The battle to win at legal tech

When UnitedLex recruited five senior executives with extensive experience at the four major accounting firms, the hiring was a letter of intent. With the appointment of executives from professional service companies earlier this year, the legal technology company reinforced its strategy of providing both services and products.

Legal technology companies like UnitedLex are also now attracting large investments from financiers that include private equity giants – even the big four accounting firms. And this development is yet another indication of their move to offer new services to compete with lawyers and advisers – and of their increased firepower in a once-emerging market. UnitedLex employees included David Clarke, former PwC leader in digital strategy and innovation, and Mike Duggan, who was a partner at Deloitte for 10 years.

At the same time, the four big companies, including auditors Deloitte, resisted. Over the past year, they’ve spent a lot of money hiring high-growth legal technology companies to expand their own legal departments.

Until recently, this legal technology market was dominated by small companies offering one-off solutions to lawyers, such as: B. Tools to speed up document review or to identify keywords in the midst of numerous court files. Now, however, for the first time, tech companies are competing with law firms by offering advice that was previously reserved for professional service companies.

“There is a lot more dynamism and investment [in law tech] Now, ”says Eleanor Weaver, CEO of legal tech company Luminance. “There is a feeling that this could be the new fintech market.”

In 2019, Thomson Reuters and Legal Geek estimated that the amount invested in UK legal tech startups had increased year over year, totaling £ 260 million. But globally, the sums were much higher. In 2014, European private equity firm Permira invested $ 200 million in US company LegalZoom, which allows clients to draft legal documents without a lawyer to acquire a majority stake. In 2018, private equity firm CVC increased its stakes by investing $ 500 million in UnitedLex. This was one of the largest deals to date with a legal provider.

In turn, the Big Four have pulled high-profile executives from successful legal technology startups to strengthen their own legal departments.

In May last year, Deloitte hired Emily Foges, previously Luminance General Manager. The company had started out as a provider of document search technology and used artificial intelligence to accelerate the work of lawyers. In 2019, US $ 10 million was secured from existing investors Talis Capital, Invoke Capital – backed by Autonomy founder Mike Lynch – and UK elite law firm Slaughter and May. Today Luminance is valued at $ 100 million.

Deloitte also hired a trio of executives from rival legal technology firm Elevate, including its vice president and chief adviser, Jack Diggle, to lead the auditing giant’s legal advisory department.

“The Big Four have always been early adopters of technology, which has allowed them to be very competitive in these markets,” says Weaver.

These investments and appointments follow the growing demand for technology that makes lawyers’ lives easier by handling the growing volume of data and complex cyber risks. The Covid pandemic has intensified the trend.

“The pandemic accelerated the adoption of technologies like Luminance as lawyers needed the tools to collaborate and communicate because they couldn’t be in the same room,” said Weaver.

“In the past lawyers were taken to warehouses with thousands of documents and that was no longer possible,” she says. “Everything was going online and digitized, and they needed technology to deal with it.”

For Diggle, the proliferation of legal technology is part of a cultural revolution in the delivery of legal services.

“There’s been a real shift from jurisdiction to a team that manages risk and mitigation to a job that drives value,” he says. The costs associated with legal work are also increasing due to increased demand, possibly due to the increasingly contentious environment and pressures to manage data and cyber risks.

Corporate customers are also changing their thinking. In the past, companies first went to law firms and only then followed up with alternative offers. Now Big Four firms are rubbing shoulders with law firms on corporate boards.

In April, Deloitte won a coveted place in Vodafone’s legal advisory group alongside law firms such as Latham & Watkins. In a statement to a legal trade magazine, Rosemary Martin, General Counsel of the Vodafone Group, said the company aims to “build a digital society that promotes socio-economic progress, includes everyone and does not come at the expense of our planet”.

Historically, the legal technology market has been very fragmented, but we are starting to consolidate

However, lawyers and technologists are forecasting a wave of consolidation, saying the recent feverish investments in technology are unlikely to continue at their current pace. Several high-profile legal tech companies have already achieved unicorn status in North America – when a start-up is worth more than $ 1 billion. These include Canada-based Clio, which became a $ 1 billion tech company in April after a $ 1.6 billion round of funding.

Tech company Lupl received $ 14 million in January to develop the open-industry platform, while Brightflag raised around $ 28 million from investors in December to help expand internationally. Other notable investments include a $ 223 million financing round for Rocket Lawyer in the US, led by Vista Credit Partners. Many companies are also in the market for acquisitions as they seek to expand from single product offerings.

“Historically, the legal technology market has been very fragmented, but we are starting to consolidate,” says Weaver. “There’s a huge amount of money coming in from private equity firms, which really highlights that legal technology is no longer a nice to have, but a must have.”

Questions and answers with David Edelheit, Chief Digital and Transformation Officer at UnitedLex

How has the legal technology market changed over the past five years?
Legal technology had grown steadily before the pandemic. However, Covid accelerated the importance of automation and visibility. This is due to cost-effectiveness measures in the C-suite and the increased use of technology by employees who work from home. The latest statistics show that General Counsel expect their workload to increase in 2021, yet 88 percent are planning budget cuts as well. GCs need to use technology to fill this void and manage a legal function that is now more separate than it was before.

Are we going to see consolidation in this market?
Consolidation is happening aggressively today as service providers merge or struggle to stay relevant and product companies are pressured or merged. Business leaders are eliminating vendors and piecemeal technologies that deliver no value and create third-party risks.

Are you taking somebody’s lunch
For legal departments to be successful, they must do their part in the business. This is an exciting time for progressive legal firms to be part of a long overdue change. Our mission is to quantify, innovate and help our partners develop a new digital-first mindset. Lawyers who stick to the old way of working offer their lunch.

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