Spark: Unique Dashboard on Demand for Legal & Regulatory Techhttps://www.legalcomplex.com/wp-content/themes/crocal/images/empty/thumbnail.jpg150150Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
Ever dreamed of a Bloomberg Terminal for the legal market? Instantly identify shifting demands for Legal or Regulatory solutions?
Spark? Identify Demand
There are several signals to indicate demand for products. Who’s getting venture funded is a direct sign of the desire for certain services. Capturing these cues helped us identify growth areas in the 2020 ‘Rebound‘ analysis. However, those were just snapshots without context. Like any static PDF report or survey, these findings are observations that immediately depreciate in value after release. Especially in volatile times, real-time data in a historical context is crucial.
For example one of the few areas of identifiable growth was Tax. Why? Well, 134 payment tech providers collectively raised $6.6 billion in 2020 alone. Consider that each payment transaction they process needs the appropriate tax rate in accounting which none of them is able to provide. How do we uncover this fact with Spark? Tax Tech received 200% more seed capital year over year. Meanwhile, Contract Tech seed funding dipped 60% every year since 2018. Move the slider below from left to right and back to experience this dramatic effect.
Spark Dashboard Specs
What does the Spark dashboard offer?
Content
2x Dashboards:
Venture Capital
Mergers & Acquisitions
Scope: Legal and Regulatory Technologies
Range: 2018 -2021 (updates all through 2021)
Profiles: 1440+ in Venture and 510+ in M&A
Updates: 23.1 per day
Spark
Spark Venture 2020
..a new data-rich dashboard that provides detailed information on M&A and investment activity..
Filter: Date, Type, Market, Stage (Seed – Growth) and Country
Sorting: Name, Source, Type, Market, Round Size, Total Raised
Tool: Percentage (%) compare to previous periods
..identify trends and emerging sectors in the funding patterns of the legal tech and GRC (Governance, Risk & Compliance) industry, and to discover the consolidation trends within M&A activity..
2020: The 7 Parts We Should Keephttps://i0.wp.com/www.legalcomplex.com/wp-content/uploads/2020/09/grogu.jpeg?fit=811%2C402&ssl=1811402Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
I suspect we all want to forget this year ever happened. However, I do want to savor a few precious pills of wisdom.
2020
Covid–19: good data is hard to capture and to validate. It’s even harder to parse and convert into good decisions. Good decisions originate from a willingness to seek the truth. We needed fast and accurate data on infections and hospitalization. But ‘spreadsheeting’ COVID-19 data didn’t inspire any confidence. Solve: it starts with investing in tech and talent for health and government.
CivicTech: only a select set of prominent figures focused on CivicTech until the pandemic hit. Now, most have probably forgotten about contact tracing failures or the Uber ambulance success for domestic abuse. That’s until we get a government issue COVID-19 passport to allow us to move around. Solve: government should not build CivicTech but rather stimulate citizens & private enterprises to do so. One example is the groundbreaking collaboration between Google and Apple on a privacy-first contact-tracing approach. Yes, the one that some governments did not want to use because..ahum..it did not break privacy.
LegalTech: The fallen icons – like Ross and Atrium LTS- should have our sympathy but also need our scrutiny. The reality is that there is a decade of data to suggest that many businesses serving lawyers aren’t profitable. While some do manage to break even, they usually aren’t rocket ships with major returns. Still, investments poured in and investor’s appetite remained stable. Solve: focus on legal problems of companies and citizens and not the ‘lawyer’s’ problem. Especially if those legal problems impact the balance sheet.
Nature: we are fragile in mind and body. Not being able to hug our loved ones for almost a year leaves an immeasurable imprint on everyone. Solve: We’re not only supporting FemTech but also partnering with companies on mental health solutions. We have identified some pretty sound models that are scalable, profitable, and thus sustainable businesses.
HELP! If you like to contribute or need help, please reach out to me at the email below
2021
Stimulus: to stimulate the economy, funds will be flooding society coming in from private and public sectors. Blockchain, Bitcoin, and the means to raise cash with coins (ICO) will return. Especially ICO’s revealed wondrous ideas for legal tech companies. Yes, there will be fraud and greed, but now we’ll also have better checks and balances when we engineer our laws into our tech. A process better-known as RegTech.
Productivity: We discovered that traveling should only be for essential work or leisure. Without all the travel we will be more productive. Courts have been able to clear backlogs due to virtual hearings. The mindset and IT infrastructure are still catching up but -like the vaccine- the digital transformation is now at warp speed. However, beware that special interest and business models will try and slow this down
Creativity: chaos breeds diversity and creativity. We’ve witness diversity efforts being front and center in the streets and sports arenas. Diversity means we’ll have to look for alternatives to fix the ills in our society. This will bring about more creativity and invite a healthier balance of what it means to be human.
Now, we have a -once in a millennium- opportunity to reboot society. If you like to prosper, you will have to value nature and nurture our coherence. You, Coinbase, and Google…I hope you are listening.
FinSec and The Path To Become A Unicornhttps://www.legalcomplex.com/wp-content/themes/crocal/images/empty/thumbnail.jpg150150Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
Forter became the 500th unicorn and Nuix wants to raise $705 million by offering shares to the public via an IPO. What do they have in common?
TLDR: securely processing data at scale drives the information security trend (InfoSec). Investment in reliable data offers financial security (FinSec) …and a path to unicorn status.
InfoSec = Trust
Let’s recap: the Fall of Legal Tech was published before Atrium LTS went puff and the financials of legal industry darlings revealed no profits in sight. How? After analyzing a decade of startups, we noticed that selling to the practice of law is not a shortcut to a $100 million annual recurring revenue. We’ve yet to find definite evidence that marketplaces or case management are able to reach this within five years after being founded. Why? As summarized in our only analysis on AI, the legal industry is designed by law to operate without tech. Moreover, it is the only industry with the legal firepower to repel any innovation that threatens its financial security.
