Swedes have been fortunate to get used to fintech success stories. Companies like Klarna and iZettle have had tremendous journeys the last 5 years. Following these examples a flood wave of fintech start-ups has arisen helping Stockholm to become a vibrant start-up hub in Europe. The driving force behind fintech is to create disruptive alternatives on markets dominated by a few conservative players, like the banks, financial institutions and payment companies.
Another market that is dominated by strong conservative players is the legal market. Very little has changed the last 100 years and the major law firms are still very profitable. The legal market is huge. Just the US market amounts to USD 437 billions. In Sweden the legal market is worth around SEK 12 billions. A wild guess is that the total global market is in the region of US 1000 billions. Still the artisanal approach to work remain and there are lawyers that see themselves as artists rather than business men.
However, in recent years we have seen signs suggesting that there are changes ahead on the legal market largely driven by the emerging legaltech companies. Is it time for legaltech to become the new fintech?
Before looking into that let´s define what legaltech means? It can be defined as companies offering tech-enabled services and products to those in the legal industry. That includes technology catered to individual lawyers, larger corporate law firms, corporate legal departments and other key stakeholders in the law industry, often with the purpose of increasing productivity and replacing the artisanal work processes with a digital smarter one. The other category consists of companies delivering tech enabled legal services to end customers, companies and individuals clients, often in a way which is claimed to be disruptive.
In Sweden we have examples of start-ups in both categories.
Example of legal tool providers:
Example of legal services providers:
One very clear sign that something is happening in this field is that investments in legaltech companies have grown steadily the last 10 years with US leading the way. For example, the number of legaltech deals have increased from 21 to 67 the last five years according to CBInsights. In Sweden there is a recent example with Assently, the e-signing company, that recently raised 10 MSEK to fund further expansion. Another example is Scrive, that has raised 40 MSEK in total and have some of the Klarna founders as its investors.
During the 5 last years the number of legaltech related patents increased with 484 % according to a report by Thompson Reuters. One interesting observation is that, while US not surprisingly takes the lead in the patents league, China and South Korea is number 2 and 3. Apparently, investors starts to look into this field and companies invest a lot in developing new technology.
When it comes to mergers both IT companies and legal publishing giants are taking steps into the legaltech market. One example is Wolters Kluwer that purchased Effacts, a company that has developed a tool to help in-house counsels to manage legal risk. In a world where information is free publishing companies like Wolters Kluver, Lexis Nexis, Thompson Reuters and Karnov need to broaden the offerings into technology and hence there is a an appetite for legal tech tools that can be sold to its existing customer base. An example of IT-players moving into legaltech is the document management company iManage that has recently acquired the legal AI company RAVN. A guess is that we will see more of these moves from industrial players into legaltech in the next coming years.
Finally, how are the traditional lawfirms reacting to this? Probably with mixed feelings. However, the large global firms are not just watching. Firms like Freshfields, Dentons and Allen Overy are partnering with the legaltech-community by engaging in legaltech hubs or investing in legaltech project. In addition, so called NewLaw firms, like Riverview, Radiant, Axiom, Elevate and Upcounsel, are growing based on a combined legal and digital offering.
The legaltech market has just recently started to take off and few investors have yet discovered the potential. But the future looks promising – for start-ups and investors – and at the end of the day – for the clients accessing affordable and better services.
COO and founder of LegalWorks
Visit Nordic Legal Tech Day on Sept 21 – where law meets technology