The outlook of the legal tech industry in 2020
‘Legaltech’ has not yet made its breakthrough as a prominent field within the tech startup ecosystem the same way the financial or mobility industry landscapes have been disrupted. If you think about it, the profession of a lawyer is still one of the most in-demand in the world, yet the legal industry is one of the less disrupted by technology -or at least it was until recently. In a world where everything is digitalized and a time when younger generations demand paperless solutions and remote working while crimes have entered cyberspace, the legal sector is being transformed with the aid of a number of technologies ranging from AI and machine learning algorithms to Blockchain.
What is Legaltech?
Legaltech may be roughly described as the use of technology to provide legal services. Of course, as you will read below, the provision of legal services is a rather general term and startups operating within the legal tech world have developed products for various legal needs. In summary, the legal tech field is developing a two-pronged approach:
- Using technology to replace manual work done by lawyers, such as the drafting of legal documents (e.g. SeedLegals, Atrium);
- Using technology to complement the work done by legal services professionals, such as using software to extract key terms from a large volume of documents (e.g. Luminance, Seal, etc.).
Arguably, the first approach may prove to be more difficult to implement in practice, as the legal profession extends further than simply editing and modifying existing template documents to suit the needs of each individual client, with the latter expecting a more ‘complete’ service, commitment, and empathy from the legal practitioner. Further, startup companies offering a product that largely aims to replace the traditional legal work will have to show greater efficiencies and margins in order to avoid an Atrium-like situation where a legal tech startup fails to implement a better business model than a traditional law firm.
The second approach appears more straightforward, as it is expected that professionals will easily adopt products that make their work more efficient and better (in the same way that an in-house accountant may use Xero), always taking into account the value for money they are getting. Startups focusing on this niche area will have to ensure that their business can scale at a fast pace and that end users can adopt and start using the product in a seamless manner.
What have startups achieved so far?
Although recent news may appear to be disheartening for those entering the legal tech arena for the first time, they may also prove to be an important guide moving forward. Atrium, a “hybrid legal software and law firm startup that shut down in early 2020 after failing to figure out how to deliver better efficiency than a traditional law firm”, offered a subscription-based model to its customers instead of the traditional billable hours pricing of incumbent law firms, hoping to leverage the fact that its in-house lawyers and consultants would offer a faster and more efficient service through the use of technology. The model proved to be highly inefficient, and high street lawyers will continue charging their hefty hourly fees as they have done up until today.
Despite Atrium’s failure to disrupt the legal services industry, there are several other startup companies that have set their minds on doing so. In 2019, SeedLegals announced its Series A round led by Index Ventures. SeedLegals offers a SaaS subscription-based model to startups for access to a range of tools, such as cap table management, and a number of customizable legal document templates ranging from NDAs to Employment Agreements. Furthermore, startups are charged extra (one-off payments) for purchasing standalone products such as Funding Round documents (including Shareholders Agreements, Articles of Association, etc.) and Employee Share Option Scheme documents.
The unique selling proposition of SeedLegals is the fact that startups know upfront the price that they will pay for getting their legal documents sorted, they can customize the terms and conditions of these documents to a great extent, and they are able to execute them digitally without the intervention of a lawyer. Of course, SeedLegals does offer assistance and consultation to customers who do not feel comfortable with creating all these legal documents themselves, something which inevitably raises the question as to whether the “no strings attached” (i.e. inclusive in the above-mentioned pricing, no extra hourly charge) offering of such consultation and assistance is viable for the company as it grows and scales.
Luminance is another example of a startup seeking to make the archaic legal industry more efficient. This startup offers big organizations the ability to review a large set of documents and automatically extract the key information from them, saving valuable time in the process. This service offered by Luminance could be seen as a complementary service; a manual review of said documents will still take place, albeit users of the software will be able to get better insights and extract data faster.
On a similar note, Seal (acquired by Docusign) is an AI-powered contract management platform, helping the user extract key information from legal documents, such as procurement, M&A, compliance, etc. In a nutshell, the Seal platform can be used to search through contracts, extract large quantities of contract data (including terms and provision, index information), allow customized searches across contracts, and extract and enrich contract data for loading into business systems. It can be easily discerned that such processes, when done in a manual way, can take up a lot of precious time, hence the USP of such a platform.
Another example is Kira, which uses ML software to identify, extract and analyze the text in legal documents, and Juro, offering contract management software for enterprises.
Moving Forward
It can only be expected that innovative tech-driven solutions will transform the landscape of the legal sector that has remained indifferent to change for many years. More interestingly, it is worth exploring how the two different approaches to legal tech will develop and whether one approach will be the clear winner when it comes to disrupting the sector.
Although the example of Atrium may dishearten potential entrepreneurs that wish to enter the legal tech industry, the $800 billion dollar legal services market size cannot be easily ignored. As you read above, there are numerous verticals in this industry, ranging from document management systems, legal analytics, compliance, to legal document generation, each offering an innovative way to perform an otherwise antiquated function.
About Constantinos Nikolaidis
Constantinos has been part of SeedLegals, a SaaS startup automating legal documents for other startup companies, working on the product development and customer experience side of the business. He has previously worked as a Tax Consultant for PwC advising on corporate taxation matters, has extensively researched the regulatory aspects of cryptocurrencies and blockchain technology, and is currently as a Senior Analyst for Velocity.Partners.
About Velocity.Partners
Velocity.Partners is an industry-agnostic Venture Capital fund. Our mission is to fuel Greek entrepreneurs around the globe to build world-class technology companies.
We invest in pre-Seed & Seed stages, typically up to €500K, and follow up next rounds, helping our companies build their team, prove product-market fit, gain market traction and get ready for big-league VCs along the way.
Our portfolio gets instant access to a global network of industry experts, international investors and potential clients. We also offer lifelong operational support, strategic advice and mentoring as needed.
Velocity.Partners is part of the Equifund family of venture capital funds and is also supported by the the Operational Program “Competitiveness, Entrepreneurship & Innovation” (EPAnEK).
To join the Velocity.Partners family of startups, do not hesitate to send us your pitch deck at start@velocitypartners.vc.
