Legaltech Venture Investment

This week Crunchbase produced some numbers covering Legal tech investments in 2021.

Legal tech companies have already seen more than $1 billion in venture capital investments so far this calendar year, according to Crunchbase data. That number smashes the $510 million invested last year and the all-time high of $989 million in 2019.

While dollars are higher, deal flow is a little behind previous years, with 85 funding rounds being announced so far in 2021, well behind the pace of 129 deals last year and 147 in 2019.

Some of the largest rounds in the sector this year include:

• San Francisco-based Checkr, a platform that helps employers screen job seekers through initiating background checks, raised a $250 million Series E at a $4.6 billion valuation earlier this month;
• San Francisco-based legal services provider Rocket Lawyer closed a $223 million venture round in April; and
• Boston-based on-demand remote electronic notary service Notarize raised a $130 million Series D in March at a reported $760 million valuation.

According to various start-up founders:

“This mainly is a paper-based industry. However, COVID exposed inefficiencies and it forced people to look at everything you do and explore new ways.”- Patrick Kinsel, founder and CEO at Notarize

“There’s no doubt COVID provided huge tailwinds for legal tech growth,” said Jack Newton, co-founder and CEO at Vancouver-based legal tools platform Clio, which raised a $110 million Series E at a $1.6 billion valuation. “It was the forcing factor for firms that had put off their transformation.”

“Since the midpoint of last year, we’ve seen an acceleration of our business,” said Vishal Sunak, co-founder and CEO at Boston-based management tool developer LinkSquares, which used that increased interest to help raise a $40 million Series B in July.

Here are a few observations on what is going on:

1. Impact of the Cloud: Just as in many industries, the cloud and other new tech had been slowly changing the legal world for more than a decade. However, after COVID caused offices to close and legal processes and documents to go virtual, adoption of those technologies skyrocketed. Investors started to eye technologies that took many firms “in-house” processes and moved them to the cloud—many involving documentations and filings as well as tools to help better communicate with clients.

2. Cloud-first generation: Many general counsels are now coming from a “cloud-first” generation and know the importance of things such as data insights that can help predict outcomes. Just as data and AI has changed marketing, sales and finance, the legal community is now catching on, and many don’t just want to be a cost centre

3. Increasing investor knowledge: The increasing market and scaling legaltech start-ups are causing VCs to take note. While many investors eyed the space in the past, more investors have knowledge about contracts and legal tech, and founders do not tend to have to explain the market

However, the market is still small albeit growing and no ‘goliaths’ exist in the space. With no large incumbents, how investors see returns remains a popular question.

This may chance if, for example, horizontal software companies like Microsoft or Salesforce could become interested in the space—as legal tech has data and analytics those types of companies find useful, Wedler said.

Some companies in the space also have found private equity a viable exit, with films like Providence Equity rolling up players such as HotDocs and Amicus Attorney several years ago.

However, perhaps more interesting to some startups is the legal tech space even saw an IPO this year, with Austin, Texas-based Disco going public on the New York Stock Exchange in July. The company’s market cap now sits at $2.8 billion.

One thing most seem certain about is that while the legal world’s tech revolution may have been brought on by a once-in-a-century event—there is no turning back.

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How to Fail Fast and Pivot: Lessons from the Legal Ops Front Lines

This week I attended a virtual Summit hosted by CLOC (Corporate Legal Operations Consortium). One interesting session covered lessons learned from developing and implementing legaltech and operation changes within legal and compliance teams of large corporates and SMEs.

Panelists including range of lawyers, project managers and legalops experts from Netflix, Salesforce and GE and covered topics including:

*How to manage change and being comfortable with being uncomfortable

*Avoiding big bang deployments which are so risky now vs POC/MVP and more agile approaches to change

*Learning how to take some budget off the total and use it for experimenting and be prepared to fail.

The below is a blurb introducing the session:

“…On the path to success, failure is not only an option, it’s inevitable. Mistakes, missteps, and misunderstandings are opportunities to acquire new skills and knowledge that can contribute to your professional growth. The growing and evolving legal operations profession is filled with opportunities to evolve beyond errors. 

