It’s probably okay to start a legal tech business that operates in the current gray areas of legal ethics and regulations – lawyers need to stop hiding behind the unauthorized practice of law (UPL) shield.
Like Uber, entrepreneurs can blaze the trail for reforming outdated laws that prevent innovation and progress in the legal industry. Oh and lawyers need to stop tanking investment in legal tech and start championing startups. Evolve Law’s inaugural Boston event was outspoken and bold, just the way we like it!
In the last week of September, we held the first of official Evolve Law event as a new company and it certainly set the right tone for our mission to shake things up in the legal industry! We agreed to embargo the terms traction, pivot and unicorn, and had a vibrant discussion of the landscape for investment in Legal Tech.
Suffolk University Law was a gracious host to our event, with a big shout-out to Suffolk’s Gabe Teninbaum and Mike Cappucci, as well as the Boston Legal Innovation group for all their support. Also Dean Perlman who announced that he was ‘like a kid in a candy shop with this event’ – read more in his post-event interview.
Investment in Legal Tech
I had the privilege of moderating the panel with Dan Lear, Director of Industry Relations at Avvo, Barbara Clarke Super Angel, and Juan Leung Li, an experienced VC and new member of the early stage team at Venture Capital firm General Catalyst.
We had some spirited discussions as Dan is a former practicing attorney and a self-described “legal industry gadfly†and Barbara is an active investor, with 18 portfolio companies including my company Traklight. Juan brought his thoughtful perspective from his time at Javelin Venture Partners and now General Catalyst, which has a legal tech investment.
The panel’s theme was essentially “what’s up with legal tech investment?†Why is it so hard for legal tech startups to raise VC money, how do investors perceive the space, what are best practices for fundraising, and how did Avvo raise $132M in five rounds?!
Evolve Law’s mission is to accelerate the adoption of legal technology, and listening to our expert panel provided a path forward for companies and attorneys alike. Below are the top five tips from the panel.
Tip #1: You don’t need a lawyer on the founding team but domain expertise is essential
The panel did not agree with my theory that lawyers are mission critical within the Legal Tech startup. The investors felt that if you are able to fill in any missing domain expertise and surround yourself with good advisors, you can still succeed. In fact, it was questioned whether a conservative attorney could disrupt the legal market at all.
Juan stated; “It depends; if they [founders] have industry expertise, are they going to be saddled by old ways or take advantage of their knowledge?†He advised entrepreneurs that “if you have the knowledge, use it as an advantage instead of a way to weigh you down.â€
Dan explained that as a practicing lawyer going to Legal Tech company, “I expected them to welcome me with open arms and be like ‘oh you have so much information and you know lawyers.’ If anything they want me to get out of the way.â€
Barbara’s advice is to “hire people who are smarter than you [because] you never want to be the smartest person in the room.†Juan agreed; “What matters is being a great entrepreneur, building a team that complements you and being really passionate about the problem that you’re solving together. You can build that domain expertise if you don’t have it, and you can surround yourself with advisors who know the industry.â€
Tip #2: Put yourself at the center of the problem
Legal Tech was compared to both Ed Tech and Fin Tech; all industries with intricacies and people set in their traditional (non-tech) ways of doing things. But in the end, all startups must solve a problem and you need to be the problem solver.
Barbara spoke about the concept of the founders being at the center of the solution, not just creating a minimum viable product (MVP) that decouples you from the interaction with the customers. Early stage investors are betting on the team and their ability to solve problems, so the product is almost secondary. She went on to state that as an investor, she also looks at momentum as more important than traction and, “Nothing beats doing the work.â€
Tip #3: Have empathy for your customers’ problems.
Self-awareness is critical for any founder team. Know what you are good at and understand that to really crush it, you must be able to simultaneously build, sell, and fundraise. You will need a team or partners who compliment your own skillsets.
According to Dan, “A challenge for lawyers is that they frequently think that they’re the smartest person in the room. Lawyers think they can wipe out other disciplines in a weekend.†Lawyers can’t think that way as entrepreneurs, and you have to leverage your legal industry knowledge but constantly put solving your customer’s problems first.
As an attorney, you may not be in the best position to understand your customers needs, particularly if you have a solution that sells directly to your clients. Getting out into the marketplace and doing customer discovery to best understand product market fit is a startup fundamental.
Juan commented that entrepreneurs should be “understanding and having empathy for the fact that it’s an old industry, set in old ways, and therefore it’s important to come up with a plan of attack.†Try to understand where your customers are coming from instead of dismissing it as the wrong way to do things.
Tip #4: Legal Tech isn’t sexy, but don’t let that stop you
The panel agreed that Avvo’s eight years to maturity was long for a tech company to mature, which is perhaps an indicator that it takes a little big longer to success in the legal industry. . Legal Tech may suffer from not being as sexy as Uber or other apps, which is part of the reason for less VC investment. “A lot of business problems that have real dollars attached can appear very unsexy and the pain point is only understood by a certain cohort of people,†Barbara clarified. But “even if the dollar amounts associated with it are huge, it doesn’t have that draw and visibility.â€
But if there is a real pain point, entrepreneurs should attack the problem. And we most definitely should not hide behind Unauthorized Practice of Law, but should instead be focused on changing the status quo if it no longer makes sense for the legal profession Hence, Dan’s idea that unless you are coming up with something illegal, it’s likely a good idea to disrupt the legal industry and not worry about UPL.
Tip #5: At the beginning, raise only what you need to get the fundamentals right
Dan described Avvo’s fundraising journey; “There were a few small rounds early on that kept the lights on,†but “we didn’t try to raise a huge amount of money before those key pieces were in place. We focused for a really long time on getting the fundamentals right and doing that with a relatively small team.†Networking, building on successful milestones with early investors, and slow, steady progress enabled Avvo’s eventual fundraising success.
As Barbara pointed out, there is a much greater need for capital if your solution is consumer facing rather than selling to businesses. Understanding your financials and your burn rate is important to manage to keep those lights on and satisfy existing investors while finding the right product market fit. It’s a balancing act!
Finally, Juan said, “There is no point in raising larger amounts of capital unless you’re ready to scale.â€
Bonus Tip: Be Authentic
One final quote from Juan as advice to founders in all industries who are seeking Venture Capital investment, “What impresses me the most is authenticity. That’s authenticity in the founder solving a problem that they’re passionate about and having the vision to think five steps ahead.â€
If Investment in Legal Tech is something you care about, join us for the next events on this topic in Los Angeles on November 12th and New York on February 4th.