Back in January we began our interview series looking into startups and innovation in the legal market today. 6 months later, it is my job to look through the settled dust and find some conclusions, points of consensus, interesting disagreements, and to give an overview of the excitement and buzz surrounding the legal market at the moment.
One of the things we were trying to discover in was just how much scope there is in the legal market today – just how big is the market? For VCs the obvious question is how much money is there up for grabs? In the legal market, unsurprisingly, there is a lot.
Nathan Wenzel, from Simple Legal – an innovative bill tracking solution – told us that the top 200 law firms in the US are going to bill over $92 billion, with average margins of over 40%. Wenzel told us that this provides investors with plenty of options.
“From eBilling and eDiscovery to legal marketplaces and fixed fee legal world” there are opportunities, he told us.
Meanwhile, Colin Rule from Modria told us that if you look at in terms of transactions, if 1% to 3% of transactions (online and offline) result in dispute, then 500 million disputes annually would leave a global online dispute resolution market valued at $4bn.
“The global online dispute resolution market is valued at $4bn, and spans legal teams within corporations, government agencies and courts, law firms, and alternative dispute resolvers,” he told us.
This seems to compare nicely to estimates that the legal market is worth hundreds of billions of pounds or dollars, euros etc. The Legal Transformation Institute, for example, recently blogged its estimate that in the US alone the market is worth around $400bn, $274bn of which is the size of the practicing lawyer market.
The UK market, meanwhile, has been estimated as being valued somewhere between £20-30bn, and this has risen considerably in the last few years alone.
So, there is money up for grabs and this has shown itself in the money that’s being invested in legal startups right now. Matt Faustman at UpCounsel told us that 60/70mn in venture dollars has been invested in the last year or so alone.
“There is money flowing into the legal system right now,” he told us. “In the last ten/twelve months there’s been like 60/70mn in venture dollars in just legal startups – there’s a lot of key stage companies that are half-a-million to basically prove how their concepts work or to see if they can really get a great product market in what they’re doing.”
Anna Ronkainen of TradeMarkNow told us that a shift in the way in which clients and lawyers do business has also been instrumental in heralding a new era of legal investment.
“Certainly the financial crisis gave a big push in that direction,” she told us. “Clients of lawyers, especially the corporations that were earlier quite happy to pay huge legal bills, they are no longer so happy to do so. They want to see efficiency and cost savings which can be achieved through technology.”
She noted that it is hardly surprising that legal startups have emerged in masses as result. However, she also warned us that jumping onto the bandwagon of legal innovation is not necessarily going to yield massive investment. VCs are far more likely to invest in the startups that provide genuine solutions to problems.
“It can clearly be seen that there are different kind of interests. I guess the rise of the start-up culture also. There are so many legal start-ups – even if many of them do the same thing. I mean there are of course the usual sort of effects of, if one company does something then you might easily get ten different companies trying to work on the same problem. Of course, in the legal field if you have a solution for one particular field, it probably will be more helpful in trying to solve a different field.”