The legal industry can reach into and regulate any market. The Cannabis compliance market caved after regulation and lawyer rates choked their momentum. However, because Risk Tech operates at the fringes of the legal industry, some markets can slip through the cracks of regulation and bloom. Case in point: electronic signature has seen its fair share of court battles for legitimacy. That didn’t stop e-signatures from making DocuSign a Nasdaq index fund and Taichiro Motoe a billionaire. The reason is that Risk Tech is more about ensuring everyone’s financial security.
e-Signatures are just one of the many mountain tops on the Risk Tech horizon. Privacy, security, and compliance harbor much smaller volcanoes with similar potential. The challenge is not only making information tamper-free but also making it error-free. Any process that ensures we can trust information could achieve unicorn status. We know the information to be valid when we get it from a Notary. We can always turn to any Judge if we suspect fraud in, say, elections (*wink*). However, neither institution is designed to handle the scale in demand for secure information. We just have to trust, that the technology we use, can do the trick.
Trust = Wealth
Remember Mark Zuckerberg famously made Facebook’s prime directive: “move fast and break stuff“. We now learned that we can move fast, but we should never break trust. Credit to Mark to change course after 2014 and I personally thanked him for making progress in general. Facebook made an effort to pick truth over growth [paywall] in its news feed during the elections.
Yet, we are nowhere near safe. As a matter of fact, things have gotten worse. After COVID-19, the stock markets embraced tech stocks as the only crutch for the world’s economy. In the third quarter of 2020, YouTube and Facebook reported record-breaking returns in a combined total of $26 Billion.
Now, what do these numbers have to do with information security? The world trust tech companies to handle personal information securely. In return, we permit them to use our information to recommend how we run our lives. These recommendations only work at scale if they are automated. The recommendation algorithms are optimized to give us what we want but not necessarily what we need. Here’s a video explainer by NBC on what happens when algorithms optimize for our emotions. Especially now in the midst of a pandemic, society needs honest answers based on facts and science.
Wealth = FinSec
While society at large must fend for themselves when it comes to information exchange, the business sector has more guard rails. Six months ago, we broke that NS8 first raised $123 million amount as a fraud detection service. Three months ago we shared the news that they themselves were under a fraud investigation. Both stories embody the value of data security, and, of course, due diligence. Each story exemplifies how much we should value the truth.
This trend has been slowly building up in the shadows of the legal industry. Now these companies suddenly surfaced with massive valuations. Here’s how we discovered this. In November, we started combining Risk Tech and Legal Tech numbers and compared those to previous periods. We noticed a 44% increase over September mostly driven by e-signatures. That is the chart on the left in the image below.
Then we dug deeper and generated a list of the last three years. We combined Risk Tech and Legal Tech and ranked the top 20 categories. This revealed that most of the capitals were invested in technologies that register, analyze, identify, and regulate human behaviors. Especially behaviors impacting financial transactions. The actions usually designed and regulated by law. When we translate this to technology, it looks like this:
Register with eSign & Contracts;
Analyze with eDiscovery & Data Analytics;
Recognize with Identity, KYC, Fraud Detection & AML;
Regulate with Privacy, Governance Risk & Compliance (GRC).
To reveal the entire list, you can drag the slider to the right in the image below.
Ultimately, the deal we want with data is that it tells us the truth. If we can’t trust our information companies collapse, economies crumble and citizens suffer.
Wonder which companies are on track to become the next DocuSign or Forter? Would you like to see the pitch deck used by one to raise $6+ Million series A? Just email me.
Legalpioneer.org is Live with over 4900+ Pioneers but Why?https://www.legalcomplex.com/wp-content/themes/crocal/images/empty/thumbnail.jpg150150Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
We could attract more talent to help build better technology than in the last decade. And we hope these pioneers start on Legalpioneer.org.
TLDR: Despite a decade with thousands of companies and billions in capital, we failed to bring meaningful change to the process of law. No matter the reasons, we should do better by providing an encyclopedia on the different ideas and businesses created globally in support of the law.
The Past
We do data, so we’re very careful making claims like ‘most complete collection of companies ever assembled in the legal tech space’. Why? While it makes sense from a marketing perspective, it practically doesn’t. Any collection can only be measured if we agree on a definition of ‘legal tech’. And by the time we agree on a standard, the demands from society have changed. Therefore, we humbly bring you the numbers with Legalcomplex.com, and now, the names with Legalpioneer.org.
The birth of the Legalpioneer dataset started in 2015 with a question: “Who will beat Law Firms? The analysis contained our first chart on new legal tech companies created every month. The goal then and now remains the same: “track the evolution of the law through the creation of technology”. In 2016, we first signaled a surge of new companies coming into the legal space. That trend topped off in 2017 and continues dropping to this day. Closing out the last decade we had returned to levels pre-2014 with less than 50 new companies registered per month globally.
Legal tech companies have captured more venture capital between 2018 and 2019 combined than at any previous period in history. Yet, this hasn’t spurred the growth of new ventures. The Legalpioneer dashboard is a constant reminder of this reality. We aren’t the only one tracking this decline. Major directories like Angellist, CB Insights, and Crunchbase haven’t covered our niche for quite some time. The last time one of these major repositories reported growth in legal tech was by Crunchbase in February 2018.
A 2010-2020 snapshot found 6500+ companies with $57 billion invested. None managed to disrupt and beat law firms. The Fall of LegalTech, breaks down why disrupting lawyers is legally impossible. Shortly after the release of The Fall, the shutdown of Atrium LTS was announced. On paper, the most well-capitalized startup to attempt disrupting the status quo. The mini-movie “AI: the Struggle” encapsulates the problem we face with a look at the numbers and news. Slide 6 shows $1.7 billion invested in ‘AI’ technologies dedicated to helping legal professionals make the right decision. Even so, there is almost $60 billion invested in ‘AI’ to influence the decision-making abilities of legal professionals.
