Research by investment bank, Investec, has found that around $1bn was invested into legal tech and related NewLaw businesses in 2018 alone (see below), at least in the major markets.
Moreover, capital is expected to keep flowing into this sector in 2019 with consolidation seen as a likely driver of further change. The bank has divided the current market into four groups:
- Legal Tech consolidators
- NewLaw/Law Company consolidators
- eDiscovery/Doc Review/LPOs
- Private Equity funds known to be looking for Legal Tech and NewLaw platform investments.
It’s a multi-stakeholder picture, but the simple version is: money is looking for value in legal tech and NewLaw platforms – – – – and they think they’ve found it.
If they really will have found great value over the long term remains to be seen. As Mao said to Nixon: ‘It’s too soon to tell.’
That said, given other data in the market recently about the potential for legal AI sector growth then there looks to be every possibility PE and VCs, as well as Angels, plus the several institutional investors, will get their money back and a nice multiple as well.
In turn this has led, according to Investec, to a surge in capital raising by funds (see below) with a view to investing in this area.
The report also republished some data from earlier studies, such as the 2016 BCG figure about 30% to 50% of associate labour is potentially open to automation – something even AL is not sure of as a figure – unless seen in a purely theoretical way, i.e. not realistic. At present, and across an entire multi-practice commercial law firm, it’s probably more like 5% at the moment in the vast majority of law firms for a realistic level.
That said, in the long, long term it could get a lot higher. Much depends on how much firms WANT to use this technology – as opposed to tech limitations. How firms and other legal businesses rebuild their legal services delivery model depends on them and market forces. The 50% figure could become a reality – but as said, right now that is a very unlikely level.
Moreover, and a bit of a logic problem this……if you automate X% of work, then the lawyers will still be there, they will just be doing other things. Just because some work is automated doesn’t mean the same number – or even more – junior lawyers won’t be needed as the market evolves.
It also repeated a previous nugget of data that law firms spend about 4% of revenue on IT.
The full report can be found here.