Thanks to the rise of companies focused on using AI to streamline legal work and deliver better results, investors and VCs are increasingly turning their attention to the legal tech space. Startups who made it early out of the gate have seen how investors are eyeing legal tech as a plum prospect, and they’re strengthening their tech offerings. Standing out is no longer an option; it’s the norm.
The number of legal tech companies worldwide reached 1,800, according to January 2018 data. More than $475 million US has been invested in the space between 2015 and 2017. In addition, patent applications for legal technology globally increased nearly 500% from 2012 to 2016, Thomson Reuters found.
“The legal industry is worth about $30 billion in Canada and $600 billion in the United States,” former attorney general Chris Bentley told Canadian Lawyer in 2017. “You are talking about a huge amount of money and a huge opportunity for entrepreneurs.”
From eDiscovery to contract management to expertise automation, machine learning technology streamlines processes that soak up a legal firm’s valuable time. When AI-enabled tools can perform lawyers’ work for them, or help them do it better, those new efficiencies enable cost-effective legal research. Lawyers can then focus more on critical decisions as opposed to lengthy paperwork. Clients get higher-quality advice and a less expensive invoice.
“One of the drivers of investments in legal tech is the core mission to make lawyers be better and faster and smarter and potentially less costly,” says Adam Camras, founder & CEO of Lawgical, the parent company that owns the podcast Legal Talk Network among other brands, in an interview.
As someone closely following this industry, Camras says he has seen “bigger cheques being written and higher valuations than ever before. Now we are getting traditional VCs investing in this space and watching legal tech startups going to huge accelerators such as Y Combinator.”
In 2017, legal tech saw $233 million US in investments in companies across 61 deals, surpassing 2016’s figures of $224 million US in investments.
A trend within legal tech, which has also attracted investment deals, is startups harnessing AI to disrupt an industry in desperate need of innovation, Camras says. “And we’re getting to the point where these companies are not just saying they have AI but figuring out how and where it’s going to be used to add value for the client. It’s not just checking that AI box any longer.”
Because the legal field is so text-based, it was an opportune sector in which to usher new technologies, whether from Silicon Valley or Silicon Valley North. Ken Grady, adjunct professor and research fellow at Michigan State University College of Law, says via a phone interview: “The technology has improved for many startups due to machine learning, which is bringing automation to processes like contract review.”
Thing is, Grady adds, large law firms—with a few exceptions—aren’t “doing much in legal tech. Some managing partners believe this isn’t the way to go. But they have to realize we have tools today to do document automation at a much higher level than ever before.”
Dan Jansen, CEO of legal tech accelerator NextLaw Labs, told reporters those hold-out firms may eventually be convinced of legal tech innovation when clients speak up.
Law firms are service-oriented, he says. “The best way to change a lawyer’s behaviour is to have a client tell them they have to do something different.”
Ultimately, the future looks bright for legal tech, Camras predicts. He suggests the coming years will see more traditional investors funding the space, “and the ecosystem will flourish due to acquisitions. I can see that happening from one of the big accounting firms, for example.”
Blue J Legal has seen this investment in legal tech firsthand: In November, Blue J Legal announced it has raised $9.3 million in a series A round, led by Relay Ventures, with participation from US-based LDV Partners, and returning investors BDC Capital and Mistral Venture Partners.
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