The Pioneers
Meanwhile, we kept collecting the numbers, calculating the impact, and reporting the outcomes on Legalcomplex.com every month for the past five years. One thing became obvious over time: the numbers only tell part of the story, the names are what really drives home the point. Fact: our Maps page consistently beats out most of the other pages in terms of traffic.
While other pages were crafted with a purpose, the maps started on a whim. Designing the Dutch Legal Tech landscape, we sought inspiration from other maps. Most countries want an overview of companies operating around the law. So we collaborated on an Italian landscape since it was one of the few main EU countries without one. Locating businesses across the globe also reveals that innovation isn’t limited to a certain geography but can happen anywhere. Case in point: Japan houses two pioneers with a billionaire and highest-seeded in the legal space. Click the Google explore link under ‘Detail’ on the profile page and follow the Google News tab. There you can explore their journey, albeit using Google Translate.
Japan and Russia are part of an Asian growth spurt first observed in the second half of the last decade. Singapore measured a jump in new ventures (video) and Beijing experience a rise in value (video). Therefore, we not only need a more diverse but also more modern look at the legal sector. The top 20 of 2020 reports showed that traditional players collectively raised $1,29 billion. But including the new entrants, we see this number jump to $7.16 billion. Companies like DocuSign weren’t considered legal tech until they became the only company to first successfully IPO and subsequently replace United Airlines in the Nasdaq 100. OneTrust, 3rd in the top 20 Modern list, is on a similar trajectory.
A sector breakdown with business models is presented in “Starting in Legal Tech“. On slide 4 you’ll find samples of the Legal, Law, Risk, Tax, and Civic Tech market. In hindsight, we probably should have included the most important one: Smart Tech. Recently more large firms are closing deals with smart tech companies instead of looking at legal tech. We tipped robotic process automation (RPA) in our ‘Rebound‘ analysis as one of the top growth areas post-Covid. We now also feature an ‘AI’ and ML map on the maps page. So it’s a safe bet you’ll be seeing more smart tech as pioneers in law.
The Path
Looking at the path forward, the FAQ on Legalpioneer states the basic principles: the platform is free. It’s designed with a goal to be sustainable over time. And we’ll be liberal in our submission policy. To remain sustainable and cover the hosting and domain costs, we’ve opened a shop via Spreadshirt.com. There is the most beautiful gender-neutral collectible to dress the part as an original Legalpioneer. So go ahead and place your order and support us in keeping the platform free.
In the Stats & Parameters section on the FAQ page, we list some trade-offs we had to make due to our scale. The very first request we received was to add an address to a profile. The platform technically supports any Google map feature available, yet we decided to not support individual profile addresses yet. Reason: now we maintain 770+ locations across 4900+ profiles. With support for addresses, we have to monitor as many locations in as many profiles. To support this feature, we need more bots to store multiple unique addresses for each profile and keep them in sync across datasets.
Notwithstanding privacy concerns for home offices, addresses also add complexity to the search experience. Improving the search along with building some unique features are now the focus for the future. Along with these new features are the tutorials on how to get the most out of the Legalpioneer platform. For instance, it is the best place to name-check your new idea. Or find fellow pioneers near you to partner or hire. A keyword search instantly reveals the global concentration on a topic. Is the map search overwhelming, use the mobile search box at the bottom instead.
After each crisis, the world starts to rebuild. The 2008-09 crisis gave birth to unicorns like Docusign and OneTrust. The decacorns of this decade are being created now, and they probably won’t look like anything we expect. Like GPT-3, we probably won’t even feel the impact until we lift the monopoly on the law. Therefore, there is a need for a data-driven and diverse view on the true pioneers…and where to locate them.
Will lawyers be replaced by GPT-3? Yes, and here’s whenhttps://i0.wp.com/www.legalcomplex.com/wp-content/uploads/2020/09/AI-by-Legalcomplex.jpg?fit=2472%2C1404&ssl=124721404Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
Since legal data is monopolized, technologies like OpenAI’s GPT-3 can’t process legal queries. Here’s when this will happen.
Spoiler: We’ll pass legislation to democratize access to legal data. However, we need the legal industry to draft the law.
Backdrop
Just taught GPT-3 how to turn legalese into simple plain English. All I gave it were 2 examples ? Might build a term sheet and investment document interpreter out of this ? pic.twitter.com/BDdwCuFce5
This essay was triggered by the many articles written by legal professionals quick to conclude: No, GPT-3 does not replace lawyers…yet. We can’t provide a timeline however we can explore the conditions when it will happen. The A.I. community offered a balanced view of the possibilities and pitfalls of GPT-3. For instance, it can’t do basic arithmetic at scale. Yet, GPT-3 has the ability to learn math from texts. So what happens when it learns the law? Once GPT-3 received a droplet of legal data, it came back with awesome.
Investor Michael Tefula primed GPT-3 to translate complicated legalese to plain English with only a couple of samples. There’s a cool video in the tweet where you see GPT-3 doing this in real-time. Ironically, his first instinct was to build an interpreter to replace lawyers. Is this possible?
According to Wikipedia: GPT-3 is trained on 410 billion tokens and has 175 billion parameters. Basically, GPT-3 learned how to predict the next word from reading lots of texts. As with math, GPT-3 can tackle a specific domain if it has enough data on that subject. A.I. won’t know how many eyes a six-legged purple unicorn has? But it does have data on a spider.
Legal Data
The legal industry operates on legal data. By design, legal data is data compiled by legal professionals to be decompiled by legal professionals. Here are the four main ways legal professionals generate legal data:
Spot legal risks in non-legal documents or society at large;
Find legal arguments in legal documents like legislation or case law;
Construct and draft legal arguments like a contract or judgement;
Explain legal arguments to a client or a judge.