In this honest and impactful session, legal operations professionals will share a key moment of failure and how they learned and grew from it. After hearing from the panelists on their vulnerable moments of growth, we will spend time as a group sharing our own stories and offering our peers perspectives and possible solutions for overcoming some of their failures…”

Below I captured a few nuggets of gold from the panellists:

• Give a purpose to failure; this helps to gain buy-in from users and clarify the bigger picture
• Allow the community to own the new way to work rather than push to them
• Leadership (e.g. town hall) to set the tone
• Wider business context, and show why the change is important
• Be transparent – there will be failure. Expect it. Tolerate it!
• If leading the change, need to get to a stage of comfortable with being uncomfortable…but not too uncomfortable. Have to be mindful of current state of culture, empathise with users
• Need to balance focus on the big picture using storytelling, sales skills etc as can’t control every details of the change
• Experimental in communication, design thinking, courageous leadership, state of culture a huge consideration on how to balance approach
• Big bang projects are so risky now vs POC/MVP and more agile approaches

The Invincible Company

It is not often that you receive a business book and want to take a photo of it. And just like that amazing meal, post it on Instagram (I didn’t, but couldn’t resist a cheeky post on LinkedIn. And Twitter).

In fact, it is probably never that this urge happens.

That all changed this week when The Invincible Company by Alex Osterwalder (and others) arrived.

It looks and feels great. And knowing the track record of the authors, will be jam-packed full of great insight.

I’ll post a review here once I tuck in.

 

 

 

6 Ways To Make Digital Investments More Successful

Recently I posted here about how organisations can go back to basics and understand what digital really means. In the context of today’s rapid acceleration of digital and IT investments to support remote or new ways of working – from cloud to SaaS tools to desktop VC solutions – this is critical to understand.

Another key fact to consider is that some of the most successful companies ever were started during or just after times of crisis (e.g. GE, GM, IBM, Disney, Facebook).

For leaders who can seize the ‘re-set’ opportunity this crisis provides – and start to engage with more long-term, future-focused, and exploratory strategic planning with digital at the core – this presents a potentially game-changing moment.

This presents a critical question: how should firm’s approach and organise to make digital or innovation investments and transformations successful?

Whilst there is no playbook, below I pull together a number of perspectives from some of the world’s leading management thinkers and practitioners on strategy, digital, innovation and change.

The Challenge

Digital transformation is extremely complex and requires new ways of approaching strategy. Starting big, spending a lot, and assuming you have all the information is likely to produce a full-on attack from corporate antibodies—everything from risk aversion and resentment of your project to simple resistance to change.

1. Start Small, Think Big

Professor Rita McGrath calls this ongoing learning approach to strategy: discovery-driven planning (DDP). It was developed in the 1990s as a product innovation methodology, and it was later incorporated into the popular “lean start-up” tool kit for launching businesses in an environment of high uncertainty. At its center is a low-cost process for quickly testing assumptions about what works, obtaining new information, and minimizing risks. According to Rita:

By starting small, spending a little on an ongoing portfolio of experiments, and learning a lot, you can win early supporters and early adopters. By then moving quickly and demonstrating clear impact on financial performance indicators, you can build a case for and learn your way into a digital strategy. You can also use your digitization projects to begin an organizational transformation. As people become more comfortable with the horizontal communications and activities that digital technologies enable, they will also embrace new ways of working.

2. Soft and Hard Facts About Change

Managing change is tough, but part of the problem is that there is little agreement on what factors most influence transformation initiatives. Ask five executives to name the one factor critical for the success of these programs, and you’ll probably get five different answers.

In recent years, many change management gurus have focused on soft issues, such as culture, leadership, and motivation. Such elements are important for success, but managing these aspects alone isn’t sufficient to implement transformation projects.

According to consultants from BCG in an Harvard Business Review article entitled The Hard Side Of Change Management:

What’s missing, we believe, is a focus on the not-so-fashionable aspects of change management: the hard factors. These factors bear three distinct characteristics. First, companies are able to measure them in direct or indirect ways. Second, companies can easily communicate their importance, both within and outside organizations. Third, and perhaps most important, businesses are capable of influencing those elements quickly. Some of the hard factors that affect a transformation initiative are the time necessary to complete it, the number of people required to execute it, and the financial results that intended actions are expected to achieve. Our research shows that change projects fail to get off the ground when companies neglect the hard factors. That doesn’t mean that executives can ignore the soft elements; that would be a grave mistake. However, if companies don’t pay attention to the hard issues first, transformation programs will break down before the soft elements come into play.

3. Breaking Down the Barriers

According to a 2019 article from the partners from Innosight, a critical reason for businesses failing to get the impact they want is because they’ve failed to address a huge underlying obstacle: the day-to-day routines and rituals that stifle innovation.

Innosight Partner Scott Anthony talks further about this below:

4. A Systematic Approach

A study by McKinsey here of leaders post-transformation has shown there are 21 best practices for organisation’s to implement to improve the chances of success.

