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The Case for Legal Tech



Legal Tech is Primed for Growth Investments

U.S. Legal Services is a $430 billion industry [Source: Thomson Reuters] comprising roughly 2% of the domestic economy. However, law firms and corporate law departments are relatively underpenetrated by technology thus we have yet to see a robust volume of venture-backed legal tech companies achieving scale, nor a single Legal Tech company to go public (Appfolio deriving the vast majority of its revenue from its real estate tech product and Thomson Reuters from its information services and non-legal solutions). Candidly, lawyers do not make the best purchasers of technology; law firms and legal departments lack substantial tech budgets, sophistication and willingness to adopt technology.

However, we believe that a confluence of factors is catalyzing a dramatic transformation in the industry:

  • Unbundling of legal services, thus incentivizing legal firms to earn fees through bespoke services rather than through routine tasks
  • In-housing of legal work by general counsel
  • Decreasing number of junior attorneys leading to lower attorney leverage (attorneys per partner)
  • Increasing adoption of alternative fee arrangements
  • Outsourcing of legal work to offshore and alternative legal services providers, in turn driving greater transparency and efficiency
  • Incremental automation, especially that enabled by AI and big data

Catalyst is interested in making further investments in the $16 billion Legal Tech market [Source: Mitratech Legal Tech. Market Trends 2015]. We have a three-part thesis on the space:

  1. Law firms, driven by competition and necessity, will become better purchasers of technology.
  2. Businesses will continue to transfer spend from law firms to service providers that better leverage technology, such as our portfolio company Envoy Global, as well as firms such as UpCounsel and LegalVision.
  3. Finally, AI and big data technologies have paradigm-shifting applications in law, specifically in automation and analytics, that can save expensive attorney-hours; firms such as Ross Intelligence and Kira Systems enable lawyers to benefit from these technologies.

At Catalyst, we employ a proactive, research-based approach to investing, targeting sectors experiencing outstanding growth. If you are an owner or operator of a growth stage company operating in the Legal Tech space, we would like to hear from you. Please send inquiries and business plans to [email protected].

 

Research Report: Legal Tech Market Overview

Legal Tech Market Map

 

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Susan Bihler Promoted to Partner

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