Startup Corner: The Success of Legal Tech Startups Outside the M25

by Roger Carson, Co-Founder and Global Financial Sales Director, Encompass Corporation
For those looking to invest in a tech startup, there are obvious attractions to investing in London. With the capital’s booming tech and financial services sectors and increasing dominance on the global stage (London is now considered the FinTech capital of the world), the opportunities are seemingly endless. The success of London to some extent overshadows the immense success of tech, and legal tech in particular, outside the M25, as well as the wealth of opportunities that exist from being outside of the capital.
Over the last twelve months we have witnessed much of the UK feeling the benefit of inward investment as firms based out of the M25 continue to thrive and with investors constantly on the lookout for ‘hot’ new areas, it’s no surprise that the fast emerging trend for legal tech has captured their imaginations. Indeed, last year was the biggest year for technology deals, as the number of investment rounds and takeovers rose by a staggering 40% in a breakthrough year for UK start-ups. Moreover, 50% of new companies formed in the UK since 2013 were digital. 74% of these companies were based outside of London, of which 90% expect revenue growth in 2017.
Just as there are benefits to being in London, there are benefits to being outside of the capital with a growing number of startups finding success outside the M25. With the majority of law firms in the UK being within the M25, what is the appeal to legal tech firms for making their home outside?
Lower office costs and therefore lower startup costs, being close to universities where there is a pipeline to talent, access to funding from central or regional government and the ability to reach other markets through convenient transport links all offer obvious attractions which have led the UK to become home to a number of non-London technology hotspots that are flourishing.
Cambridge’s ‘Silicon Fen’ has perhaps the best-known tech hub, boosted by unrivalled talent from the city’s university. The north of England is seeing a boom in investment following the creation of hubs such as MediaCity in Manchester and Sheffield Technology Parks. Tech companies in the north also have access to a pool of talent from the number of top class universities, plus strong regional investment and assistance schemes. It’s no coincidence that ‘disruptive technology’ as legal tech is fast becoming known, often springs up around some of our leading university towns and cities where there is an abundance of talent combined with regional funding initiatives keen to create high value jobs in order to keep that valuable talent there.
Scotland, likewise, is seeing a boom in tech startups, particularly across Edinburgh and Glasgow. Edinburgh has had a head start, with unicorns Skyscanner and Fanduel based there. As the largest city in Scotland, Glasgow has been making substantial inroads in recent years, boosted by four universities and the creation of the “Creative Clyde” where several tech startups are based including my own company Encompass Corporation.
Last year the Centre for Economics and Business Research predicted that by 2020 there will be more digital jobs outside of London than in. Alongside this growth of tech outside the capital, we’re also seeing a trend for law firms to move back office work to places such as Belfast, Leeds, Manchester and Glasgow where they can benefit from lower commercial property costs as well as lower staff costs. With this combination of the trend towards legal back office work being moved outside of London with the growth of tech outside of London, it’s no wonder some legal tech companies are flourishing outside the capital. Examples include Riverview Law based near Liverpool and LegalZoom who have opened their first UK operation in Wakefield.
More notably for startups, setting up outside of London means young companies are less likely to get lost in the crowd, enabling you to create your own identity – establishing yourself as a major player can itself help secure further investment as you look to grow. Outside of the capital it is possible to benefit from generous investment schemes – we’ve benefitted from key investment and support from Scottish Enterprise. For Encompass, Glasgow has been the ideal base, enabling us to secure crucial funding as well as establish ourselves in legal tech in a way that perhaps would have been more challenging if it were in London. This in turn has given us, and other companies like ours, a solid base from which to launch into the North American market.
The largest law firms may have their headquarters in London, but there are a wealth of mid-size firms outside that offer those legal tech firms based outside a wealth of opportunity. When setting up Encompass, location was of paramount importance, but as we’ve continued to grow and technology has continued to develop, we’ve also found that location matters less and less. Online tools such as Slack and Google Hangouts make it easier to have long distance meetings, plus a good flights and train service makes face-to-face meetings possible.
If you can solve a problem facing the legal profession, reducing manpower and non-billable costs, companies tend to be less focussed on where you are located, and more so on the ways in which you can help their business. One such problem being the challenge of operating in an environment of increased regulatory burden. To take a specific example, the EU’s 4th Anti-Money Laundering Directive presents a number of business process and data related challenges to law firms, which equals opportunity for legal tech businesses do deliver value. While fines and sanctions have been commonplace for professionals in the financial services sector for some time, now they will become very real for those working in legal and professional services sector too. Offering a solution to the anxiety felt by many law firms around the increased regulatory burden will be a business growth lever law techs should take advantage of, regardless of location.
What has become increasingly clear over the past few years is that there are centres around the UK that are challenging London as a fantastic base for legal tech startups. The biggest law firms may be in London, but when it comes to legal tech many exciting developments can be found elsewhere.