All this can be replicated by a computer. The reason it hasn’t happen is that there is a shortage of accessible legal data to start the process. Why is there a shortage? Legal data sits behind multiple firewalls.
The first layer, just pierced by GPT-3 in the tweet above, is legal complexity. Unfortunately, that isn’t the only barrier. The second fence to block access to legal documents are privacy laws or copyright laws. The first is to prevent unauthorized use, the second to protect commercial interests. Besides virtual firewalls, we also have physical barriers. Usually, legal data is stored on-premise in silo’s and therefore isolated from the real world. A reason GPT-3 works this well is that it learns from reading domain data in context with real-world data.
Once legal data is liberated and connected, we could legitimately judge the impact of GPT-3. This shift to solely rely on tech won’t be a new experience for legal. The legal industry transitioned before when it was forced by courts to adopt eDiscovery: software trained to spot legal risks in massive sets of non-legal documents. Will it replace all legal work instantly? No, because unique or complex cases without prior data can still occur. However, as more data becomes available, these incidents themselves will become unique.
Here’s the best way I can frame this evolution: legal professionals are like traffic cops just before the roll-out of traffic lights. Not every cross-section has a traffic light, but it is harder to find a cop still directing traffic. Traffic lights need electricity and a bit of computing. With GPT-3, we have the computing. Now we just need the grid to come online. Here are the scenarios for how we’ll get there.
Universe One
We produce a law to open up legal data like legislation, government data, and anonymized case law to machines. Once the machines have processed the data, we’ll discover the biases in case law and the inconsistencies in legislation. During this transition period, society will struggle with their own biases before it can fix biases in our legal data. The breakthrough will come once humans surrender and prefer mathematical precision over human emotion. We’ll be smart enough to build a fail-safe and let the machine throw an exception in unique cases. We’ll enter the age of AutoLaw where machines guide us through conflicts the way traffic lights help us avoid collisions.
Universe Two
The world will realize that if we want a safe environment, we’ll need to treat everyone equally fair. What is fair is usually codified in constitutions and has a rich history. This should be taught at school as early as possible. Just like we teach math and coding to kids, we’ll need to feed them laws and regulations. This ensures we understand our rights and obligations when we’re young and practice it when we’re older. More minds on the law will also force improvements across the system. This will drive down the cost of legal education and subsequently the cost of legal representation. In short: no need to hire an $800 an hour lawyer when you can solve your own legal issues. In this universe, the reliance on experts in law will slowly expire.
Universe Three
What if we elect to go the opposite end? If we feel like the world is going too fast, we usually slam on the brakes. Instead of opening up legal data to machines and society, we pass laws to restrict access. Thereby effectively crippling any innovation in the legal space. Society won’t oppose it because collectively we feel comfort in keeping things unchanged. However, in a universe where data is scarce, we aren’t properly educated to make informed decisions. Bear in mind that limiting access to legal data protects a human monopoly on law and a pretty lucrative business model. Thereby making any justice crusade a costly endeavor. Setting in a downward spiral of unjust behaviors with an unpleasant end for all. I already have a law degree. I’ll be fine…for a while.
Bottom line
We often hear about the quality humans can provide in legal. Quality usually originating from ingenuity and not from consistency. Especially the ingenuity to unravel complex legal matter and explain it to laypeople. The process described in point 4 and the one GPT-3 just crushed on Twitter.
Like traffic lights help us avoid collisions, democratizing legal data will help us avoid conflicts. If we monopolize legal data, we make justice unattainable for all. And this principle goes against the very nature of why the legal industry exists.
Just remember, every time we’re dutifully reminded by legal professionals at every new technology breakthrough: lawyers still set the rules to access the law. The question is at what price?
The video below visualizes this post
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Stability & Endurance: Two New Metrics for The Covid Economyhttps://www.legalcomplex.com/wp-content/themes/crocal/images/empty/thumbnail.jpg150150Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
We generated new metrics from our dataset to measure the trajectory of legal innovation. Metrics to benchmark endurance and stability.
Spoilers: Trend lines reveal Legal to be a fairly stable industry. Startups generally raise capital every 342days (Endurance). You’ll need about $1.13 million to start and $8.3 million to grow. Amounts and endurance vary depending on your market, model, and location.
Stability
Our previous post revealed which areas would capitalize on a surge in traffic this year. Examples included the increased demand for e-signatures and claims, which subsequently allowed many to raise funds. After a slow start in January and the world being crushed by corona, we didn’t expect investment to be anywhere near previous year levels. Then we register a blowout in May. Now, why was there a sudden frenzy to invest in Legal? Part of the answer lies in similar behaviors on display in public markets.
What do Kodak, Hertz, Tesla, and Apple have in common? These are iconic brands that saw their stock reach record highs this year. In the case of Hertz and Kodak, the dream quickly descended into drama. While Hertz filed for bankruptcy, it’s stock jumped 1,000%. In the case of Kodak, its stock exploded to 2,757%. In both cases, the SEC had to step in and ask questions. Perhaps the nostalgia behind both brands drove Robinhood investors to view those stocks to be as stable as Apple or Tesla.
We do not provide any investment advice and can not judge the performance of any stock over time. Yet, as legal professionals, we do enjoy analyzing the psychology of trust and the engineering of stability. In volatile times, most latch on to things they trust. Economists call this behavior herding: a phenomenon where investors follow what they perceive other investors are doing, rather than their own analysis. Therefore, a surge is not necessarily a true sign of safety but rather a search for stability.
