The Current State of Legal Tech
In this article, we'll explore the Legal Tech vertical, highlighting key trends and spotlighting some of the most interesting companies in the space.
Hey everyone, welcome to TheTechBruin where we break down companies and subverticals within technology. At the end of each article, we will give our thoughts about the company/vertical and where we think it is headed. We will try to release a new article every week and hope you guys enjoy!
DISCLAIMER: None of this is investment advice and we are by no means experts. We are simply college students writing to further our technology industry knowledge.
Table of Contents
Exploring Legal Tech
The Hesitation to Embrace Change
The Various Facets of Legal Tech
Spotlight on Key Legal Tech Companies
Thomson Reuters, the Legal Research Giant
Legal Tech also includes “TechTech”
The Future of Legal Tech and Vertical Integration
Exploring Legal Tech
Legal Tech is a significant player in the software industry. It encompasses a wide range of tools and platforms designed to assist law firms, legal departments, and even everyday consumers who need to create legal documents without any prior legal expertise. The variety within Legal Tech—with its numerous companies and product offerings—makes it a bit challenging to neatly summarize. Plus, it's an area that's rapidly evolving, especially with the recent advancements in generative AI. These factors contribute to what I see as the relative "immaturity" of the vertical, a point I’ll explore more in-depth later on.
To break it down simply, Legal Tech involves technology that aids professionals in drafting, managing, tracking, and researching legal documents or contracts. It also includes analytics that can highlight inconsistencies in documents or efficiently gather precedents for drafting purposes.
Just to set expectations: I'll be discussing Legal Tech in a broad sense, covering its application across various legal practices rather than diving into specific practice areas. I believe this approach offers a more comprehensive understanding of the sector.
The industry itself is already substantial, with an estimated market size of around $25-35 billion. It’s on track to grow at a compound annual growth rate (CAGR) of 7-9%, potentially reaching $45-55 billion over the next decade.
The Hesitation to Embrace Change
One of the challenges with Legal Tech is that lawyers and attorneys, by nature, tend to be highly risk-averse. This cautiousness can make them reluctant to adopt new technology, even if it could streamline their daily tasks. Lightspeed Ventures offers an insightful observation about this hesitation, pointing out that the traditional lawyer business model adds to the resistance:
"The common sentiment in the industry is that it is easier to sell software that makes attorneys less productive than it is to sell them software that makes them more efficient due to the business model construct of ‘billable hours.’"
However, there’s been a recent shift from the billable hours model to a flat-fee structure, which has made it more attractive for law firms to adopt software that can significantly reduce costs by improving efficiency.
The Various Facets of Legal Tech
As I mentioned earlier, Legal Tech offers a wide array of products, and I’d like to break those down a bit. The categories below are more of a grouping of related products that companies in this space might provide, rather than single offerings.
Legal Practice Management Software
Legal Practice Management Software is designed to help law firms manage their operations by offering a platform for handling invoices, documents, billing, and more. Think of it as the digital backbone of a law firm, allowing clients to interact with the firm virtually. Many platforms in this space also integrate Customer Relationship Management (CRM) systems, along with various tools for document creation and management.
Key players in this space include Clio, FileVine, Litify, and MyCase.
Contract Lifecycle Management (CLM)
Contract Lifecycle Management software provides end-to-end solutions for managing legal contracts from their creation to renewal or termination. This type of software often integrates other Legal Tech offerings, either through third-party vendors or within the platform itself (e.g., e-billing, e-signature, contract analytics, and invoicing).
The typical CLM process involves:
1. Creating contracts
2. Negotiating terms
3. Approving the agreement
4. Signing (often integrated with an e-signature provider)
5. Executing (which might include accounting, billing, and order management)
6. Tracking key metrics
7. Renewing or terminating contracts as needed
Some prominent providers in this space include Onit, DocuSign, Icertis, and Conga.
Document Management and Creation
While document management and creation often fall under the CLM umbrella, it’s worth discussing them separately because companies that excel in one area don’t always lead in the other.
Document management involves storing documents and automating the management of dates, periodic billing, and other critical information within legal documents. Essentially, it’s software that helps law firms and legal departments efficiently store and monitor all actions within their legal documents. Some companies focus exclusively on document management and are known for their strong product offerings, such as iManage and NetDocuments. Horizontal players like Dropbox and Google Drive also hold significant market share, but this highlights Legal Tech’s current lack of full vertical integration—a point I’ll touch on later.
Document creation software helps generate legal documents, often based on pre-existing templates or “playbooks.” Generative AI is currently disrupting this space, making it a hot topic. While full-stack Legal Tech platforms might offer document creation as part of their suite, some companies specialize in this area, including IronClad and PandaDoc.
Legal Research Software
Legal research is another category that generative AI is revolutionizing. What used to take hours to sift through precedents and gather relevant case law can now be done in seconds. Within Legal research, law firms can easily access tons of legal precedents by just adjusting a veriety of filters and typing in some keywords into this search software. Notable companies/products in this space include Westlaw, LexisNexis, Bloomberg Law, and Casetext. Most of these are owned by Thomson Reuters which I will cover separately later on.
eDiscovery
eDiscovery is often confused with legal research, but it’s different. eDiscovery involves collecting data for an ongoing case from sources beyond legal precedents or case law. For instance, this could mean retrieving email chains as evidence or exchanging digital information between law enforcement and legal teams. eDiscovery software helps identify, collect, and securely analyze this data. Leading companies in this space include Reveal, DISCO, and Relativity.
