Editor Caroline Hill speaks to Reynen Court’s founder and CEO Andy Klein about the marketplace’s strategy for recovery, including turning to two third parties to provide its technology infrastructure, in what Klein concedes will be a tough transition to a new way of delivering its services.
At the start of January, Reynen Court’s founder and CEO Andy Klein messaged vendors and partners to provide an update on the legal technology marketplace’s tactic to grow and recover from its shock decision to downsize and suspend app services in absence of obtaining more funding. The plan, Klein explained in the email on 5 January, is to open up its curated content about vendors and their products (its ‘solutions store’), and to bring in two technology partners to provide a new cloud-based app infrastructure.
With regard to the solutions store, the first step is to open it up to individuals, and Klein said: “The current plan is to offer the first 12 months free and then eventually use the installed base to feed a pipeline of customers for enterprise subscriptions.”
Klein informed partners that he is bringing in two new technology partners to provide “a reliable cloud-native solution on a lower headcount/cost basis for Reynen Court,” and also securing commitments from law firms to pay higher fees for services. “The combination of lower costs and higher fees provides the path forward to a viable, sustainable business in absence of additional venture capital funding,” he said.
So, what does that mean in practice for the road forward? First, I asked Klein how Reynen Court got to where it is now.
The first sign of the challenges at Reynen Court came in September 2022, when it announced that it was opening up its Series A investment round to individual shareholders outside of its current law firm and VC backers, which include Clifford Chance, Latham & Watkins, Forefront Venture Partners and Bryce Catalyst. Business Insider described the move as a “plan to raise $5m from rich lawyers.” Klein preferred the description “raising some additional capital from the people who understand the problem-set we address and share our passion for the future we envision.”
The planned raise came in the second half of 2022, when – compared with the first half of the year – funding levels had dropped off a cliff in light of the turbulent economic climate.
Within a month, Reynen Court announced that it was to abandon the stock offering and suspend access for vendors. This was followed by the news that the platform was letting go most of its staff.
According to naysayers, the technology didn’t work, and the idea of Reynen Court has become redundant now that law firms in many cases have their own secure Azure environments.
In a frank conversation with me towards the end of January, Klein gave the inside view. “We are battling some tough realities, and some are self-inflicted,” he said. “There are things that we got less than right about the market, and one is the pace that we could see innovation working on our platform.” However, he says: “A lot of the issues are market oriented. The model of our company is, like a lot of ambitious companies seeking venture capital, to build it and then invest heavily to build something of great value. The important part is access to capital, and we had been on target to do a Series B, but in the current environment, anyone who thinks they will get funded on metrics that made sense 18 months ago is wrong.
“We had to deal with the reality of our economic performance being slower than anticipated, combined with a tough environment for money. It’s simple maths: to get funded in normal times, you need to show growth. In these times, only truly exceptional companies are getting late-stage venture funding.”
Klein says that Reynen Court had to take “course correction” when they realised in October last year that they were not going to get more funding, and were not making money. He says: “We hadn’t been planning to make money, but to grow. But growth was a lot slower than anticipated.”
One course correction was to dramatically cut spending. Reynen Court has downsized with the loss of staff including president Christian Lang and global sales head Rich Rifkin.
Klein says: “We are now better aligned with customers who do care and want to see us succeed, because without us, they have no other avenue.”
Klein says that the combination of charging existing customers more and cutting costs gives Reynen Court a sustainable path, but he adds that the next 24 months will be critical, commenting: “We need to provide a service while keeping our costs low and generating a higher revenue. How do we do that? By outsourcing some of what we used to do ourselves, including some of our core tech stack.”
The new infrastructure
The first limb of the plan underway is that Reynen Court is partnering with an as yet unnamed mature technology company from outside of the legal sector, to provide what Klein describes as “some of the core plumbing that we can leverage to enable law firms to run a private cloud infrastructure in their own control.”
Reynen Court is working with around 30 of its most advanced law firm users on the next iteration of the platform. They will be asked to pay more than the previous $50,000 price tag, albeit the new amount will be in part based on utilisation.
Klein says: “We have a two-sided marketplace and a standardised procedure so that apps can work in all environments where law firms may deploy. That involves a fair amount of technology, from how a private cloud is set up and managed and how a vendor has to bring their app to the platform so it works. For the technology we need we are going to partner with a vendor that has about 30% of the technology we didn’t have at all, meaning we will have more functionality; a further 30% replicates what we have but they have more maturity and stability; and then a third that we have built that they haven’t. We get something new; we don’t use some of the code we developed; and there is an important part of our platform that vendors use to get software configured and deployed that’s hard work we will continue to utilise.”
He adds: “We’re not throwing away the Reynen Court platform but putting away part of it in favour of something more mature and fully developed. The hard lesson is that we tried to do too much too quickly.”
Reynen Court is turning to a second company for its customer support, with Klein observing: “It’s a company that has a much bigger infrastructure. We tried to build it ourselves at great expense. We have customers all over the world and we didn’t do it well because it’s very expensive to do it well at a small scale.”
Klein says that he is putting together the pieces that have the potential to right size Reynen Court to the opportunity in front it, recognising slower growth than anticipated and less utilisation of the platform.
The solutions store
The core of Reynen Court’s platform has always been its ‘app store’ and enabling law firms to run apps in their own infrastructure – this is where it has spent most of its time and money, and the area that its core customer base looks to it to provide.