What is stable? During the production of several graphs, we discovered the legal industry to be fairly stable in comparison to similar sectors. The graphs in the video below display the total investments per month in private companies for each sector since 2018. After inserting a polynomial trend line on each chart, it revealed the stability of each sector. Keep your eye on the teal line and watch the curvature. Despite wild swings in funding totals, the trend line for legal still has less curve compared to the other markets.
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Endurance
In may sound contrarian but it’s now easier to get money than to make money. Since 2017 we have had more investors and funds than good startups. On top of that, governments now are stepping in to save businesses indiscriminately. Yet, with all this stimulus distorting the economy, one cannot fool unit economics forever. The main reason Vine didn’t become TikTok is that it simply ran out of cash. Past wisdom dictated that it takes money to make money. Now, the COVID economy is going to teach us to make money with no money. Or worse, with interest rates this low for the foreseeable future, make money with fake money.
We can cook the accounting to stretch runways and split stocks to inflate the valuation of companies. But if the number of new COVID-19 cases and jobless claims remain high, many companies will not survive. Businesses will have to consider pivoting to a new product, model, industry, or hibernate. We explored pivoting towards areas with more traction in the CAT analysis or how to hibernate in our Survival Guide. Here we’ll calculate the financial endurance of startups based on the pre-COVID economy.
We ran a subset of 3036 profiles with a funding history through a few filters. First, we extracted the outliers which contained a healthy mix of large and small, popular, and obscure companies. These outliers had not registered fundraising in over 600 days. While they may hold the key to efficient capital deployment or a healthy business, we can’t guarantee these outliers haven’t received a loan or an undisclosed round.
To simplify the extraction, we created two buckets: seed funding and growth funding. The first is an initial investment or government grant. while the lather is a later stage round or debt financing like bank loans. The near-zero interest rates are making traditional financing options as competitive as venture capital. We excluded initial coin offering but can report they’re making a comeback this year. After the 2017-18 field of ICO dreams, this form of financing went dark in 2019. What you see, in the video below, is the filtered view of median burn rates and average round sizes for the various sectors, markets, and categories.
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Bottom Line
The accelerated adoption of tech during lockdowns have pushed companies like Apple and Tesla to become beacons for stability on the public stock market. Yet, the record stock prices and the rush to IPO more companies to the public markets is a worrisome trend. Moreover, we signaled the increased appetite to acquire. That urge has translated into the rise of SPAC (Special Purpose Acquisition Companies). It seems privately funded ventures are dumped on public markets for retail investors to feast on aka “dumb money“. Smart money is unlikely to sit safely in the bank so will be reinvested in stable long term assets. The stability that those impacting the legal industry could offer in the areas with a slow burn.
Remember, the legal industry withstood a decade of “disruption” and continues to operate on a bill-knowledge-by-the-hour model conceived centuries ago.
Btw, we’ll keep bringing you positive but honest numbers. While the world feels like its burning, let’s focus the light it shines and capture warmth it brings.
The Surface: $1.08 Billion in 2020 Legal and Tax Funding..so Farhttps://i0.wp.com/www.legalcomplex.com/wp-content/uploads/2020/07/Spark-2020.jpg?fit=1546%2C814&ssl=11546814Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
On the surface, breaking a billion in the first half of 2020 looks healthy for legal and tax. Yet, if we peel away May, it is a different picture.
TLDR: The legal market is currently operating in a financial distortion field. May stimulus is masking recession-resistant companies. However, tech-infused services fared better than traditional text & talk consulting services. New applications in Risk Tech offer new opportunities for Legal Tech.
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Credit
No, credit isn’t a new catalyst, rather a warning from the ‘Rebound’ analysis. One reason we surpassed a billion was Litigation Finance: Parabellum Capital donated a sizable chunk to the overall tally. Check our views on Litigation Funders as Legal Tech in this twitter spat. What’s remarkable is the fact that taken over a six-month period, companies usually eclipsed litigation funds in round sizes. It is perhaps a sign we’ve entered borrowed time.
Now as everyone is slowly running out of cash, most will have to turn to credit. We noted that about 14% of the top US Legal Tech companies took advantage of the Payroll Protection Program (PPP). We didn’t mention that, while doing the analysis, we encountered numerous traditional law firms and justice programs in the list of grants. Justice programs aren’t surprising because it’s rare to find those with a commercially viable business model. Most are born addicted to grants. As for business models: you may recall we encouraged everyone to listen to Kim Kardashian-West. Moreover, the US only released the recipients of over $150k loans, so we’re only seeing the surface.
In contrast, none of our top 25 Dutch legal tech companies were mentioned in the NOW loans report (Dutch stimulus program). Similar to the US, we did see several law firms and legal service providers in the NOW list of recipients. In any case, Legalcomplex is sticking to the mantra: numbers before names, that is why we won’t mention any names. However, these developments demonstrate the robustness of tech-fused services versus traditional talk & text consulting services. So ‘Starting in Legal Tech‘ may have become just a little more attractive.
Not only did we noticed a shift in where money was allocated but also when it was distributed. Most of this year’s action happened in May which brought in $644 Million. We initially registered SirionLabs in May, but they technically completed the round in April. In contrast, as far back as 2017, we notice that January and the summer months as the time the big rounds come around.
In short: there is a distortion in the market with so much stimulus flooding the economy. It’s hard to calculate how recession-resistant most businesses in the legal industry really are. Especially since we’re still dealing with Corona aftershocks and the second wave.
Conflict
Back to the numbers: $1.08 billion is lower than in previous years. Both 2019 and 2018 had outliers in the first half of the year like Legalzoom, Seal Software, and Onit. Clio happened in the second half of 2019 and doesn’t count in this summary.
This brings us to the conflict: our data reveals mega-rounds aren’t the beginning but rather the end of a trend. These numbers happen when the internal company metrics match up with external perception. These events initialize a final push for a monopoly in a certain space.
