Cash, collaboration and Canada — three words to remember this year when thinking about legal technology.
As an industry, legal technology has slowly grown from an obscure niche domain to a full-fledged market segment over the course of the last half decade. Legal professionals (lawyers, academics, non-legal administrators and in-house counsel) are warming (albeit gradually) to the inevitability of technology playing an increasingly prominent role in how legal services are offered and delivered. It also means that investors see a large upside and have begun viewing investments in legal technology as viable options for financial gain.
By September 2019, investment in legal technology companies had already exceeded $1.2 billion, already above the record-setting $1 billion set in 2018 and a whopping 415 per cent over the $233 million invested in 2017. For legal technology companies, the money is starting to trickle in.
Marked by a record $250 million investment in Clio led by TCV and JMI Equity in early September, and a $200 million investment of Houston-based Onit in January, 2019’s record-breaking year has shown that there is cash available to fuel legal technology companies to the next level. The Clio investment represents the largest venture capital investment of any legal technology company in Canada and surpasses the $50 million received by Kira system in late 2018. Legal technology companies and the “unicorn startup status” (a startup valued at over $1 billion) are no longer mutually exclusive.
The big question, however, is will this trend continue? Will legal technology continue to garner venture capital and private investment in 2020 and beyond? The simple answer is yes, as long as financial markets continue to go up. Investment is forever related to the economy and so any economic slowdown naturally results in an investment chill.
No surprises there. But what’s interesting about the legal sector is the realization by law firms that value-added legal technology is required to protect high levels of profitability and client satisfaction. The pendulum of legal technology development and adoption will never swing backwards. Instead, the question is how quickly it will continue to move forward. Because of this, I predict an upward trend in legal technology investment in the coming years.
Large law firms in particular are realizing the potential value of working with early stage startup companies. There could be any number of reasons, ranging from the inability of existing legal technology solutions to modernize, to trying to find a technology that solves a unique/distinct /niche pain point.
Regardless of the reasoning, law firms all over the world are developing incubators, programs and collaboration projects between themselves and early stage legal technology providers. In the U.K., legal tech incubator program Fuse, out of Allen & Overy and Mishcon de Reya’s MDR LAB, is based in the firm offices giving early stage technology companies the chance to collaborate directly with the law firms and their clients.
For an early stage technology company, the value of working directly with leading law firms grants easier access to the market and ensures your technology is developed with a more focused approach. Frequently iterating your product/service with direct law firm involvement ensures a faster feedback loop and a more focused early-stage product. For law firms, advantages range from having a solution tailored to a firm’s unique needs to the ability to invest as a shareholder of a new solution and purchase the technology at a far reduced price.
Hockey aside, the world is quickly discovering that Canada punches well above its weight when it comes to producing high quality legal technology companies.
Two companies, Kira Systems and Clio, proudly call Canada home, with ROSS Intelligence recently reopening an office to Toronto. With young companies like MinuteBox and Closing Folders having an increasingly large presence working with law firms outside Canada, as well as leading events like Fireside’s recent Legal Innovation Summit, the world is beginning to take notice.
Most notably, the city of Toronto is now recognized as a global centre for legal technology development. As the financial capital of Canada, with every major Canadian bank and law firm having its head office within a stone’s throw of Bay Street and King Street, combined with great law schools proximate to the University of Waterloo (known for its strong science and engineering departments), you have a perfect recipe for a strong legal innovation culture.
Perhaps there is no better evidence than the existence of the Legal Innovation Zone (LIZ), the world’s first legal technology incubator. Located in the heart of Toronto (only a few minutes walk from every major law firm), the LIZ has incubated well over a dozen companies in the past four years, helping them grow, develop and succeed. Based out of Ryerson University, early-stage companies are given the tools and mentorship they need.
Recognizing the value the LIZ can offer early stage legal technology companies, LIZ has gone global, launching an interactive program for legal technology companies worldwide.
The online interactive tools and virtual programs provide valuable lessons for founders beyond just building a lean canvas model. LIZ director Hersh Perlis proudly noted that the mission statement of the LIZ global program is to “help institute better legal services for all, not just in Canada.”
Legal technology is just beginning to emerge from the shadows and present itself to the world. More importantly, the world is starting to take notice. This is a testament to the lawyers, law firms, entrepreneurs, support staff and clients who all realize there has to be a better way to deliver legal services.
Rest assured that we are well on our way to that inflection point when legal technology really begins to spread its wings and take flight. And when that moment comes, there will be plenty of cash, collaboration and Canada to go around.
Sean Bernstein is a former Bay Street corporate lawyer turned legal technology entrepreneur and co-founder of MinuteBox Inc. He is actively involved in the integration of new technologies within the industry and exploring new processes given the changing legal landscape.
Editor’s note: This article was originally published in The Lawyer’s Daily on January 2, 2020.