Why Big-Name Investors Like Mark Cuban Are Disrupting the Legal Profession
It's an exciting time for legaltech, although investment lags behind that in other tech startups.
It does not seem an obvious or exciting industry for big-name investors. But, some of the most famous entrepreneurs -- now including billionaire Mark Cuban -- are putting their money into disrupting the legal profession.
Whether it is automating tasks, fighting parking tickets or giving consumers better access to justice, legaltech companies are close to raising $1 billion in funding in 2018, in contrast to $233 million in 2017.
The cash flowing to the industry is hitting new heights, but the profile of entrepreneurs backing transformation in the $600-billion legal industry is also growing. Mavericks owner and Shark Tank investor Cuban revealed to me he made an investment (he would not disclose the amount) in a so-called access to justice technology company. Paladin, which streamlines pro bono management, recently partnered with Dentons -- the largest law firm in the world by headcount -- to help users discover pro bono opportunities without having to seek them out themselves. The need for technology to help solve legal problems was highlighted in one report that found that 86 percent of civil legal problems among low-income Americans fail to achieve adequate legal redress.
In this vein, Cuban's investment in Paladin is designed to streamline pro bono management providing legal help for millions that will not otherwise have access to justice.
Cuban told me in an email: "What impressed me about Paladin's team is that they're applying a business framework to an important social problem. With Paladin, lawyers can work on issues they're passionate about and teams can leverage pro bono to build their businesses. It's an important mission that I'm proud to be part of."
Endorsement from high-profile investors is causing waves in an industry that has previously shunned the limelight, and innovation. This attitude has helped propagate inefficient and costly ways of working. Suddenly, lawyers are watching legal tech companies raise investment like the leading startups of Silicon Valley.
In another landmark investment, Justin Kan, co-founder of livestreaming service Twitch, raised $65 million earlier this year for his year-old legal startup Atrium. The company uses a team of lawyers, engineers and business operations experts to supply companies with their legal needs in a more predictable and cost-efficient way.
Discussing the need for investment to break new boundaries in getting legal deals done faster, he told Forbes: "This was a problem I'd seen in my own experiences, where all these parts around legal were like a blocker to what I wanted to do, and the legal bills felt like Russian roulette. It's almost like a tax you have as a business owner. That's why I wanted to attack this problem."
In particular, there has been an increase in investment as the number of legal AI companies has increased by 65 percent in the past year. Investment in legal AI companies in 2018 has already reached $355 million -- with cash earmarked to boost capabilities and meet a growing demand among legal professionals to do high-volume and mundane legal work faster and more accurately.
This has attracted high-profile investors including tech billionaire Mike Lynch, an investor in Luminance, a startup that uses artificial technology to aid law firms with the complex process of due diligence for mergers and acquisitions. Best known for starting Autonomy, sold to Hewlett-Packard in an $11 billion deal, Lynch told Business Insider that the use of artificial intelligence in the legal field "is like seeing a steam engine for the first time. What this is is probably an example of what's going to be changing a lot of things. If you can get machine technology to be reading contracts, it's going to be changing a lot of the world around us ... you're seeing the beginning of a new age."
Eden Shochat, a partner at Aleph VC whose portfolio includes co-working giant WeWork, website builder Wix, and insurance tech leader Lemonade, recently invested in LawGeex (the company I work for), which uses AI to end the bottleneck of getting business deals being signed.
However, as he points out in a recent Medium blog -- in a point echoed by other investors in legal -- there is still a long way to go for the profession to catch up with other industries. Shochat says, "If you compare the legal industry to the tech investments made by the financial industry, you will understand the vast opportunity. JPMorgan's 2017 revenue was $94 billion, and they spent an astounding $9.5 billion on technology. That is more than 10 percent of their revenue and over 10 times more spend on tech than the legal industry."
In another example of the game-changing nature of such technology, Joshua Browder's DoNotPay legal bot gained $1.1 million in seed funding, led by one of the most important venture capital firms in the world, Andreessen Horowitz. Originally begun as a parking ticket appeal site, this cash has allowed the company to recently launch an iOS app which advertises that it can be used to "sue anyone by pressing a button." It is focused on empowering individuals to sue corporations using technology to strip away complex bureaucracy.
For the entrepreneurs, having the backing of big-name investors is sending an important signal to the profession that change is on the way. Kristen Sonday, co-founder of Paladin, told me in an email, "While a challenge initially, we're grateful to have found incredible investors who are passionate about Paladin's mission to increase access to justice. Thankfully, impact investing in the space is becoming more prevalent, but being on the frontier is never easy."