‘You could argue the entire legal system is in market failure. The poor get almost no legal services, a middle-class worker never wants to even meet a lawyer, and the wealthy and corporations pay exorbitant prices with little to no transparency,’ Bodhala’s founder, Raj Goyle, told Joe Borstein in an interview in 2017.
And in that spirit the legal spend management company, with a heavy focus on the collecting and analysis of billing data, has now reached an important milestone – bagging $10m in a series A round led by Edison Partners.
In normal times this news would be greeted with applause, as nearly everyone likes a success story. But, during these unprecedented economic times, when some legal tech companies are sacking staff and many others are turning to ‘freemium’ mode in the hope of generating market interest, this is even more noteworthy.
But, what does it mean for a startup in April 2020 to bag that kind of money? Does this mean that all the other many legal tech startups are safe in terms of future funding?
Here are some thoughts.
Every Startup Is Different
Every startup is different, even if they work in the same market segment as others, or their product overlaps with others’ offerings. This is because the key factor is the team behind that startup and how well they’ve been able to turn an idea that revolves around software into something that actually generates significant amounts of money – or at least look 90%-plus certain they’ll be able to.
We have seen great teams of inspiring founders with very sensible ideas unable to turn the project into a money maker, and we’ve seen inspired teams with not so great ideas, but lots of money behind them, not make it as well.
In fact, it’s often said that the majority of startups fail, although that doesn’t seem to be the situation in legal tech, at least not yet.
In Bodhala’s case, they seem to have come to their current position over several years. The company’s press archive goes back to 2017, but their LinkedIn page states 2014 as the founding date of the company. I.e. although the company may not have really got going until recently, it’s clearly been in existence, at least as a concept, for some years.
Today LinkedIn lists 36 staff in the US, with the company saying yesterday that it had seen ‘300+% growth in both revenue and headcount in 2019 and is on pace to do the same in 2020’.
Bodhala also saw significant client growth in the last 12 months across each of its key verticals including financial services, healthcare services, insurance, energy and private equity, they add.
Crunchbase for its part notes that this is the first major funding the company has had, or at least that it has found. Smaller funding rounds, especially at seed level, don’t always get noticed, but Bodhala doesn’t appear to have taken a ton of money before now.
The company is also based on a clear proposition: it gathers market data on what lawyers cost to help clients understand what is a good deal, it provides an intuitive dashboard, and their Hercules data cruncher ‘digs deep and analyzes rates, practice areas, matter types, and other factors that impact strategic decisions’ on legal spend.
The company has gone from steadily gathering pace over several years to now reaching very rapid growth. No doubt this gradual build up has been in part due to the need to gather plenty of spend data to reach a point where the platform is highly useful.
But, now, with sufficient data, it becomes more valuable to clients. In turn it then wins new users, which in turn help to provide more data, and so the upward cycle continues.
And, no doubt investors saw this and it gave them confidence. Moreover, what Bodhala is selling is not rocket science. But it is the product of a lot of hard work and it is very useful to the legal market, especially right now when spending is under pressure.
Of course, it’s not the only company providing market data for spend analysis, take Wolters Kluwer for example, which has been at this game for a long time already.
But, the legal market, especially in the US, is huge, so there is plenty of room – for now.
All in all, Bodhala looks like an investment that makes sense and a startup that has taken time to gestate, to gather together the data it needs to be useful, and if the LinkedIn info is correct, has not built up a huge overhead in staff numbers. Plus it’s already winning plenty of clients.
Who wouldn’t want to invest in this company, especially when it’s clear that as with 2008 there is going to be a pushback on legal fees because of the new downturn?
As noted above, this kind of profile is really not ubiquitous. Sometimes tech offerings are just too complex to insert easily and quickly into lawyers’ existing workflows, or the software may be great but it perhaps is a struggle to sell the business case, e.g. ‘You mean this will make billable hours redundant…?’ responds the law firm partner.
In this example, Bodhala saves clients money…..what’s not to like? Law firms may feel differently, naturally. But, this is a buy-side tool.
So, Does This Have Wider Implications?
All well and good, but does this $10m funding in the middle of a global crisis tell us anything about what will happen to other startups and scale ups?
Yes and no.
No, because as said above, all startups are unique in how they are constituted, plus as also noted: an offering that helps you to save money at a time of great financial pressure is not a hard sell.
Many other companies’ software is not such a slam-dunk when it comes to sales or getting investors to back you.
Also, Bodhala most likely was talking to potential investors long before Covid-19 appeared. But, the fact that the investment went ahead despite the crisis is a very positive sign, and one that is looking to the long term as well.
And, more positively it does also show that the VC world, which in 2018 invested $254 billion in relatively small companies, is still up for spending even now.
It shows that where there is a good business case the wallets will open and money will still pour out.
Probably the toughest position to be in right now is where a company has received a ton of money, where expectations of growth are very high, but the market has fallen away, such as with eDiscovery – see the example of Disco.
And, Epiq, which is very far from a startup, has also confirmed job losses [Note: the company says it’s going to finally provide some sort of detailed comment to AL, but still waiting.] But, that’s another story.
If we boil it all down, the takeaway is this: money seeks growth, and if VCs believe your offering has current market demand then they will be eager to invest still.
This may not be the case for all startups, and for those whose market is currently contracting they will have to hope that as their cash runway runs out the investors are willing to look at the big picture and keep them going for when things look better. So, Bodhala should not be seen as a herald of open wallets for all of legal tech.
(And finally, just on a personal note, it’s great to see Goyle succeeding in addressing the fundamental issues of the legal market that he highlighted back in 2017.)