3 Reasons Legal Tech Investment is Booming

Legal tech investment is on a hot streak right now. According to Above the Law contributor Robert Ambrogi, major investments in legal tech companies through the first three quarters of 2019 amount to $1.2 billion. The entire total invested in 2018 crested at $1 billion. Even more impressive is that a mere $233 million was invested in 2017.

Note that we are talking VC investment here. It is funding going to legal tech companies that have successfully pitched their businesses to big-time investors. The $1.2 billion Ambrogi talks about doesn’t consider all the many startups that have either been bootstrapped or funded by traditional business loans and small investments.

At any rate, what is driving the sudden boom in legal tech investment? Read Ambrogi’s Above the Law piece and you’ll see that three things really stand out:

1. Cloud-Based Practice Management

The largest investment to date has gone to a company that specializes in cloud-based practice management software. That was a $250 million deal finalized in early September. But wait. A $200 million investment deal arranged earlier in the year went to another company offering similar products.

What does this tell us? That legal tech is now firmly committed to overhauling practice management software. Some enterprising companies are building their platforms from the ground up while others, like NuLaw, are starting with an established platform like Salesforce and building legal software on top of it. Regardless of how they do it, they are taking practice management out of the local office and putting it in the cloud.

2. Contracts and Automation

Four of the six largest investments to date have gone to companies specializing in technologies that focus on contracts and automation. These are companies with products capable of reviewing contracts, generating new contracts, etc. More importantly, their technology does what it does via automation and machine learning.

Automation is one of the main driving forces in modern legal tech. It makes sense when you step back and look at the legal case management applications of decades past. Those applications were good for their time, but technology has surpassed them. According to the people behind NuLaw, automation puts all of those old applications to shame.

3. Specialized Functions

Money not going to new practice management applications and automated contract management is going to companies offering specialized functions. Ambrogi mentioned one company that offers online notary public services as an example. He also mentioned a company that creates wills and another that develops immigration software.

Such specialized functions hold a lot of promise simply because of their nature. Legal tech companies willing to pursue specialized functionality have the unique opportunity to combine traditional law with the on-demand economy to give consumers access to individual services on an à la carte basis. That’s right up the alley of the modern consumer who may want access to certain legal services without being tied to a local law firm.

Law Needs More Technology

Combining all three legal tech categories reveals that there is a common component driving investment in them: the need for the legal industry to catch up with the rest of the world in its use of technology. Quite frankly, the legal sector needs a lot more technology these days.

While the rest of the world has raced ahead with mobile apps, artificial intelligence, and cloud-based everything, the legal industry has been content with the status quo. That has to change if law is to keep up with the technological pace of society. The legal tech industry and its investors know that. The money is flowing as a result.