These characteristics fall into five categories: leadership, capability building, empowering workers, upgrading tools, and communication. Specifically:

• having the right, digital-savvy leaders in place
• building capabilities for the workforce of the future
• empowering people to work in new ways
• giving day-to-day tools a digital upgrade
• communicating frequently via traditional and digital methods

One interesting best practice was that firm’s who deploy multiple forms of technologies, tools and methods tended to have a great success rate with transformation (see below).

This might seem counterintuitive, given that a broader suite of technologies could result in more complex execution of transformation initiatives and, therefore, more opportunities to fail. But the organizations with successful transformations are likelier than others to use more sophisticated technologies, such as artificial intelligence, the Internet of Things, and advanced neural machine-learning techniques.

The full list of success tactics are below with the full article is here.

Out of 83 practices that were tested in the survey, the following are those that best explain the success of an organization’s digital transformation:

1. Implement digital tools to make information more accessible across the organization.
2. Engage initiative leaders (leaders of either digital or nondigital initiatives that are part of the transformation) to support the transformation.
3. Modify standard operating procedures to include new digital technologies.
4. Establish a clear change story (description of and case for the changes being made) for the digital transformation.
5. Add one or more people who are familiar or very familiar with digital technologies to the top team.
6. Leaders engaged in transformation-specific roles encourage employees to challenge old ways of working (processes and procedures).
7. Senior managers encourage employees to challenge old ways of working (processes and procedures).
8. Redefine individuals’ roles and responsibilities so they align with the transformation’s goals.
9. Provide employees with opportunities to generate ideas of where digitization might support the business.
10. Establish one or more practices related to new ways of working (such as continuous learning, open physical and virtual work environments, and role mobility).
11. Engage employees in integrator roles (employees who translate and integrate new digital methods and processes into existing ways of working to help connect traditional and digital parts of the business) to support the transformation.
12. Implement digital self-serve technology for employees’ and business partners’ use.
13. Engage the leader of a program-management office or transformation office (full-time leader of the team or office dedicated to transformation-related activities) to support the transformation.
14. Leaders in transformation-specific roles get more involved in developing the digital transformation’s initiatives than they were in past change efforts.
15. Leaders in transformation-specific roles encourage their employees to experiment with new ideas (such as rapid prototyping and allowing employees to learn from their failures).
16. Senior managers get more involved in digital initiatives than they were in past change efforts.
17. Leaders in transformation-specific roles ensure collaboration between their units and others across the organization when employees are working on transformation initiatives.
18. Senior managers ensure collaboration between their units and others across the organization.
19. Engage technology-innovation managers (managers with specialized technical skills who lead work on digital innovations, such as development of new digital products or services) to support the transformation.
20. Senior managers encourage their employees to experiment with new ideas.
21. Senior managers foster a sense of urgency within their units for making the transformation’s changes.

4. Execute AND Innovate

For any followers of the work of the late Professor Clayton Christensen on Disruptive Innovation (view his HBR collection of popular articles here), this is a fundamental challenge for almost every established firm which often becomes a matter of survival during industry, business model, technology or other shifts.

According to Alex Osterwalder:

This continues to be one of the biggest challenges we see companies face: to create two parallel cultures of world-class execution and world class innovation that collaborate harmoniously.

Watch this video here to read more about how leaders can overcome this challenge.

5. Constant Learning

In a constantly evolving landscape, it is critical for leaders to keep learning and evolving their thinking and tool-sets for strategic planning, crisis management, innovation, problem solving, and other business processes.

There are lots of sources out there (including those mentioned above), but below I provide a few great ways I do this (NB I am not formally affiliated with any of these organisations):

Strategy Upskilling:

• Strategyzer
• Strategy Tools

Thought Leadership

• Havard Business Review
• MIT Sloan Management Review
• Innosight, McKinsey, BCG
• Ten Steps To Innovation by Doblin
• Stratechery

Webinars

• WOBI

Podcasts:

• HBR Ideacast
• The Disruptive Voice
• Masters of Scale
• a16z

Startups

• Techcrunch
• Crunchbase

Summary

There are a number ways to improve the thinking and planning of the approach to digital investment strategy. This not only improves the chances of benefit realisation and achievement of strategic goals, but in the current time of crisis, can set up the firm for long-term success.

Whilst there is no playbook for leaders, these initial set of resources can help organisations to refocus current thinking and initiatives during these extraordinary times.

In summary, the themes were:

1. Start Small, Think Big
2. Soft and Hard Facts Of Change
3. Break Down The Barriers
4. Systematic Approach
5. Execution AND Innovation
6. Constant Learning