Entering Startup. While you would probably pass right by
Startup, a 4-square mile town in Snohomish County, Washington with a population of 676, the tidal wave of startup businesses and entrepreneurs hitting the legal shores is hard to ignore. We’ve all heard of the new, post 2008-recession ‘normal,’ and the legal technology startup scene is definitely a part of it. How big of a part? Is it just noise? An exciting distraction or a true disruption poised to change the legal game forever?
All intriguing questions … and ones that our esteemed colleagues at
Legal IT Professionals asked us to address in the current issue (hot off the press today) of
Legal IT Today (LITT).
“Start me up … I’ll never stop” pulls back the covers on the legal version of the startup craze to better understand it. Who are the leading legal entrepreneurial minds? What are they looking to change? And how’s it going?
In the spirit of collaboration, we have reached into our treasure chest of legal influencers and crowd sourced some prolific commentary and opinions on the startup topic. Check out the LITT article for some of these gems and keep on reading for our
‘Legal Influencers Weigh In’ series, ‘Startup’ edition. We requested feedback on a multitude of questions including state and rise (or fall) of legal startups; current startups - fad, trend or true disruption? And, which startup apps and legal services are winning the race?
Startup trend = disruption in legal?!
On disruption in legal (and whether startups will lead this charge),
David Perla, President of Bloomberg BNA Legal Division and Bloomberg Law offers a ‘big picture’ view. “The last decade has brought a methodical move toward efficiency, predictability and transparency across virtually every area of law. Since none of these areas has historically been core to lawyering, it’s been very difficult for the establishment to keep pace with market demands. The large number of startups that have been able to enter this space with little or no prior legal experience is impressive. However, few will affect real disruption, as the need increases for sophisticated (and capital-intensive) analytics technologies that can be deployed on the massive sets of unstructured data that permeate the profession.”
Perla adds: “Disruption has the potential to radically change how lawyers work and think about their clients, but it also requires significant capital and a keen understanding of how lawyers consume information. This is where startups will struggle. The massive capital needs and long time frame required are a mismatch for the funding sources currently investing in legal startups – angel, venture and strategic. As a result, most legal startups won’t make it – and change will come from the few that do, plus a handful of existing larger players with the requisite combination of capital and legal and technology prowess.”
We first took note of Fastcase and its CEO
Ed Walters back in 2010, when the company announced its free legal research app for the iPad, a bold and innovative move. We asked Ed about the future of startups and what will occur first – further expansion of the startup landscape, consolidation or increasing dissolutions? “There will be *both* expansion and consolidation for the next two years. Venture funds now see the opportunity in legal tech. Legal services are broken – but change (intelligent agents, document automation and analytics) is coming. There will be ample capital available for attackers, and the market will expand. At the same time, the market will consolidate in two areas. Global publishers will continue to divest business units (even big ones) that don’t keep pace with international growth targets. And unless innovators can achieve both scale and profit in time, they will have to be acquired. If the stock market remains high, and interest rates stay low, there will be ample capital available for acquirers as well.”
State of the current legal (tech) startup space
Basha Rubin is the CEO of Priori Legal. Like many of her fellow startup founders, Rubin is a lawyer who identified a major gap between existing legal services and what she would want to access as a potential client. While Priori Legal is focused on high value business-attorney matchmaking, Rubin sees a lot of similarities between the large pack of startups: "We all have the same short term goal of changing behavior. As a community, we can all collaborate to change the way consumers and businesses source legal services and how these services are made more accessible." In terms of where startups are now, Rubin sees continued opportunities for growth. “We are still in the very early days with lots of room for innovation and legal problem solving.” According to Rubin, new entrants focused on law practice management, legal services marketplaces and legal research are bubbling to the top. Also, per Rubin, the April acquisition of
Shake, a legal forms and agreements startup is “a big deal” and perhaps the sign of more M&As to come.
Dan Lear, Avvo’s Director of Industry Relations, blogger, legal technology meet-up founder and legal hacker, knows a thing or two about the startup growth path. "There is definitely a lot of interest in the space. It’s a combination of a well-performing technology sector combined with a fair number of out of work or underemployed, under-utilized, or just plain unhappy lawyers who are looking to do something different.” Lear notes we are at an inflection point with technology as well. “The cloud, mobile, greater broadband access and some interesting technological innovations are really opening peoples’ minds to some amazing possibilities.”
Rob Saccone, CEO of SeyfarthLean Consulting (SLC), leads a team of 35 legal service design and technology professionals focused on law department optimization and legal service design. SLC is a subsidiary of Seyfarth Shaw and operates across all types and stages of legal, risk and compliance work. “I feel like the window has passed for events such as LexRedux (a legal startup/investment event platform created by Rob, Josh Kubicki, and Dave Perla a few years back) or ReInvent Law. There was a wave of interest in activity which I feel has slowed down over the past several months, as startups shift into execution mode and buyers take a more practical and detailed look at their options. Some startups continue to do well, particularly in the B2C space, but activity is definitely down from what it was this time last year.”
