For most of us, this week marks the beginning of the ‘new term’ in the land of legal tech and innovation. But what should we be looking out for? What will some of the key trends, events and hot topics be as we make the headlong rush from September down to the end of the year? Here are some thoughts from Artificial Lawyer.
Key Legal Tech Market Trends
As explored at the start of the holidays, there will be four key trends that will continue to be important.
- Consolidation and Platformization;
- Continued Proliferation of Legal Tech Companies;
- Incubator/Accelerator Growth;
- More Than Law – Law Firms as Tech Producers.
If you’d like to explore these in more detail then check out the piece here: Four Big Themes Of Legal Tech + Innovation in 2019.
The point about consolidation and platformization will likely be especially pertinent over the next few months. One thing that many years working in the City of London has taught this market observer is that the summer, when everyone else has headed for the beaches, is exactly when some really big deals get set in motion.
Investors and buyers like to take advantage of the relative calm to plan M&A deals and partnerships, and in the realm of legal tech we should expect the same.
Is there anything off the table? For companies that have just received large cash injections we can probably feel more confident that they are not on the market. But, they could still be looking at close partnerships with much larger tech businesses – as noted in the earlier article, merger is just one method for creating an integrated platform offering, not everything has to be based on an acquisition.
As to smaller companies, especially if they can see the client adoption mountain ahead and it looks daunting to them, or those that have been in the market quite a few years and are treading water a bit strategically, then it’s open season.
Structured vs Unstructured Data
One other major theme, and in some ways it could be seen as the theme that will dominate the next 10 years in legal tech land, is the positive conflict between structured and unstructured data approaches to legal information gathering and contracting.
What is meant by this? Simply put there are two main ways to handle information that comes in the form of contracts. You can write whatever you want, in whatever way you want, then at some point you have to go back with some type of legal AI doc review system to get into all that unstructured data and find what’s in it.
Or, you try and build contracts that divulge their key data points at the point of creation. I.e. you start with a more structured approach that makes it relatively easier to record at the moment a contract is completed all the data you’ll need in the future, or at least most of the key points, whether that relates to executing that contract, or reviewing it later.
We have seen this in the development of smart contracts, for example, and we have also seen increasing interest from contract-focused platforms, such as Juro, and also some firms, such as the Nakhoda group at global law firm, Linklaters.
In fact, Richard Mabey, CEO and co-founder, of Juro just wrote an excellent whitepaper, just last week that covers this subject, which is definitely worth a read.
Artificial Lawyer will be exploring this area in more depth in the months ahead, but simply put, the development of legal tech in the coming years is going to be heavily influenced by these two approaches to legal data.
Brexit and Legal Tech
Does Brexit have anything to do with legal tech? Artificial Lawyer sees three main impacts.
- Talent from the EU – depending on what type of freedom of movement system is developed post-Brexit – recruitment may be impacted in the UK. Young, skilled tech talent from Europe may decide the UK just isn’t worth the hassle any longer, even if we have a shed-load of great legal tech companies here. That could in turn help legal tech centres on the Continent, such as Berlin, for example.
- Weak Sterling Drives More M&A – The pre-Brexit instability, which has already weakened Sterling, makes UK-based companies cheaper targets than before. If we have a hard Brexit, Sterling will drop further, making buying legal tech assets here even cheaper.
- Brexit Recession Impact – If we get a hard Brexit with tough trade barriers, or just a continued, messy divorce, coupled with a global trade slowdown, then we could be looking at a recessionary environment for the UK, its law firms and the legal tech companies based here or trying to sell to the UK legal market. (See more below).
If there is a Brexit downturn what impact will it have on legal tech?
Much depends on what kind of recession it triggers. As one old City law firm partner once told this market analyst: ‘Commercial law firms are incredibly resilient businesses. Recessions don’t necessarily hurt them as much as you’d expect, because there is a huge amount of restructuring work and crisis-driven deals to work on. The only thing that really kills a law firm is a downturn that leads to inactivity, where everyone just sits on their hands and doesn’t do anything. No deals: that’s what kills law firms.’
Let us be positive and say that even if we have a Brexit-driven recession it’s a very messy and turbulent one. That will generate tonnes of work for law firms. If you factor in a hard left Government taking over following a snap election, we could also see another surge of work, as businesses seek to protect themselves from a Corbyn-led raid on wealth. Life, despite the chaos, may strangely continue as normal for large commercial law firms. (Of course, the rest of us won’t be that happy about the chaos…..)
The worst scenario is that the economy just limps into the doldrums and everyone waits for things to stabilise and get better. Hence, deals dry up. That could see firms cutting costs to protect PEP. Whether it would impact legal tech is an interesting question.
If you’re a large firm and you want to save money where do you cut? Clients may well want you to reduce your fees if there is a recession – so in fact, tech that helps deliver a more efficient work process may see an increase in demand. Tech companies will also still need the clients to know they exist and hope they buy their system.
However, more experimental projects, perhaps that don’t appear to offer an immediate return could get put on the back burner. After all, when professional support staff are getting sacked and trainee lawyers are getting deferred, then sustaining more frontier investment gets harder to do. Hopefully we will not get to that point.
Last point here: although the last major recession, 2009/2010, was awful and we even saw a handful of law firms go bust, the end result was the ‘New Normal’, with clients really pushing back on legal costs.
That in turn set up a new cultural approach to legal services that has been a key support for the new wave of efficiency-driving technology. I.e. without the New Normal that came from the last decade’s financial crash, the interest today in AI systems, for example, would have found it harder to develop. Because if efficiency and money saving is not really an issue, then why bother? Better data insights would be one answer, but is always a harder sell. Economics and client push back is always the more powerful force when it comes to legal services delivery.
The last few months of 2019 are going to be ‘interesting times’ as they say in China. The road is likely to be a very bumpy one for the UK especially, and that in turn will impact the legal market and the tech companies that sell into it.
However, the bigger themes will keep going regardless. The debate around structured and unstructured data will grow and grow. Platformization will continue apace. We will see more M&A regardless of the economic conditions – and in fact a more chaotic market could well drive more deals as some smaller tech companies decide it’s better to be inside a larger home.
We will see.
These issues and much more will be something for all of us to discuss at the premier event for people looking to learn and share and network in the field of legal innovation on the 11th October, in London – Legal Innovators. If you’d like to come along, tickets are now on sale, see below. Hope to see you all there!