Moreover, the innovation capital coming into the legal market isn’t always invested in the players we all recognize. How can we spot the competition? This question led us to analyze ‘Who Are Your Challengers‘. To illustrate, check the Contract 2020 chart above with players in FinTech and SmartTech we excluded in the $1.08 Billion breakdown.
While most see mega numbers as an acknowledgment of a growing market, it’s actually an unreasonable assumption. Meaning, more money doesn’t equate to more market but rather results in less competition. We noticed a correlation between major rounds and subsequent drop in funding for new ventures in those niches. That’s why we sometimes end up in a conflict with legal industry experts. These conflicts stem from the source of knowledge: data versus past experiences or surveys. While these sources are complementary to data, they can be contradictory. Ultimately, when some get wowed by the bang, we’ve already seen data on the ignition.
Case in point: Safehub uses the Internet of Things (IoT) to warn companies to impending earthquakes. Businesses need this to proactively protect their operations and employees (RiskTech). At some point, they can use this model to warn citizens at home as well (CivicTech). And when they scale, they’ll become the benchmark for real estate value (FinTech) in whatever region suffering from tremors. Think tremors are only felt along fault lines? Read this cautionary tale on real estate in Groningen, The Netherlands from The New York Times (EcoTech). At that point, we’ll need a Seismic Witness (LegalTech) similar to Orbital Witness for legal conveyance. Safehub is taking the commercially more sustainable route to Legal. Both companies raised rounds this July, only one counted to the Legal & Tax wrap-up.
..and that is why we chase the Spark and not the bang.
Rebound: 10 Growth Areas In Our New Perimeter Prosperityhttps://i0.wp.com/www.legalcomplex.com/wp-content/uploads/2020/03/LP-Legal-Tax-header.png?fit=796%2C436&ssl=1796436Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
Investments in contract software dominated last week yet its ranked 13th overall for 2020. Here’s a data-laden breakdown of why and where we see prosperity.
TLDR: For the legal industry we found 10 areas with increased activity based on traffic and traction. And it’s all about finance and freedom.
Is there Growth?
The world suffered mental, physical, and economic shock. One way the legal industry can administer some relief is by nurturing society back to financial health and ensuring we keep our civil liberties. Last March we discussed the impending fight for ‘freedom’ versus contact tracing. Here we’ll explore the stories and stats that signal growth. So is there growth? Yes, according to Clio’s Covid-19 Survey “..14% report a significant increase in the number of people reaching out for legal help..”
Where is the Growth?
This triggered us to delve into the data and find the evidence. We used two sources: web traffic and fresh capital. The first was inspired by Mary Meekers exploration of growth sectors during the crisis such as health, and e-sports. We employed a similar approach and added venture capital to the mix to find the areas that have traction. Traction was exposed by generating a 100% stacked bar chart with investments per sector from 2018 to date. This revealed which sectors received more fresh capital in 2020 relative to previous years. This approach automatically prioritizes the new sectors over popular ones like Contracts. See how that affects the rankings in the bar charts below.
We found 10 areas and since these reinforce each other, we paired them as followed:
Divorce & Estate;
Claims & Litigation Funding;
Fraud & Identity;
Supply Chain & Logistics Risk;
Accounting & Spend.
Divorce & Estate: One of the first reports to emerge from China, when their shelter-in-place took effect, was the spike in divorce filings. Another sad side effect was the increase in domestic violence in many countries. Notable was Chicago partnering with Uber and Lift to provide victims with an emergency code to escape abuse. This was another fine example of how CivicTech has the power to heal. Likewise, final will and testament services shot up during the crisis. In Google trends, the search phrase “make a will online” peaked 11 times by more than 25% in the last 90 days. This sent professionals scrambling to download a solution and E-Notary downloads went up 196%. You’ll find E-Notary downloads in spot 7 on the G2 chart below.
Claims & Litigation Funding: We recently discussed claims as the fourth growth catalyst. Now this will multiply with claims for unemployment or loss of income. In the G7 country’s, a total of about 41.6 million people filed claims for assistance. For businesses, it is estimated that the G20 country’s total stimulus packaged now stands at $6.3 trillion. Within this massive funnel of capital, the legal industry is the linchpin. They draft and assess claims. And where there is volume, there is tech. Perhaps that is why we find funding of claims companies in the Legal & Tax Trends and RiskTech Trends in the number one and number four spot. And when the stakes are high and money is tight, that’s when Litigation funders step in and clean up on claims.
Fraud & Identity: This one is pretty straight forward: more claims more fraud. It took a single tweet to get a $69 million government contract. Defrauding government is up 93% according to one study. Fraud is closely linked to identity. That’s why AI & Analytics companies, like Resistant.ai, have seen increased investor interest. Governance, Risk and Compliance (GRC – $286M), Identity ($267M), Know Your Customer (KYC-$190M), Biometrics ($152M), and Fraud Detection ($58M) all got love from VC’s in 2020. Luckily, the Privacy sector received the most with total of $549M in 2020. This is the sector, conceived by the legal industry, as a counterweight to Identity and Fraud. See them all in the RiskTech 2020 Investment donut chart in the gallery below.
Supply Chain & Logistics Risk: In reopening the economy one obvious obstacle has been companies having a shortage of supplies. When it became apparent that testing for Covid-19 was pivotal, we all became reluctant experts (video) on its supply chain. From the test machine, liquids all the way to the specific length of cotton swaps. However, it also highlighted the importance of proper risk assessment and service level agreements with vital suppliers. Investment for Supply Chain & Logistics Risk in 2020 grew 180% from $98 million to $176 million (Chart: RiskTech 2020 Investment).
