The battle to win at Legal Tech
When UnitedLex recruited five senior executives with extensive experience in the Big Four accounting firms, the hires were a declaration of intent. By appointing senior executives from professional services companies earlier this year, the legal technology company bolstered its strategy of delivering services as well as products.
Legal tech companies like UnitedLex are also now gaining big investments from funders that include private equity giants – even the Big Four accounting firms. And this development is another indication of their willingness to offer new services to compete with lawyers and consultants – and their increased firepower in a once-nascent market. UnitedLex hires included David Clarke, former head of digital strategy and innovation at PwC, and Mike Duggan, who was a partner at Deloitte for 10 years.
At the same time, however, the Big Four firms, including auditor Deloitte, fought back. Over the past year, they have spent a lot to hire high growth legal technology companies to expand their own legal services.
Until recently, this legal technology market was dominated by small companies offering unique solutions for lawyers, such as tools to speed up document reviews or to spot keywords among a multitude of court filings. Today, however, tech companies are competing with law firms for the first time in providing consulting services, which were previously the preserve of professional services firms.
“There is a lot more momentum and investment [in law tech] now, ”says Eleanor Weaver, managing director of legal technology firm Luminance. “We have the feeling that this could be the new fintech market.”
In 2019, Thomson Reuters and Legal Geek estimated that the amount invested in UK legal technology start-ups increased year on year and reached £ 260m in total. But overall the amounts were much higher. In 2014, European private equity firm Permira invested $ 200 million in US firm LegalZoom, a company that allows clients to create legal documents without a lawyer, to take a controlling stake. In 2018, private equity firm CVC raised the stakes by investing $ 500 million in UnitedLex, in one of the largest deals to date with a legal supplier.
In turn, the Big Four dragged high-level executives from successful legal tech start-ups to bolster their own legal divisions.
In May of last year, Deloitte hired Emily Foges, previously CEO of Luminance. The company started out as a provider of document search technology, using artificial intelligence to speed up lawyers’ work. In 2019, he secured $ 10 million from existing investors Talis Capital, Invoke Capital – backed by Autonomy founder Mike Lynch – and elite UK law firm Slaughter and May. Today, Luminance is valued at $ 100 million.
Deloitte has also hired a trio of executives from rival legal technology firm Elevate, including its vice president and chief counsel Jack Diggle, to lead the legal management consulting division of the audit giant.
“The Big Four have always been the early adopters of technology, which has allowed them to become very competitive in these markets,” says Weaver.
These investments and appointments follow a growing demand for technologies to make life easier for lawyers, managing a proliferation of data volumes and complex cyber risks. The Covid pandemic has reinforced the trend.
“The pandemic accelerated the adoption of technologies like Luminance because lawyers needed tools to collaborate and communicate as they couldn’t be in a room with each other,” says Weaver.
“In the past, lawyers were transported to warehouses filled with thousands of documents and that was no longer possible,” she says. “Everything became online and digital and they needed the technology to be able to cope with it.”
For Diggle, the growing prevalence of legal technology is part of a cultural revolution in the way legal services are delivered.
“There is a real change in the legal status of a team that manages and mitigates risk to one that is called upon to generate value,” he says. Costs associated with legal work are also increasing due to higher demand, he adds, which may be due to the increasingly contentious environment and pressures to manage data and cyber risks.
Corporate clients are also changing the way they think. Previously, companies first turned to law firms and only after that considered alternative offers. From now on, the big four firms find themselves working alongside law firms on business panels.
In April, Deloitte won a coveted spot on Vodafone’s legal advisor panel alongside law firms such as Latham & Watkins. In a statement to a legal trade publication, Vodafone Group’s general counsel, Rosemary Martin, said the company aims to “build a digital society that improves socio-economic progress, embraces everyone, and doesn’t happen. to the detriment of our planet ”.
But lawyers and technologists predict a wave of consolidation and say recent feverish investment in technology is unlikely to continue at its current pace. Several high-profile legal tech companies have already achieved “unicorn” status – when a startup is valued at over $ 1 billion – in North America. These include Canadian company Clio, which turned into a billion dollar tech company in April after a $ 1.6 billion funding round.
Tech company Lupl also secured $ 14 million in funding to develop the industrial platform opened in January, while Brightflag raised some $ 28 million from investors in December to expand internationally. Other notable investments include a $ 223 million financing round for Rocket Lawyer in the United States, led by Vista Credit Partners. Many companies are also in the acquisition market as they try to grow from unique product offerings.
“Historically, the legal technology market has been very fragmented, but we’re starting to see consolidation,” says Weaver. “There is an enormous amount of money coming from private equity firms, which really shows that legal technology is no longer a ‘good to have’ but a ‘must have’.”
Q&A with David Edelheit, Chief Digital and Transformation Officer at UnitedLex
How has the legal technology market evolved over the past five years?
Legal technology had grown steadily before the pandemic. However, Covid has accelerated the importance of automation and visibility. This can be attributed to the cost-efficiency measures at C-suite and the increased use of technology due to people working from home. The latest statistics show that Advocates General plan to increase their caseload in 2021, yet 88% are also planning budget cuts. GCs will need to use technology to bridge this gap and manage a legal function that is now more disconnected than before.
Will we see consolidation in this market?
Consolidation is happening aggressively today as service providers merge or struggle to stay relevant, and product companies are in a hurry or join forces. Business leaders are eliminating suppliers and fragmented technologies that do not generate value and create risk for third parties.
Are you having someone’s lunch?
For legal departments to be successful, they must show their contribution to the business. It is an exciting time for progressive legal firms to be part of a long overdue change. Our mission is to quantify, innovate and help our partners adopt a new digital mindset. Legal professionals who keep the old way offer their lunch in the process.