenes fueling the fans of LegalTech. However, news about the funding rounds has diverted attention away from numbers that would have cause to dampen our exuberance.

Status 2018

If we forget the finance fountain for a moment and focus on three trends which defined our year:

  • The continued decline of new LegalTech ventures;
  • The robust growth of RiskTech and CivicTech;
  • Contracts won the popular vote.

In our charts, we kept track of new startups created each month since 2010. We’ve been enjoying steady growth of new legal startups up until 2016. This year we dropped near the 2013-14 levels as you can see in our animation below.

slowdown 2018

The metric that actually made us aware of the steady decline was the number of mutations we perform on the dataset every year. In 2017 we performed 4184 mutations on the data which translates to 11.5 changes a day. The majority of the mutations consist of adding new companies, the rest was updating existing listings.

This year we had 2722 mutations in total which translates to about 7.5 changes a day.  This 35 % reduction cuts across most markets except for two: RiskTech and CivicTech.

Mutations20172018
LegalTech1775933
Law576114
Tax27052
RiskTech618612
CivicTech8783

CivicTech doubled in size this year probably inspired by the #MeToo movement and the US midterm elections. In RiskTech, the main driver could be the fact that these companies receive more investment on average than any other type of venture impacting the legal industry.

They say: an ounce of prevention is worth a pound of cure.

The chart below illustrates this disparity between LegalTech and RiskTech in terms of average worth each year since 2010.

[chart id=”8114″]

In 2017, the biggest splashes were made by LegalTech companies supporting the entertainment industry by managing copyrights. This year’s bright spots was on services who managed legal documents for a broader customer base. At closer inspections of the companies receiving cash and clicks this year, we notice they literally revolve around the management of contracts.

Fantasy

Let’s face facts, our reality is dominated by misinformation and the sad truth is that it is mostly by our own design.

In order to keep us enthralled, companies increasingly create fake doors, concierge services, use slick demos and content to test markets and experiment with business models. Blockchains startups used these techniques to the extreme to prop up demand for their initial coin offerings. And Artificial Intelligence startups aren’t angels either.

The magic we witness most often belies the fundamentals of the technology required to build these concepts. With A.I. in particular, the principles underlying its creation puts it only within reach of a couple of companies and nation states. In contrast, Blockchain is blue-collar tech that can legitimately finance itself. I’m therefore so saddened by the greed destroying its credibility.

The premise of Blockchain has more real value than the promise of Bitcoin.

In short: while many can do blockchain, only a few have the funds, talent, and data to do A.I. We’ll always applaud the magicians that get to pull off “A.I” and make us believe. And Legalpioneer will be the first to seek front-row tickets to that show.

Ambition 2018

But hey, it’s 2018 so let’s not dwell too much on facts and celebrate the little discoveries that delighted us this year. Found our first A.I. research platform in Africa called: Judy. Bots are on the decline throughout the tech industry except for a curious new species called: Telegram Bots. We found about 9 LegalTech Bots on Telegram originating from Moscow and Kiev.

Two other tidbits that tickled my brain :

  • Netdocuments (Software company) acquires Chapman and Cutler’s (Law Firm) Closing Room deal management application (Software).
  • Elevate (Software company)  secured investment from Morgan Stanley (Financial Institution) and went on a spending spree to acquire Lexpredict and Sumati for contract lifecycle, mitigation, and diligence capabilities.

These storylines exemplify how surreal the legal industry has become and may signify the direction we’re heading. However every year, the universe shuffles our deck of expectations, deals us a new hand of assumptions, dares us to play the prediction game and asks: wanna bet?

Therefore next year I suggest we rely more on data and facts. I hope to see more growth in LegalTech. But above all else, I wish you all a prosperous year with lots of magic.

And here’s how you properly rewind an extraordinary year: just click on the “Previous post” below and keep clicking until you get to the 2017 Review.

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