Accounting & Spend: Now why was contract management suddenly so popular? E-Signature software downloads shot up +511% during corona according to the TrustRadius chart. Companies want to get their spending under control and to seal deals airtight. Most lawyers may have felt rejuvenated by the funding reports of Contract Lifecycle Management (CLM) providers. However, this was mostly a win for accountants. In Breach: New Players in Contract Management, we explored the different deployments of contract software. Contracts software used by the legal professionals for drafting and reviewing ranked 13th. While accounting ranked number one and CLM with E-Signatures ranked 7th in RiskTech Trends. In short, companies are employing CLM and E-Signatures to get a grip on finances and not necessarily to get more legal support.
Encore
Copyrights: streaming is set to become the lifeblood for entertainment powerhouses like Disney and tech companies like Apple. They will, therefore, step up efforts to protect their intellectual property. Case in point: Netflix sent out half a million take-down notices in one week (!). That would be impossible if they employed lawyers to draft each one.
M&A: On the one hand, many mergers are on the verge of being scrapped due to the pandemic. Some have even gone to court to get a reprieve from a judge. At the other end, cash-rich companies, like Facebook, will go bargain hunting for promising companies on the brink of bankruptcy. Either way, lawyers will get a bump.
Automation: The corona crisis also accelerated the replacement of humans with robots to lower costs. While generating the charts for this analysis we kept seeing Robot Process Automation (RPA) popping up near the top. It’s number two in Legal and three in RiskTech.
In closing, we all will have to accept and adapt to this new reality. One positive I enjoy is the extra space, especially living in a crowded place. Likewise, because of this pause, we’re going to see new opportunities. We just need to be ready when they appear.
Btw, need more tactics? Check the Recession Survival Guide to see how you can outlast the downturn and extend your runway.
CivicTech vs COVID-19: The Use And Abuse Of The Power To Healhttps://www.legalcomplex.com/wp-content/themes/crocal/images/empty/thumbnail.jpg150150Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
If we knew how fast this coronavirus was spreading, we could have saved lives. CivicTech has the power to really help or really hurt this cause.
TLDR: Every expert will agree that the reported rate of infection by the coronavirus COVID-19 is by far too low. We can get a more precise number if CivicTech triangulated data from self-reporting on smartphones and analytics on searches or social networks. Yet, while doing so we may awake an authoritarian state and suffer totalitarian abuse.
We gathered over 290 CivicTech initiatives with an average valuation of $6 Million per company. This number puts it ahead of LegalTech in terms of value and behind RiskTech. Based on current events surrounding the contagion, let us have a fresh look at the CivicTech landscape.
Democrat
CivicTech is the technology in support of government action or to combat their inaction. We usually see it when apps crowdsource valuable information like Covid-19 tracking or government spending. And we feel it when communities crowdfund for good causes. The main goal is the safety and sustainability of our society by addressing a social change. CivicTech also can act as a warning system for abuse of powers or an attack on justice. In the same manner, it can also act as a conduit to abuse powers and attack justice.
One reason CivicTech is so effective is that it is immune to red tape. There are numerous reasons that governments aren’t able to act decisively. Most obstacles are rooted in regulations that aim to protect citizens but have the opposite effect due to unforeseen circumstances. Example: In The Netherlands and France, according to the letter of the law it is illegal to cover your nose and mouth in public. This law is commonly known as the Burqa ban. Let’s ignore the constitutional irony but focus on the medical facts: now it’s a deadly sin if we don’t cover our face in public.
The data that CivicTech is able to gather will help everyone make informed decisions. This includes government and political decisions we can all judge on the same facts. That’s why we treat CivicTech as the most valuable technology of all markets. It is the only segment within the legal family with the immediate capacity to save lives at scale.
Dictator
The gathering of data to inform opinions can also be deployed to control crowds. Forbes reported a couple of governments deploying corona trackers as spy apps. They stated that Israel will unleash cyber tech “usually used for counter-terror” to enforce quarantines and to check the movements of people testing positive for the virus. The country will actively track citizens by geolocating their cellphones. Similarly, one of the most effective corona tracking efforts was a collaboration between Chinese officials and Tencent. The New York Times called it a: “..template for new forms of automated social control that could persist long after the epidemic subsides,..”
These draconian measures during times of crisis aren’t nefarious by nature. However, their impact over time does have the tendency to become diabolical. The US approach to swiftly lockdown borders has been widely applauded. Meanwhile, the UK slower tactic was equally admired. Their protracted reaction, scientists argue, will accelerate the immunization of the masses. Nevertheless, like in France, the decisions to lockdown or slowdown seem to depend on whenever a nation is in the middle of an election or not.
Make no mistake, these events provide a blueprint for stripping liberties at scale. The laws enacted after the 9/11 attacks 20 years ago, allow the installation of mass surveillance technology which is still operational today. Therefore we must stay vigilant towards how fast our freedom will return. We’ve seen videos where authorities threaten citizens for disobeying the emergency precautions. We heard officials gently encourage to watch each other in these trying times. As someone who has survived a dictatorship, I also recognize these subtle signals. I’ve seen what happens once rulers get a grip on absolute power, it’s hard to let go.
Double Agent
So when does CivicTech work best? When we deploy it with honest intent and safeguards against abuse. We should treat CivicTech as a double agent that can provide us with both the powers to heal or to damage our trust. Especially the trust we have in institutions that need to guide us in times of crisis. Democracy only works when information is correct and transparent for all. If a society operates on lies, it literally suffers and dies.
If more people knew the exact velocity of Covid-19 infections and the stress on a nation’s healthcare system, collectively we would have been able to ‘flatten the curve’ sooner. Instead, we witnessed institutions haplessly misjudge and misinform us on a simple metric. A metric I’m still hoping we can obtain with CivicTech. Now we have to enter an undetermined period of unfamiliar powerlessness. And since we lack the compass of correct data, we have no clue how long it will last.
