Four Areas of Legal Ripe for Disruption by Smart Startups

In 50 years, the customer experience at most law firms has barely changed. If you needed legal advice in the ‘60s, you generally went to a nice building and met a lawyer in a suit who would then review your issue, conduct research, and bill you an hourly rate. But even with today’s modern communication tools, both customer experience and lawyer workflow have remained stagnant.

While lawyers have seen a few notable changes to date—floors of professional typists have given way to PCs and armies of law librarians have moved to online search with the advent of Westlaw and Lexis Nexis—law firms have hardly been bastions of innovation. There are good reasons for this, as law firms tend to be cost agonistic (since they pass costs directly to their client) and risk averse (a minor technology error could lead to catastrophic consequences like losing a multi-million dollar lawsuit).

This is changing. Law firms are increasingly under cost and time pressure from their clients (frequently guided by sophisticated in-house counsel), who are far more demanding than in decades past and even more scrutinous of bills. At the same time, technology has advanced to the point where not using the best tools increases a firm’s risk, instead of vice-versa, and lawyers are expected to adapt.

Law is a big market, with about $300 billion spent each year on legal services and an estimated $9-12 billion on legal software. While legal IT spend is huge, our team at Bessemer Venture Partners thinks it is only a beachhead. To us, the most exciting opportunity in legal technology isn’t investing in the startups looking at the current legal software market, but in those that are trying to find ways to automate and deliver service to the entire $300 billion legal market.

Ultimately, the end goal is not to replace lawyers, but to maximize their efficiency by making it easier to handle larger and more complex casework. Investors are always looking for startups developing breakthrough legal technology in four areas:

  1. Process Automation: Like Bessemer Venture Partners portfolio companies Clio and Anaqua, automation removes tasks that are not core to the law but have taken up an increasing amount of lawyer’s time in recent years. Clio automates the manual processes around billing, calendaring, and task management—lawyers need tools just like other professionals to ensure they can focus on their core work and not be distracted by administrative tasks. Anaqua, an intellectual property asset management tool, automates the manual processes around protecting and managing IP portfolios. In both cases, before using automated products, law firms used jury-rigged Excel and Word, but found hundreds of hours of their time dedicated to troubleshooting. We believe lawyers should focus on what they do best and automate everything else.
  2. Legal Research: Research is a particularly interesting area for law firms, as intellectual capital is the only real core asset of a professional services firm. LexisNexis and Westlaw (owned by Thomson Reuters) have historically had a duopoly on the market, but there have been a number of exciting startups that have been focused on the space, including Casetext, Judicata, Lex Machina, and RavelLaw. These firms have taken a number of different approaches to helping lawyers find the right law, from using big data to annotated communities to visualization.
  3. E-discovery: E-discovery is an issue unique for law firms. During each major commercial court case, lawyers must review tens or hundreds of millions of documents to find relevant evidence. Companies have more evidence to sort through than ever, and much of it has gone digital in the form of emails, texts, video, etc. BVP’s newest investment, Disco, helps lawyers store and manage this vast trove of information. Unlike other platforms which require armies of outsourced legal support services for simple services like producing documents for a court case, Disco automates these tasks and empowers lawyers to do their job at a click of a button.
  4. Consumer: There is a major opportunity to improve the legal consumer experience, either by making legal services simpler and more affordable for consumers to use or by making lawyers more accessible and responsive. By improving efficiency in the workload of the lawyer, or possibly eliminating many mundane tasks that one must perform, lawyers can focus more hours on their clients’ cases or leverage new findings that may never have been discovered using traditional research tactics. There is also the potential to improve client interactions by utilizing new communications tools geared toward interacting between lawyers and those they represent.

When venture capital groups, like BVP, make legal technology investments, they also consider other criteria, including companies that have teams with DNA in both law and technology (Disco’s CEO Kiwi Camara is both a computer scientist and Harvard Law School’s youngest ever graduate), an intuitive product that looks and feels consumer, a strong ROI, and recurring revenue.

Even though this is an ambitious list, there are a number of smart entrepreneurs that satisfy these criteria in spades and are well on their way to building successful, high-growth legal technology powerhouses. While you’ve likely heard of many of these budding, innovative start-ups, there are many still in stealth mode or yet to be founded and funded—and BVP looks forward to working with them, as well.


(Image Credit: ShutterStock)

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