How to Create a Scalable LegalTech Startup — Overview of the LegalTech Landscape

Hi there! It’s Ksenia, a lawyer, strategist and international communications professional with a VC background. This article is intended for digital startup founders who are looking to launch a LegalTech business.

A quick note: the LegalTech market size in 2022 totaled 29.8bn USD, with a projected CAGR of around 9%, reaching a value $69.7bn USD by 2032. Considering the total available market, the UK legal services market alone was valued at 43.9bn GBP in 2022, with an estimated CAGR was estimated at 5.43% according to the same agency.

This market presents a potential opportunity to implement legal technologies. Moreover, the legal profession is highly prestigious and has extremely high barriers to entry. All of these factors make LegalTech highly attractive for both IT entrepreneurs and investors.

So, what does it take to launch startup in the LegalTech industry? While it's possible to launch a startup relatively quickly in other industries, LegalTech sets higher standards and has stricter requirements. It necessitates industry-specific knowledge, given that the legal field is deeply traditional and highly selective with its professionals. Finding a lawyer who possesses the right blend of tech savviness, business skills, and a willingness to disrupt the traditional norms is a formidable challenge.

So, to make it easier for aspiring entrepreneurs in the field, I have written this overview of the LegalTech landscape.

In this article, you will find:

• Types of LegalTech startups
• Problems innovators face when entering the LegalTech industry
• Existing solutions
• Principles of LegalTech to follow, and
• Areas where the technology can be implemented

Types of LegalTech Startups

First, we need to know what the options are. It’s the first responsibility of a founder to determine who their customer is, whether it is a business or a private individual. Is it a self-help tool, maybe a marketplace or a solution for a law firm? What kind of law does it involve? Is it for IP, corporate law or something else? Here is my typology of LegalTech that is client-oriented, not too fragmented and considers most important factors:

• For law firms, in-house lawyers and legal professionals (e.g., Clio);
• For governmental bodies such as courts (e.g., ODR). It has its own category because the focus is often more on bureaucracy at the expense of speed and innovative approaches, which is not suitable for fast-growing companies;
• Self-help tools for business owners, private clients, etc. (e.g., Clerky).

I didn't include marketplaces here. However, it's worth mentioning that there are startups in this category that have shown promising results. They can be considered part of the self-help category as well.

Problems innovators face when entering the LegalTech industry

• The knowledge bar is extremely high in the legal profession. It encompasses more than just learning codes and precedents. It involves a comprehensive understanding of various elements such as essential terms of contracts, principles like freedom of contract, and the ability to implement them effectively.
• Each country has own legal system. A significant difference between Civil Law and Common Law Systems.
• The legal industry is known for its strong adherence to tradition and its historical reliance on established clientele. Consequently, it can present challenges when attempting to attract new customers. In this context, it becomes crucial to identify the markers or digital proof that can showcase the quality of a lawyer's work and the reputation of the legal services they provide.
• Resistance from legal professionals may arise when considering the implementation of a SaaS solution. While such a solution has the potential to save time and streamline processes for lawyers or law firms, it may not always be perceived positively by legal professionals, as their billing practices often rely on hourly rates. Therefore, the successful adoption of technology in the legal field necessitates a shift in the traditional business model for lawyers. Consequently, if law firms are not likely to embrace this change enthusiastically, in-house legal professionals may be more open to embracing such technological advancements. To mitigate resistance and increase acceptance, it is crucial to target the right audience and address their concerns, as people tend to be resistant to change.
• Third-party risks - policies, procedures, promises.
• Security is crucial for law firms as they are often targeted as vulnerable points within enterprises, and the same goes for SaaS platforms. Without adequate security measures in place, breaches can occur, potentially leading to the placement of fake and compromising materials on individuals' computers. The consequences of such breaches can be severe. Therefore, it is essential to prioritize and ensure the highest level of security in your software.

Existing solutions

Here are a few examples of existing LegalTech solutions:

• Case Management Software such as Clio, PracticePanther, MyCase;
• Legal research - LexisNexis, Westlaw;
• eDiscovery - Nuix;
• Self-help - Clerky, that is a LegalTech platform that primarily caters to startups and early-stage companies, providing them with self-serve legal document creation and compliance solutions;
• AI-powered Solutions - Kira Systems;
• Contract Management Solutions - Conga Contracts;
• Compliance - Vanta.

Principles of LegalTech to follow and areas where the technology can be implemented

When developing a startup, please keep in mind the following principles:

• Security and risk mitigation;
• Customer-oriented approach;
• Precision and minimization of mistakes;
• Stay up to date;
• Help to speed-up the processes.

There are several solutions available that have overlapping functionality. It is worth mentioning that the primary role of a lawyer is to mitigate risks, and it is important to keep this in mind. Additionally, lawyers shouldn't impede the contract process; instead, they should help expedite it. There is a popular opinion that LegalTech should move towards standardization and reduce segmentation. One interesting concept to keep in mind is that the software should enable individuals to autonomously locate information within their organization.

Here are some areas where technologies could be developed:

• Collaboration platform for multidisciplinary teams;
• Proactive business advice and analytics. Legal advice for business was the largest market sector in 2022 in the UK;
• AI-powered online dispute resolution service (ODR);
• Visualization and design tools for legal professionals;
• eDiscovery, legal data analytics, fact extraction, and predictive tools;
• Contract lifecycle management (CLM) software;
• Legal operations and workflow management;
• Virtual law firms and online legal services;
• Regulatory compliance and risk management;
• Document management systems (DMS) with advanced metadata features.

I hope this article was helpful to you! Please note that this is not an exhaustive research, and feel free to share your opinion with me. Also, let me know if you would like me to elaborate on some ideas. Feedback would be greatly appreciated. Feel free to connect with me on LinkedIn, and let’s continue the conversation!