Quiet Innovation in the Legal Industry: Profiling legal technology startups 1

startups Anyone associated with legal technology, whether they use it, write about it, design it, or follow it, will tell you that that immense opportunity abounds. A quick glance at the size of the legal market, illustrates a $300bn annual business, meaning it represents the second largest professional services sector in the United States, or in other words, a huge pie with plenty of slices to go around. Yet if you look outside of traditional legal technology publications, and even within them, you might not hear much about innovation in the space.

This we can tell you firsthand, is unsurprising. Launching a successful legal technology website or application presents a myriad of challenges. Legal professionals are neither easily accessible, nor do they have much time to devote to trying out your new service. That is of course assuming you can get it up and running in the first place. Accumulating or accessing legal content, be it primary law (statutes, cases, adjudications) or secondary sources (legal encyclopedias, case briefs, treatises, legal periodicals, etc.) that lie central to any legal professional’s practice, can be neigh impossible. These documents, often still in hard copy or print form, are scattered across libraries, large law firms, courthouses or privatized by huge legal conglomerates (WestLaw and LexisNexis), thus making them inaccessible to the aspiring entrepreneur.

A study published by leading startup and technology publication, TechCrunch, seems to reemphasize these hurdles. The post provides an analysis of startup companies from CrunchBase (a database of technology companies, founders and investors) to determine how various startups have fared by industry. Of the 19 markets analyzed with respect to number of companies started, funded, and successfully exited, the “Legal” category finished in dead last. According to the report, there were only 306 legal startups, 23 funded, 2 acquisitions and 0 IPOs.

Since the TechCrunch piece was meant to provide an overview of all technology startups, we think there is ample opportunity to more closely examine and interpret this “dire” data on legal startups specifically. Limiting extraneous factors aside (eg., not all startups are on CrunchBase), we think the numbers are a bit misleading and actually represent a nascent vertical that is just now beginning to quietly gain momentum. While a CrunchBase query reveals that only six legal startups have received funding since January 2012, a more widespread and comprehensive dive into the legal startup world, indicates other positive signs. Following the right topics on Quora, an ask and answer site, frequented by investors and entrepreneurs, reveals threads on disruptive legal startups where many more than six companies are mentioned. A search under “Legal” on AngelList, a platform designed to connect startups with investors and employees, reveals, 213 companies, 687 Angel Investors and 2,100 followers of the topic and term. These are numbers that indicate a burgeoning sector. More convincing still, is a closer look at legal technology startups at the head of the pack. The list consists of outstanding founding teams backed by top-tier investors that rival any other “hot” startup industry. It includes companies like:

  1. Rocket Lawyer: Investor Growth Capital, August Capital, Google Ventures, LexisNexis
  2. Lex Machina: X/Seed Capital, Costanoa Venture Capital, Naval Ravikant, Jeff Hammerbachera, David Chao, Dan Cooperman, Jerry Yang
  3. Avvo: BenchMark Capital, Ignition, DAG Ventures
  4. LawPivot: Google Ventures, Venture 51, Quotidian Ventures, Vaizra Seed Fund, Sand Hill Angels
  5. Judicata: Peter Thiel, David Lee, Keith Rabois, Aaron Levie, Dylan Smith, SV Angel
  6. Docracy: First Round Capital, Vaizra Investments, Rick Webb, Quotididan Ventures

And that’s just the really new guys. The likes of LegalZoom recently filed for an IPO, after being backed by Institutional Venture Partners, KPCB, and Polaris, while privately-held FastCase has emerged as a legitimate contender to the Westlaw and LexisNexis CALR duopoly. Companies like Axiom, Pangea3, DirectLaw and GoClio are also relatively new firms that are already established leaders in their respective fields, ranging from legal services, to virtual lawyering to practice management.

Contrary to the CrunchBase analysis we believe that the list of disruptive legal technology companies is quietly growing, though it is perhaps appropriately decentralized given that there are so many different ways in which companies can attack legal problems. Indeed the $300bn legal market is certainly large enough for new legal technology startups to lucratively succeed within subsectors. Just as healthcare has startups working to improve electronic medical records, e-health, medical devices, patient-pay and claims adjudication, the legal industry is seeing new startups popup across its landscape that are leveraging technology to attack e-discovery, legal research, data analytics, practice management, social media and many, many, more. As the aforementioned noteworthy legal startups continue to do well, look for more legal startups to grab the public eye, and even more still to quietly and successfully fly under the radar.

One comment on “Quiet Innovation in the Legal Industry: Profiling legal technology startups

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