The Jury Is Out On Legal Startups
Editor’s Note: Christine Magee is an analyst for CrunchBase.
Venture capitalists may have rested their case for investing in legal startups, according to data from CrunchBase.
Investments in law-related startups declined sharply this year, after peaking last year with over $150 million committed in 57 venture rounds. Aside from large rounds for practice management software provider Clio and legal marketplace Avvo, investors appear to be losing interest in legal tech.
“What we’ve realized is that it’s a blessing in disguise that we were bootstrapped for so long,” says co-founder Jules Miller of legal labor marketplace Hire an Esquire. “The sales cycle for the legal industry is so long – 12 months or more – and investors expect their companies to have more traction in the first 12 to 18 months than we can show.”
As a result, startups targeting law firms have struggled to secure a second round of funding. It seems investors are waiting to see better results.
Not all investors have lost hope. Backers trained in law appear to be more enthusiastic about investing in legal tech. For instance, the legal research startup Judicata hooked investors Keith Rabois, Peter Thiel, and David Lee, all of whom have law degrees, in its first round of funding. Khosla and SV Angel followed suit, contributing to the nearly $8 million Judicata has raised before even launching a product.
Judicata co-founder and CEO Itai Gurari explains that “given how difficult (while lucrative) the market is, we found investors who understood and had an appreciation for the market itself.”
Legal research is only one aspect of the industry that founders are seeking to disrupt. A variety of startups are beginning to get VC money to tackle legal problems for consumers who would rather not hire a lawyer.
SupportPay, a platform for managing child expenses and child support, raised a $1 million seed round last quarter. Teleborder, a startup that handles all immigration paperwork for a company’s employees, and Fixed, a recently launched company that will fight parking tickets in San Francisco, both secured seed funding last month as well.
The legal services business needs to be democratized, and tech is the catalyst. “Lawyers in the profession have done themselves a great disservice with this image of affluence, it’s not a consumer-friendly system at all,” says Josh Kubicki, founder of the Legal Transformation Institute, Lex Redux and Law Angels. And adds, on a personal note, “if I need a lawyer, something is wrong. Lawyers are expensive and it’s a roll of the dice that I’ll get my money’s worth. “
Democratizing the system will not only benefit consumers, but lawyers as well. David Lee from SV Angel, whose legal investments include CaseText, UpCounsel and Judicata, argues that the introduction of legal tech will increase the job opportunities for lawyers, or “the chronically unemployed” as he refers to them.
“There’s always been a cohort or a group of lawyers who are really good but haven’t been able to find the employment that’s satisfying to them, and the internet has been able to provide a platform to provide access to these chronically underemployed people,” Lee says.
And for employed lawyers and their firms, taking advantage of cheaper and more efficient technology can make the difference in winning or losing a million-dollar case.
“I have a philosophy on lawyers adopting technology,” says Miller, “they’re like penguins. The first one jumps in the water and if it doesn’t get eaten by a shark, the rest follow. I think it’s going to take a few big firms to jump in the water, and take a little bit of a risk, and the rest will come.”
Photo via Flickr user Mike Coghlan