We discussed how NextLaw Labs got started, what its goals are and where Jansen sees legal tech and AI heading in the near future.
First, Artificial Lawyer asked: what does NextLaw Labs actually do? We hear a lot about it, but what are its aims and how is it investing and innovating in the legal tech sector?
Jansen is effusive. ‘We have 15 different legal technology solutions, with more coming that are already part of our portfolio,’ he says, then pauses.
He cannot go into detail on most of them because they are still in development, or have partners that want to defer announcements.
‘Some are early stage VC style investments, others are products we are developing, and others are businesses we are building ourselves from scratch.’
However, the ones he can mention because they have already been announced and launched, include:
- ROSS, the now very well known AI-driven legal research engine, which at present is focused on US bankruptcy law and perhaps has received more coverage than all the other legal AI companies put together having caught the media’s imagination just at the right time.
- Apperio, an equally important tech company, this time based in the UK that has received a fraction of the publicity, which provides lawyers and their clients with fee and matter management transparency. Perhaps less sexy, but an application Jansen says the lawyers at Dentons were very keen to explore.
- Doxly, the recently invested in US-based transaction automation company that seeks to speed up the many process and procedural steps involved in legal work such as M&A, which also was seen as a really clever way of solving a real world challenge that Dentons lawyers and their clients had experienced.
NextLaw Labs has also worked recently with UK-based AI company RAVN to build an application to analyse clients’ exposure to change in the law due to Brexit. Dentons is making use of this AI-app as well.
Jansen then goes on to explain how the company works. ‘We go to the market in several ways,’ he explains.
‘First of all we find pain points (i.e. bottlenecks or systemic challenges that lawyers and clients face everyday) and these are brought to the attention of our Dentons subject matter experts and advisory board,’ he says.
The company then searches to see if there are any legal tech companies in the market that are trying to solve that problem. If there are, then they examine them closely and ask the one they decide on if they can ‘bring them in’.
Jansen notes that they are not a passive investor. If they like a company that solves an important problem then they are invited to be part of the stable and NextLaw Labs plays an active role in helping it to grow and improve.
This support is aided by a very experienced supervisory board, including:
- Casey Flaherty: the founder of Procertas, a legal technology consultancy.
- Keith Austin: the Senior Vice President and Head of Legal for the UKIEMEA (UK & Ireland , Russia and CIS, Middle East and Africa) region of the largest logistics company in the world, DP DHL.
- Gastón Bilde: Senior Legal Counsel for one of the largest energy companies in the world, Total.
- Bill Henderson: founder of Lawyer Metrics, LLC, a research company specializing in the use of data in law firm strategy, as well as a professor of law at Indiana University Maurer School of Law.
- Dan Katz: a well-known technologist, scientist and law professor who teaches at IIT – Chicago-Kent College of Law.
The company also draws directly on the input of Dentons partners, which for example played a key role in the decision to search for a company such as Apperio.
The other route is to build the solution itself. These are, for now, probably filed under ‘Top Secret’, but Jansen says they have six such product solutions in development.
Then there are the products they make in partnership with other companies, such as RAVN. And finally they also work with other companies as a start-up accelerator.
For example, this summer the company partnered with UK-based Seedcamp, a leading pre-seed and seed stage investor. One recent project focused on legal tech companies comprised a co-investment from Seedcamp and Nextlaw Labs of €100,000 in exchange for 9% equity. Seedcamp is also an investor in Apperio.
And, NextLaw Labs often co-invests when it does find a company it likes. The Doxly investment went through Nextlaw Labs’s sister company and investment fund, Nextlaw Ventures, and also involved software investors High Alpha Capital and Hyde Park Venture Partners.
According to crunchbase.com the startup has received $2.75m in total seed funding so far this year, with $500,000 in July 2016, and this month $2.25m from NextLaw Ventures and the two other funds, High Alpha and Hyde Park.
Perhaps surprisingly NextLaw Labs is the only innovation company of its kind focused solely on the legal world. Artificial Lawyer recently covered the innovative work of Australian firm, Mills Oakley, which has announced a legal tech accelerator, but, at present there does not seem to be anything quite like NextLaw Labs and its sister company, NextLaw Ventures.
But how did this come about, Artificial Lawyer asks?
Jansen explains that he had a long and interesting career focused on media at the Boston Consulting Group, then became involved in startups, the last of which was sold a little sooner than he had expected and he found himself looking for a new direction. He and his wife, who is a lawyer (while Jansen is not), moved to a small skiing village in Colorado. After looking for a new challenge in life he became the local mayor.