The Fall of Legal Tech And How To Pivot Outhttps://www.legalcomplex.com/wp-content/themes/crocal/images/empty/thumbnail.jpg150150Raymond BlydRaymond Blydhttps://secure.gravatar.com/avatar/b2107c5e41052042419dccfe176bcf5a?s=96&d=mm&r=g
There has been a 532% drop in legal tech funding in January 2020. Perhaps it’s time to entertain a 4-step plan to pivot to a market with measurable growth.
TLDR: The previous decade has proven that no amount of money, technology or talent can disrupt the legal industry…from the inside.
The Fall
Admittedly, January 2019 was unique with a haul of $613 million. January this year had a total of $97 million with $75 Million going to Personio — an HR platform that also generates contracts. Another outsider breaching the contract space as a challenger. While we noticed most stats trending downwards, funding was our last metric of hope.
If we took an honest look at where venture capital for the past decade was allocated, we may come to a harsh conclusion. Most of the money evaporated in broken dreams of products with no fit or it’s being used to prop up legacy systems. Yet the funding metric may not be the only alarm we kept hitting snooze on.
Some may remember CB Insights and Crunchbase extensive coverage of legal tech back in 2017. Except for some reports on individual companies, we haven’t seen the same level of interest since. On Twitter, hashtag #LegalTech peaked on December 11, 2017. According to Google Trends worldwide, Legal Technology peaked even earlier. One positive: it seems we are steadily climbing back towards the tip of January 2011.
We consolidated this data in the Decade Dashboard and visualize the growth and subsequent decline in over 800 locations. A bit more optimism: we are still net positive in terms of new ventures versus the fallen. Meaning we register more new companies than we can detect that went out of business. It is not the most accurate way of measuring growth. It’s more like adding sugar to your coffee to get an extra boost.
The Dynamic
Let’s forget about the long sales cycles and the culture of risk aversion for a moment. Here’s why the legal industry is impervious. There are two historical drivers of change in legal:
A change in the law or;
A technology that enhances the charging capabilities of professionals.
The Law
The quickest way the legal industry can be disrupted is when we change the law. Here are two obvious candidates: in most parts of the world, access to case law and codes is supposed to be free. However, through a weird marriage of copyright and publishers, they are mostly pay-per-view. Worse in France, you risk a five-year jail sentence if you analyze cases at scale. In short: no country on earth allows easy access to all cases or codes to analyze them at scale for inconsistencies.
Another outdated constraint is the illusion of impartiality. That’s why lawyers can’t recommend technology [dutch] in The Netherlands. This restriction also discourages non-lawyers from owning a law firm and obstructs the marketplace model of charging for leads. These limitations harm the distribution of justice. It creates an artificial economy partial to the few with enough money to get a fair day in court.
The combined fact that we can’t analyze all court data and that lawyers are insulated from normal economic dynamics creates a virtual monopoly on legal knowledge. A rebellious lawyer may even argue that it’s an unconstitutional one. Who wants to step forward to liberate and democratize law?
The Bottomline
The other detonator for disruption is a technology that enables lawyers to charge more for less. The pager, email and the blackberry were eagerly adopted by lawyers. These technologies increased communication which directly translated to more billable hours. Whenever a technology was able to fuel the bill-by-the-hour model, it became an instant success. Unfortunately, not everyone got the memo.
Marketplaces and Technology Assisted Review (TAR) weren’t warmly embraced but had to fight their way through a decade of court battles. Why? Because they flipped the dynamic and forced professionals to charge less for more. Any technology embodying this principle shouldn’t expect a red carpet in Legal. That’s why we monitor the profiles in our dataset that promote efficiency. Just to see if they can stay afloat.
The Pivot
It would be a sad waste to have all of these wonderful ideas die in oblivion. Especially when there are other sectors in desperate need of driving down costs. Particularly unpredictable legal costs in a volatile economy. So here’s a 4 step plan to help any company at least experiment with the idea of a pivot:
Let’s start at the bottom. In an industry where precision is sacred and quality is holy. None of these attributes are easily measurable in the context of the law. At some point, we’ll have to trust the numbers. More capital is being spent to avoid legal work. Most of it vanishes in non-legal tech sectors. Fintech, WealthTech, RiskTech, and SmartTech are the biggest beneficiaries. Although business requirements may differ wildly in each of these sectors, at its core software is data and math. Once we view it through this prism, we can see the possibilities.
The Mindset
Now that we’ve adjusted our lens, let’s take a close look at legal tech. We’ve discussed the many flavors of contract tech in two posts. From storing raw contract data in databases all way up to using contract text analysis for financial and security purposes. We also ran through over 400 research platforms that fetch answers on the law. Each of them supports the ‘better decision’ making process in various ways. The largest legal tech company is essentially a clone of SalesForce CRM. Maybe they’ll replace SF altogether? Relax, it won’t happen but it’s technically possible.
Now let’s stay in this dream state for a moment. Software is here to support our decision-making in life and so is every law ever created. No matter in which niche you have planted a flag, zoom out to see the big picture. Practically any software that supports critical decisions is legal tech. What critical question is your legal tech providing an answer for? Better yet, who is asking the question? Is it a lawyer or a client? If it’s a client, are they in trouble? Finally, do they often end up in trouble?
We just went through all 4 steps in this exercise. Open mind, generalize tech, made an inventory of possible markets and explore the growth opportunities. Let’s try it on something more concrete like a contract clause recommendation engine. If you ever used spell check while writing texts, you’ll recognize this concept. Now imagine your spell check also suggested you don’t write “funding secured” in a tweet. Elon Musk was lucky enough to afford representation otherwise, those two words would have landed him in jail.
The Price
Our continued concentration on defining legal tech makes us lose sight of what matters. The impact of law goes beyond lawyers and is bigger than the business model of law firms. Holding tech and talent hostage in legal tech is an attack on justice everywhere. We should explore the many ways legal tech can make a difference and it only takes 4 steps.
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