Advice for Legal Tech Start-ups from Seedcamp's Tom Wilson

Seedcamp is a first round fund that backs founders of tech-driven companies across several sectors, including legal. Artificial Lawyer talked to Tom Wilson, a former corporate lawyer at King & Wood Mallesons and now an investment manager at the London-based fund.

An example of Seedcamp’s commitment to legal tech was seen in its recent global callout to start-up companies in the legal space via a partnership with Nextlaw Labs. On that occasion 80 start-ups sought financial banking from across five continents.

The two chosen start-ups were South Africa’s Libryo and Anglo-American company Clause, which Artificial Lawyer covered recently [see story].

The fund, which since its inception in 2007 has gone on to back over 230 companies with one unicorn, TransferWise, and over 80% having raised further funding in excess of $500m, has also backed two UK-based legal start-ups: Apperio and Juro.

So, Seedcamp clearly has ‘form’ for investing in legal tech. But, why is legal tech interesting to funders and why now?

‘We look for sectors that are ripe for disruption and use technology to enhance experiences for the end user. Law is no different and legal tech right now has all the hallmarks of where fintech was back in 2010,’ Wilson explains.

That is to say, the legal world is ‘an older industry with a lot of money in it, but where at the same time there are few tech applications matched to it’. Or, in other words, the legal market is ripe for new technology to become integrated into it.

Barriers to Success

Despite the surge in interest in legal tech, in part driven by advances in AI and the latest forms of automation, Wilson is realistic about the chances of start-ups breaking through and changing the legal world.

The key challenge, he points out, is that law firms are risk averse. Law firms don’t usually subscribe to the Silicon Valley mantra of ‘fail fast, learn and improve’. They’d prefer no failure at all, ever. But, of course, start-ups are necessarily experimental. They involve new technology and new approaches to solving persistent problems in the law.

This then leads to another quite simple, but also deadly, problem for legal start-ups: the slow sales cycle.

Tom Wilson, Seedcamp

‘Law firms’ desire for risk is very, very low. So the sales cycle [for legal tech companies] is slow. This makes it harder for VCs to keep investing,’ Wilson explains.

He points out that investors want to see considerable improvement every 12 months. But, as anyone in the legal market can attest to, selling to law firms can often take 18 months or more to move from discussions to an actual contract. Moreover, because the tech here is so new, law firms will need to trial it and a trial does not mean a lasting contract will materialise.

Another factor is the number of law firms that a cutting edge legal tech company can sell to. How many law firms want to license the very latest AI technology? The answer is: a growing number, which is very positive. But compared to the global consumer market for general tech applications this is still a relatively small group of potential clients. Selling legal tech to corporate inhouse teams is also not easy.

‘A legal start-up may have no progress [in terms of clients and new revenue] to show in 12 months,’ Wilson notes. And that may be fine for the founders who are perfecting their ideas and tech, but not every investor will have the restraint not to get worried about a static client list.

Wilson stresses that this is why their partnership with Nextlaw Labs, which itself is connected to Dentons, really helps. The start-ups can at least work with Dentons, the largest law firm in the world by headcount and which has offices all over the globe. Such exposure certainly provides the legal tech start-ups with plenty of ‘real world’ testing and a chance to gain credibility in this risk-averse sector.

Advice to Legal Tech Entrepreneurs

Other than finding ways to shorten the sales cycle to law firms and to help build credibility in the eyes of law firms, what is Wilson’s advice to budding legal tech companies?

Wilson starts with Entrepreneur Rule Number One: ‘All start-ups seek to solve a problem.’

Then he adds: ‘Junior lawyers see lots of problems in their work. They see problems with efficiency, with work allocation, with workflow.’ I.e. try and fix what you already see is a problem.

‘Law firms are filled with a lot of smart people and yet they don’t seem to find solutions to their inefficiencies. And if they don’t wake up those inefficiencies they will struggle in the future,’ Wilson adds.

In other words: just check your own experience of working inside a law firm, or your experience of working with a law firm as a client, and focus on what could improve. That’s the starting point.

Wilson also points out that some of the best legal tech start-ups could be those that solve what would appear to be a relatively low-level problem, but that because they are experienced throughout the sector have the potential to make a systemic difference.

Also, far from taking the view that legal tech will kill off loads of lawyers, Wilson states that start-ups can help make the legal industry a better place to work. Tech will remove or reduce the grunt work and the repetitive labour in the legal sector.

He also points out that law firms will need to make better use of their data. Data is everywhere in a law firm, but firms do little with it. ‘It’s not collated, it’s not used, but there is huge value to be taken from this data,’ Wilson says.

So, some helpful pointers there. But, one final question: do legal tech start-ups need to be created by a lawyer?

Some argue yes, as how can you know what the legal sector needs if you didn’t live that life? Others say that isn’t the case at all, as anyone who understands how clients use the output of legal work, e.g. commercial contracts, can create applications that are of use and so you don’t need to be a lawyer to create legal tech.

The reality is that both answers are probably right and it perhaps depends on what part of the legal ecosystem your application is aimed at. But, what does Wilson think?

‘In the ideal scenario [for a legal tech start-up] you’d have a blend of experience. You’d have someone who had felt the pain first hand of the problem you are trying to solve. But, you would also want someone who had the technical skills [to build the solution],’ says Wilson.

In which case, the best answer may be that you don’t need to be a lawyer to be a legal tech founder, but you do need to have first-hand experience of the problem you are trying to solve in the legal world. Of course, that could be the experience of a consumer client, or someone who worked inside a corporate client, or a ‘non-lawyer’ inside a law firm.

To conclude, it’s probably fair to say that the world of legal tech investment is only just starting to gear up, despite what feels like a frenetic couple of years in this space. In a legal market worth $700bn we are only just scratching the surface of how far new and advanced forms of legal tech can make an impact.

That in turn means there is potentially a huge amount of investment to come in the legal tech field. Seedcamp looks set to be part of this. While there are also no doubt dozens of budding legal tech entrepreneurs out there, some perhaps in law firms, others from different walks of life, who also want to be part of this change.