Legaltech AI projects being put on ice but startups proving to be “agile”

Complex legaltech startup projects involving AI or generally requiring access to data are in many cases being put on hold as law firms and corporate teams freeze their legal technology spend, with many downgrading funding on innovation to ‘discretionary’. But the startup market is proving to be agile and after a three-week complete dearth of communication, conversations are reportedly starting to happen again.

Speaking to Legal IT Insider this week as the Government announced a new $1.25bn coronavirus package including a £500m Future Fund, Chris Grant, lawtech Director at Barclays Ventures and head of lawtech innovation at Barclays Eagle Labs, said: “The more complex tech startups such as AI and those that need access to key legal data continue to be challenged as the data access difficulties have not been resolved.  We are working with startups, firms and others in the industry to seek solutions.  Firms have to balance immediate restrictions with long term goals, they should still be investing in innovation, but they are furloughing people and super cautious in the way they spend, so it’s a challenge they can’t immediately get over. So, we’re seeing start-ups work out how they can pivot or do something else.”

But as a more general observation he told us: “Startups are still holding up. They could respond much quicker and were already agile and working in a more flexible way.” By the time Barclays officially shut Eagle Labs it’s interesting to note that it was already empty.

Grant says: “Initially start-ups have struggled to maintain sales and conversations weren’t happening, but they are getting through it. There is a real interest in firms doing things differently and with COVID-19 they are being somewhat forced to do it and forced to do it at pace.”

As law firms increasingly focus on how to manage their transactions process better online, and automate the way legal queries and requests come in, those are two areas that startups will be encouraged to look at with Grant commenting: “A couple of startups have been able to quickly deliver more automated services that lawyers are typically burdened with and those have been nice, easy, quick wins.  Others have looked at how they can provide their services for free.”

However, he adds: “The worry is that firms will default back to their original way of working. Some firms view innovation spend as ‘discretionary’ and everyone has to stop discretionary spend. I would not say anything about innovation is discretionary: it’s investing in your future to drive down costs.”

At Ayfie, which focuses on search and text analytics solutions, senior vice president of business development, Peter Richards said: “In the first three weeks of the UK lockdown everyone’s sales fell by 80%. The focus shifted to setting people up from home, figuring out their schedule and their children.”

However, several weeks in the mood is starting to shift and Richards says: “Now it’s just starting to feel like firms are open to calls or WebEx or they are responding to emails saying ‘there is a lot going on, contact us mid-next month.’ For three weeks the world was frozen as firms set up from home. What if you don’t have two rooms and you’re sharing a table with your children? Then it’s Easter and the children are around all the time. But I think things will pick up in May after people find their own rhythm and the reorganisation falls into place.”

Much will depend on where you are in the sales cycle and Richards says: “If you’re late in the funnel those sales will probably continue. If you’re mid in the funnel meaning you’ve met them once or twice and had one face to face conversation, there is a wait and see approach. Firms have changed their buying attitudes. Not from any reason other than how long are we locked down for, is it one month or three months or five. There’s an obvious slowdown of everything as people learn to work differently.”

While some firms may be hunkering down, for others COVID-19 could be a catalyst for innovation and Richards says: “I was talking to one of our customers about renewal and they said, “This crisis is making us use the software we have better, adopt the software we should have adopted earlier and focus on efficiency.”

In the short term things are naturally incredibly tough for all startups and Ayfie and other startups are weathering the storm by taking salary cuts. Richards says: “You want to keep your team intact. If you’re growing you had to hire and train people and you have a community and you don’t want to damage that.”

Fundraising has naturally been hit but the UK Government on Monday (20th April) launched a £1.25bn coronavirus package including a £500m investment ‘Future Fund’ for high growth companies impacted by the crisis.

The fund, delivered in partnership with British Business Bank, will offer startups convertible loans between £125,000 and £5m, however each investment will need to be matched by private investors, ensuring at least a £500m capital injection to eligible businesses.

The second part of the announcement is £750m in grants and loans for smaller businesses focused on research and development. The support will be available through Innovate UK’s grants and loan scheme.

Barclays Ventures, which has been singled out for praise for the amount of help it is giving startups, has written a review of the scheme on its Support Hub. Richards says: “Barclays Eagle Labs has started running different webinars two or three times a week on different topics for startups such as how to sell or raise capital in a crisis. They are trying to support us with access to people who can help. The way they have stepped in and leaned forward in this crisis has added real value.”

Ben Davey, CEO of Barclays Ventures will be hosting a panel event, along with industry experts on Thursday this week.