While carrying out his duties he served on a local philanthropic board with the spouse of a guy called Joe Andrew. The two men became friends. It just happened that Andrew was also the global chairman of the largest law firm in the world. Jansen then got to meet several other leaders of the firm.
‘We talked about innovation and shared a common view that law firms could either be the disruptors, or be the victims of it,’ Jansen remembers. And, it was clear which one Dentons and its 7,000-plus lawyers wanted to be.
And so Jansen helped to launch NextLaw Labs in May 2015. That is less than 18 months ago, but it already feels like a long time for market observers in terms of the impact they have had.
He won’t talk about the total capital invested in the company or the cash that NextLaw Ventures has at its disposal, but perhaps money is not a major issue. Dentons has revenues of over $2bn, while the last investment in Doxly – which was shared with two other funds – was $2.25m.
Because NextLaw Labs is looking at very early stage companies the investments also don’t need to be massive. The company is not looking at buying a chunk of IBM, but it might invest in a startup that made use of IBM Watson’s off-the-peg AI software.
Jansen adds that they would look at taking investments and co-investing with other legal industry players – there was no ban on that – but that it wasn’t needed. Moreover, when they approach a startup, having the world’s largest law firm behind them is usually an extremely compelling proposition when a founder’s goal is to get their product recognised and used in the legal sector.
He adds that with the Dentons’ input a startup can massively shorten the sales cycle.
‘It can take more than 18 months to sell software into a law firm, but with us, it can take much less, often only one or two months,’ Jansen adds.
This matters, given that many startups fail not because the idea is weak, but because they run out of cash due to reticence of potential clients to commit to the software. In this respect NextLaw gives an opportunity for the startup to receive at least some income and also plenty of publicity.
How does a man who spends his days looking at the cutting edge of the legal industry see the future unfolding? Jansen is both optimistic and pragmatic.
‘There are over 1,000 legal tech companies in the world right now, they are not all going to be there in several years’ time,’ he states. ‘That might come down to around 100 eventually.’
There may be consolidation, others may simply burn through their cash and die. The issue he says is that some companies are hooked into ‘sexy trends’ but may not be providing a real solution that gets real buy-in from law firms and clients.
The objective has to be to a focus on the ‘use case’. Nothing else will guarantee a startup’s survival.
While Jansen keeps a healthy level of scepticism, he is however very clearly in favour of legal AI and its future prospects.
‘AI is relevant to all sorts of areas of the law,’ he states and mentions uses such as auto-compliance, smart updates of legal knowledge and contract review.
‘AI will also take out the drudgery from legal work,’ he adds. Jansen notes how his wife once had to spend three days and nights reading through thousands of documents to find information a cognitive engine could have found in a matter of minutes.
This experience of ‘process disillusionment’ seems to be increasingly widespread. Many of the people involved in legal tech’s new wave are former lawyers, or friends and partners of lawyers, who were impacted by the huge inefficiency of their jobs, and which they seemed to have no control over.
In terms of the wider market, Jansen believes that LPOs probably have the greatest challenge ahead of them, not law firms. The clue perhaps is in their name: legal process outsourcers. And if process gets taken over by AI, then why pay people to behave like machines?
Fundamentally, Jansen does not see ‘an end of lawyers’, but rather lawyers working better and with more efficiency. In fact, he sees his role as bringing together lawyers and tech people.
‘My job is to make the techies and the lawyers work collaboratively,’ he concludes, though he also welcomes the idea that lawyers in the future will want to be more technology proficient.
He also notes with continued amazement that ‘R&D and in the legal sector is less than 1% of total sector spending. In other industries it could be over 10%’. Clearly, law firms are not going to jump from 1% to 10% any time soon, especially with the current model of full distribution of profits for partners, but it seems it could be, perhaps has to be, higher in the future.
That said, this incredibly low R&D spending by lawyers perhaps explains why NextLaw Labs is out there almost on its own. ‘We are one of the only ones doing this with this particular business model,’ Jansen observes. ‘It’s an open field.’
Then he chuckles and says he probably shouldn’t have said that. It might encourage others to do the same.
But, perhaps it would be good if NextLaw Labs did indeed inspire more law firms to invest in startups and to be part of the solution, rather than perpetuating the problems of inefficiency.
And if they don’t, as Jansen says, they will be leaving the field wide open, something that suits NextLaw Labs just fine for now.