Legal Tech Makes Its Case With Venture Capitalists, Tops $1B In Funding This Year – Crunchbase News

The sometimes icy pace of the legal world is obviously not helping the industry to be disrupted by new technologies – but venture investors seem to be betting on it.

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“If you look at the cloud and other technologies, the legal industry has resisted it,” said Jesse Wedler, partner at CapitalG, who has been observing legal tech for about eight years. “Now you can see that people are getting more and more hungry for this technology. But they’re still early innings – like the first or second inning. “

Legal tech companies have already made more than $ 1 billion in venture capital investments this calendar year, according to Crunchbase data. That number surpasses the $ 510 million invested last year and the all-time high of $ 989 million in 2019.

Industry insiders say the increased investment is due to the challenges posed by the COVID-19 pandemic and the already arduous but steady shift in the legal world to embrace cloud and other technologies that are trying to address the issue Sector in the 21st.

While the dollar is higher, deal flow is a bit behind previous years. So far, 85 funding rounds have been announced in 2021, well below the pace of 129 deals last year and 147 in 2019. The largest funding rounds this year include:

  • San Francisco-based Checkr, a platform that helps employers screen job seekers by initiating background checks, raised a Series E of $ 250 million earlier this month, valued at $ 4.6 billion;
  • San Francisco-based legal services firm Rocket Lawyer closed a $ 223 million venture in April; and
  • Boston-based on-demand electronic notary service Notarize raised a Series D of $ 130 million in March on a reported valuation of $ 760 million.

“This is primarily a paper-based industry,” said Patrick Kinsel, Founder and CEO of Notarize. “However, Covid has exposed inefficiencies and forced people to look at everything they do and to break new ground.”

COVID and the cloud

As in many industries, the cloud and other emerging technologies had been slowly transforming the legal world for more than a decade. However, after COVID led to offices being closed and legal processes and documents going virtual, the adoption of these technologies skyrocketed.

With these changes, investors began to envision technologies that many companies were taking “in-house” processes and moving them to the cloud – many of which included documentation and filings, as well as tools that enable better communication with customers.

“There’s no doubt that COVID has given huge tailwinds to legal tech growth,” said Jack Newton, co-founder and CEO of Vancouver-based legal tools platform Clio, which has a Series E of $ 110 million at a valuation of Raised $ 1.6 billion. “It was the driving factor for companies that had postponed their transformation.”

“We’ve seen an acceleration in our business since the middle of last year,” said Vishal Sunak, co-founder and CEO of Boston-based management tool developer LinkSquares, who took advantage of this increased interest to raise a $ 40 million Series B To raise dollars in July.

While the legal community has traditionally been slow to adopt new technology, Sunak says that is starting to change as general counsel are now of a “cloud-first” generation and understand the importance of things like data insights that can help predict outcomes. Just as data and AI changed marketing, sales and finance, the legal community is now taking up, he added.

“They say, ‘I want that too. I don’t want to be just a cost center, ”said Sunak.

Wedler, who led his firm’s investments in legal-tech startups Notarize and Oakland, California-based legal discovery platform Everlaw, added that much of the $ 750 billion global legal services marketplace revolves around issues and concerns Processes that technology can significantly improve.

“Technology can help with so many repetitive processes,” he said. “Technology can make so many of these processes faster and more compliant.”

Sunak, whose company provides contract management tools for in-house legal teams, said advances in AI and language processing are helping drive new innovation in the serious sector.

“I think you’re just seeing the changing of the guard,” he said.

Investors see the attractiveness

These changes and advances in technology are causing VCs to be noted. While some investors have had their eye on space in the past, Sunak said he now sees more knowledgeable VCs looking to invest.

“With that raise, I’ve seen more investors know about contracts and legal tech than I expected,” he said, adding that the company received several offers during its fundraiser. “I didn’t have to explain the market.”

In 2019, Clio – which provides web-based tools that help law firms manage practice and collaborate with clients – launched one of the largest growth capital rounds in legal technology, securing a Series D for $ 250 million.

“We saw an interesting tsunami after our Series D,” Newton said.

“However, given some of the recent changes in the industry, we believe the time is right for Legal Tech to take a big step forward,” said Brady Broadbent, partner at Sorenson Capital, which invested in LinkSquares.

“The environment has certainly become more competitive over time,” he added.

Not a goliath

In the absence of large established companies in the field, how do investors see returns becomes a popular question.

Horizontal software companies like Microsoft or Salesforce1 might be interested in this area – since Legal Tech has data and analytics, these types of companies find it useful, Wedler said.

Some companies in this space have also found private equity a viable exit, with films like Providence Equity launching actors like HotDocs and Amicus Attorney a few years ago.

Perhaps more interesting for some startups, however, is that the legal tech space actually went public this year when Austin, Texas-based Disco went public in July. The company’s market cap is now $ 2.8 billion.

One thing seems to be most certain: even though the technical revolution of the legal world was triggered by an event of the century, there is no going back.

“Customers said they did this because of COVID and will not be returning now,” Wedler said.

methodology

Legal Tech funding numbers include pre-seed, seed, and all venture rounds.

Illustration: Dom Guzman

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