SLC is still pushing ahead with legal innovation. “Seyfarth has made active investments in its captive innovation and R&D efforts for 10 years. We’ve invested in more failed attempts than most firms have invested at all, and our culture supports the ‘fail fast’ mindset to truly innovate and learn,” concludes Saccone.
Rise of legal technology and business of law startup companies
According to
Dr. Roland Vogl, Executive Director of CodeX, the Stanford Center for Legal Informatics, “there is a new generation of savvy ‘lawentrepreneurs’ using existing web technologies to provide new options for corporate clients demanding more efficient delivery of legal services. At the same time, many startups are trying to find new ways to empower consumers, providing them with more affordable legal documents or legal advice.”
“Not all of these startups will succeed. Some will go out of business. Others will merge with competing startups. A few will be acquired by (or partner with) the large legal information companies. It's not clear whether there first will be consolidation between startups or acquisitions by larger companies, but I am quite certain that, five years down the road, there will not be dozens of players in the various legal technology ‘sub-verticals’ and application areas.” What’s next? “The next generation of legal innovation will likely develop from companies that provide ‘computable law,’ where technology can process legal rules and can automate legal decision making, or where contracts are smart and ‘operationalized.’ Computable law techniques will also embed legal information in the systems that we use every day (e.g., cars) and bring it to the person who needs it in real-time,” surmises Vogl.
Peter Ozolin, Manzama’s CEO & Chairman attributes the rise in legal startups to a few technology shifts. “Innovation Debt: in the period from 2004-2010, we didn’t see a lot of disruptive legal technology brought into the marketplace (other than small firm solutions). As a result, when new entrants like Manzama came along, there was a strong interest in new approaches from firms to develop business, largely fueled by the worst recession in recent memory, and a sense that it wasn’t going to be ‘business as usual,’ which meant that new methods and practices needed to be encouraged at the firms themselves. Secondly, cloud computing raised the potential for firms to consider new technologies at relatively low cost that, if successful, could easily displace enterprise applications that required more of a footprint both in terms of servers and people, as well as vendor support.”
Fred Cohen, CEO & Founder of Zola and Amicus Creative Media, groups the wave of new startups into three primary categories:
“Uberification: Connecting idle legal resources with those that demand it, whether in a B2B or B2C context. An example is a service which enables business lawyers to make themselves available on demand as in-house counsel to small businesses.
Specific technology (providing brilliant solutions to very narrow problems): Most of these are in the practice management space, such as services that enable clients to stay abreast of billable hours or ingenious task management solutions. The challenge with many of these tools is that they rarely work well with larger practice management solutions, so lawyers are often forced to do double data entry and deal with multiple applications, the burden of which may not justify the increased productivity afforded by the solutions.
AI: Finally, the most interesting category in the legal tech space involves tools that leverage unprecedented computing power for artificial intelligence used to review legal documents. While many of these are at a very early stage, over time they could supplant attorneys - at least when it comes to many transactional matters.”
Doug Caddell is the owner of Legal CIO Consulting LLC and former CIO of Foley & Lardner. He has spent the last 22+ years leading the technology efforts of various legal organizations, including mid-sized and large law firms and a governmental law department. During that time, he has witnessed several waves of legal technology innovation including the third and latest wave staring around 2011. So why the current rise? “New foundational technologies such as cloud computing and increasingly flexible programming languages have made it easier to develop products, and meet the needs of underlying changes to law firm business models created by the recession. The recession changed law firm economics and the market for legal services from a seller’s to a buyer’s market, putting dramatic pressure on law firms to become more efficient to meet client demands,” notes Caddell.
Dr. Rick Kabra, CEO of CosmoLex Cloud, sees the surge of legal technology solutions as a “…result of evolving technology making it possible to offer ‘next-generation’ solutions that significantly improve a lawyer’s daily work life. In the law practice management space, the first generation cloud based legal technology solutions handled only a single function (like billing or practice management). Now 2nd generation solutions offer multiple, integrated functions (such as billing & accounting & document management) - along with mature, dependable & secure mobile access - that is a much better fit to the way lawyers actually work. It’s a lot like how the mobile phone went from being a simple PDA type device to a smartphone performing dozens of useful tasks that have revolutionized everyone’s daily life.”
Stevie Ghiassi, Co-Founder of Australian-based Legaler believes “advancing the delivery of legal services” is a major startup priority, but there are two key areas that need the most attention – access and communication.” Ghiassi adds: “It is well documented that there is a monumental access to justice/legal services problem not just in the US, but globally. In the US alone, up to 80% of consumers are not able to access legal services for reasons such as complexity, affordability and sheer unapproachability. However, the lesser known fact is that poor communication is the main culprit in up to 90% of legal malpractice suits. Both figures are staggering and have no right to exist in this day and age of technology. History has shown startups can have a rampant and immense social impact in a very short time and it is now our responsibility to tackle these problems head on. Communication should be the lawyers’ biggest asset, not a sword to fall on.”
This concludes our legal startup ‘weigh in.' The
LITT article along with this companion piece with additional contributors’ comments will hopefully get you thinking. Look us up, share with your peers and keep the conversation going. Also, if you don't already subscribe to Legal IT Today,
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