Legal tech startups raised in excess of $145m in May, led by the Series Bs of Swedish GenAI startup Legora – which raised $80m – and the $60m raise by Seattle-founded GenAI personal injury and mass tort plaƞorm Supio. Others included Californian GenAI litigation prediction startup Theo AI ($4.2m seed round); and Miami AI marketing engine FirmPilot (unspecified but brings total funding to $11.7m, it raised a $7m Series A last year). Simpleclosure, a US company dissolution service provider that also falls into the legaltech bracket, announced a $15m Series A raise in May.
On the horizon, legal tech startup Harvey is in discussions to raise more than $250m in a funding round that would value it at $5 billion, according to a report out in May from Reuters. Its valuation has gone up by $2bn in a matter of months. The most astonishing thing of all may be that Harvey’s annualised run rate (ARR), according to Reuters, was $75m in April. The ARR is the extrapolated figure over a given period that enables a company to demonstrate what its annual revenue will be, assuming revenue stays constant.
The raises show that investor confidence is high and that they are confident that law firms and corporates are or will be adopting new technology. What’s interesting is that the majority of the money raised is by technology vendors focused on the practice, not business of law, where traditional ROI metrics are harder to demonstrate. By analysis, we can confidently say that legal organisations are getting better at testing new tech with KPIs for selected use cases, measuring turnaround times for legal tasks. They are also getting more comfortable with the concept that they buy now and demonstrate traditional ROI metrics later.
What we can say for sure is that the legal sector is firmly in the sights of big player investors want to find the next GenAI unicorn, with Harvey and Legora flying the flag. Google in May launched an AI Futures Fund to invest in and collaborate with ambitious startups, with Harvey revealed to be one of the early participants. Harvey has raised millions of dollars in funding and its $100m Series C last year was led by GV (Google Ventures), but the fund announced in May is a brand new initiative.
A couple of months ago Thomson Reuters announced its own $150m corporate VC fund for investments in the legal tech, tax and accounting space. Big players will be looking not only at investment but future acquisitions.
The plus side of this very frothy market is that investors don’t like to lose money and are good at due diligence. They can bring stability to startups that present risks in terms of young leadership teams and immature infrastructure. Startups need capital right now to differentiate, scale fast, and build defensible positions (e.g., proprietary data, model tuning and building customer relationships.)
However, the amount of debt that companies are taking on is astronomical, and customers or potential customers should be seeking assurances on what it means for them. In particular, when you are weighing up which company to select, asking about their investor strategy and the exit plan – it’s not rude, it’s due diligence. Be vigilant about getting references from existing customers, including asking about pricing and price changes. Push for evidence that tools are being built with legal work not valuations in mind. And probe for policies and continuity plans as and when the vendor is sold.
In times such as these we mustn’t forget the fundamentals. There are no guarantees in this market, only smart decisions.