Legal Analytics Tools
Legal documents are often lengthy and filled with data points that legal teams need to digest. Analytics tools can significantly assist in analyzing incoming contract invoices. This is yet another area where AI is making waves, with tools like Harvey AI leading the charge. Such software can identify discrepancies from a legal team’s playbook or highlight key numbers and dates within a document, compiling that information in a user-friendly, no-code environment. Harvey AI, LexisNexis, and Casetext are noteworthy players in this arena.
Consumer Legal Software
Legal software isn’t just for professionals—there are also tools designed for everyday users without a legal background. Creating legal documents can be complicated and hiring an attorney can be costly. Consumer-focused legal software fills this gap, offering easy-to-use tools for document creation. Notable companies in this space include Rocket Lawyer and LegalZoom.
Spotlight on Key Legal Tech Companies
Here are a few companies that are making significant strides in the Legal Tech space:
1. Clio: Clio is a giant in the legal practice management space and has been making headlines in the venture capital community. They recently raised $900 million at a $3 billion valuation, led by NEA, and are generating over $200 million in recurring revenue. Clio brands itself as the operating system for law firms, and as legal practice management software becomes more integrated, Clio seems to be setting the pace. Their payment system is a key factor in their success; navigating payments within the legal industry is challenging, but when done correctly, it’s incredibly lucrative. For more details, TechCrunch offers an excellent overview of Clio’s recent Series F round.
2. DocuSign: DocuSign is a household name, especially in the CLM and e-signature space. Although they operate more horizontally, their efforts in expanding into legal tech have indirectly resulted in a strong offering for law firms and legal teams. Their acquisition of Seal, among other moves, has broadened their portfolio. In addition to CLM and contract analytics, they offer document management and creation, a contract CRM platform built on Salesforce, contract observability, and other e-signature-based products. However, I believe their sales strategy for legal tech could be stronger, as it feels a bit impersonal in an industry that thrives on relationships. A more focused, legal-specific platform or sales strategy could lead to significant market share gains.
3. Harvey AI: Harvey AI is one of the newer, venture-backed companies making waves in the industry. They recently raised $100 million at a $1.5 billion valuation, the second-largest Legal Tech funding round this year. Built on an OpenAI model, Harvey AI allows law firms to train their legal assistant using their own playbooks, enabling more personalized contract generation. Clio offers a great description of what Harvey can do: “Harvey AI assists with contract analysis, due diligence, litigation, and regulatory compliance, and can help generate insights, recommendations, and predictions based on data. As a result, lawyers can deliver faster and more cost-effective solutions for client issues.” The linked article dives deeper into why Harvey AI is generating so much buzz.
4. LegalZoom: LegalZoom is a go-to platform for small businesses and individuals who need to create legal documents of all kinds. Whether it’s incorporating a business or handling tax documents, LegalZoom has you covered. Their success is evident in their impressive 120% Net Revenue Retention (NRR), as calculated by Public Comps. They’re also seeing 28% year-over-year revenue growth while remaining profitable. The numbers speak for themselves, and LegalZoom will continue to dominate the consumer Legal Tech space for the foreseeable future.
Thomson Reuters, the Legal Research Giant
I wanted to include a section on Thomson Reuters, as they are arguably the largest technology company in the legal tech space. While their platform spans professional services rather than being exclusively focused on legal tech, they own essential tools like LexisNexis, Casetext, Lex Machina, Westlaw, and other widely used legal research tools. Thomson Reuters has established a highly integrated presence in AI-driven research, effectively dominating the legal research market. I believe that legal research will remain their stronghold. Later in my discussion on the verticalization of legal tech with integrated offerings, I’ll argue that while key players may dominate other aspects of legal tech, legal research will likely remain firmly under Thomson Reuters' control.
Legal Tech Also Includes “TechTech”
One thing I want to touch on briefly is the misconception that Legal Tech is isolated from other tech sectors. Many law firms still use tools like HubSpot or Salesforce for CRM, Tableau or Microsoft BI for analytics, and ServiceNow for contract invoicing. Even DocuSign, despite its strong presence in legal tech, is essentially an electronic agreement platform that serves any industry. Legal Tech isn’t fully vertically integrated yet, which allows these larger horizontal players to maintain significant market share. This is common in less mature verticals, but as the industry matures, we can expect the big vertical players to gradually push out the horizontal ones.
The Future of Legal Tech and Vertical Integration
Building on that point, I believe that as Legal Tech continues to grow, we’ll see the rise of a few large, end-to-end vertical platforms that offer all the services I’ve mentioned in one package. For example, Veeva in the Life Sciences sector started as a simple Salesforce add-on and gradually expanded to become the dominant end-to-end platform in its vertical. Stripe did something similar in the payments space by creating a true e-commerce platform that eventually overshadowed PayPal.
In the end, vertical software tends to follow a similar path across different industries, and I don’t think AI will disrupt this natural progression within Legal Tech. Eventually, a few platforms will emerge as the leaders, pushing out the competition. It’s only a matter of time.
That’s all for this week. I hope you guys enjoyed this Legal Tech summary and please feel free to reach out to us if you would like to discuss any material in the article further.
Email: thetechbruin@gmail.com
Twitter/X: @TheTechBruin