However, the decision to open up its solutions store – where you can learn about available apps and test them – is because the store is now a focus for new revenue growth.
“Historically, we never sold the solutions store as separate product,” Klein said. “We just gave it to law firms to identify software they might need and test it – we saw it as all related. The solutions store helps you to find what you want and then deploy it safely.
“A year ago, we thought about opening up the solutions store more widely. The listed vendors were keen to get value out of having more firms see them and evaluate them, even if firms are not ready to use Reynen Court. We thought about it, but wanted to focus on growing the core platform. But what I’ve decided is that we should make the solution store available as separate product. That will create value for vendors and create new revenue.”
Klein is considering different revenue options for the solutions store, but before he can monetise it, he needs lots of people to be looking at it. “So at very little extra cost, we’re going to open up access to the solutions store by offering lawyers a 12-month free subscription and then an upgrade for enterprise single sign on. Paying for content will be totally separate to a firm’s decision to use the platform,” he says.
Since that decision was announced, Klein says the uptake has been good. “That has been exciting,” he says. “There are a thousand people that have already signed up.”
Trying to charge for something that has been free is a challenge, but Klein says: “We spent three years building up the content and have content on vendors that includes pricing, security, and operability, and it’s being under utilised. We’re opening it up to see what people can do with it, and if people find it valuable, we’ll build it out further.” He adds: “A lot of people have been asking for a long time when they can get the content without the app platform and we said no, but we’re trying to change that now.”
Market factors – missing the boat
With all of these changes and Reynen Court’s ‘rightsizing’, Klein hopes to overcome the fact that change in the legal sector happens far more slowly than he anticipated.
“The pace of adoption of third-party software, and really the pace of innovation at law firms, is massively less than we thought it would be,” Klein says. “How many apps does a law firm adopt a year? It’s not a big number. If you talk to a dozen legal technology vendors, they will tell you that they are not growing fast enough, and that innovation takes a long time at law firms.”
Klein is absolutely right that for all the talk of innovation, in many cases, legal tech startup activity is still barely impacting on law firm operations. Law firms are too busy, too profitable, and lawyers are creatures of habit.
However, there is also a perception in the market that as law firms increasingly have become comfortable with their own secure cloud environments, Reynen Court has somewhat missed the boat.
On this latter point, I spoke to a vendor on the Reynen Court platform, who disagreed. “We haven’t had a major hack yet; is that coming?” he questioned. “Azure is just a box of tricks and if you don’t know how to secure it, it’s just not secure. It has all these cryptographic controls, but you need to set it up and maintain it or its not secure. Reynen Court was providing a security perimeter that they maintained – you just plug in and use it. The beauty of SaaS is that it’s plug and play, and you don’t have to worry about security and maintenance. For new vendors coming into the market that meant they could focus on product development, because security is expensive.” He adds: “As you as you start installing in people’s own infrastructure they have to maintain it and make sure that the application is updated and that security flaws are patched, and updates installed.”
Klein argues it a slightly different way. “I don’t think anyone that runs apps in their private cloud and then experiences what Reynen Court does thinks that they should try to do it themselves without a platform player,” he says. “You can do anything, but the question is, does every law firm need to everything bespoke with every vendor going through every aspect of setting up and deploying the software, and each app doing things slightly differently and each law firm requiring it to do slightly different things? We create standards on both sides and just make it work, which saves an enormous amount of time and money. The time is important because vendors want to go faster, not slower. We take the time and cost and make it work off the shelf. Any one law firm and vendor can achieve this, but we make it easy, safe and secure at a much larger scale.”
As we await further developments on the new technology partners, the issue that Klein faces now is one of rebuilding trust. Discussing the layoffs and decision to pause access to the app store, one US knowledge management head told me: “Reynen Court is in the business of trust – they say, ‘trust us to do the work for you, particularly around security checks,’ but how do we trust them now?”
Klein, a former Cravath associate who has been involved in venture capital for decades, is not unaware of this. “We don’t have a business if we aren’t trusted at a high level, because we are dealing with the security of the law firm environment. We are very focused on making sure that our core customers are happy, and we think we can still do that,” he says. However, he adds: “Only time will tell. It’s going to be a tough transition to go from one way of working to another. I’m not going to tell you that I’m 100% sure that what I’m doing right now will work, but we think it will.”
In the battle of hearts and minds, Reynen Court’s law firm backers could do worse than pitch in their marketing might. The wall of silence from investors since Reynen Court began announcing bad news stories gives the impression that Klein is very much alone.
The vendors that I have spoken to are still supportive, and one makes an interesting observation about the fact that Reynen Court’s ‘failure’ is being viewed in such black and white terms.
“For a long time, people have been questioning their vision and raison d’etre but the business they are trying to build is hard,” he said. “It’s marketplace platform creation and they are having to coax vendors onto the platform. They have done a fantastic job of raising finance. If you look at other marketplaces – and I really recommend reading Andrew Chen on this – they frequently require a lot of capital up front because they need to build the platform without significant revenue for quite a period of time while they build critical mass, and they need to get the supply and demand side balanced out. What they really needed was a big Silicon Valley investor with an understanding of building marketplaces.”
With further investment off the cards for now, Reynen Court is committed to achieving that balance a different way. As to whether it will work, as Klein says, only time will tell.