Last month I had a frank discussion with Elite’s CEO Mark Dorman on a number of topics that are being talked about by customers and can influence buying decisions, including the company’s private equity ownership by TPG.
Dorman, who in recent years has had significant experience of working with private equity companies, said that for the most part, public shareholders and private equity owners have the same objectives, which is a return on their investment. The only way to do that is to please customers and build a great team, Dorman said, commenting: “In my experience private equity understands the need to act in the interest of the customer.”
With legal tech companies being required to invest in their platforms at a rate that we haven’t seen before and legal seen as one of the primary areas ripe for GenAI disruption, one certainty is that private equity money isn’t going anywhere. Just last month I wrote here that fundraises announced in May topped $160m.
Speaking to founders who work with private equity companies, success or failure often centres on the expectations that have been set. One of the big themes of iManage’s ConnectLive London conference in June was learning from mistakes and emerging stronger. iManage in 2015 executed a much-needed management buyout from HP/Autonomy, where the product was suffering from a lack of investment. After a period of significant organic investment, in 2023 iManage for the first time took on minority growth investment from Bain Capital.
Speaking to me at LegalTechTalk, iManage’s co-founder and CEO Neil Araujo said: “For us private equity has been fantastic, but we set the expectations about what was important and what they were getting. How you set those expectations is really critical for all stakeholders. You have to be thoughtful and intentional and finding that balance isn’t easy.”
Araujo adds that fifteen years back he wouldn’t have been able to achieve the balance, observing: “It’s because we made mistakes and survived. For us, our relationship with Bain is very good and mutually respectful and they are helping us to become a stronger business.”
There are plenty of other companies that have private equity backing or ownership that are investing heavily in their product and whose culture remains unaffected, among those being iManage’s closest rival NetDocuments and also BigHand, which is known for its strong company values and culture. For the legal sector, culture and people are absolutely key in terms of their buying decisions, and in recent years there has been more focus in the PE community on the need to prioritise culture, with ‘human capital’ rated as one of the top factors in whether an investment is a success or failure.
For younger legal tech companies and their customers, there is much to think about. On the one hand, PE investment is a numbers game. Venture capital companies have a profile that just one in ten companies will be a success. Looking at the current number of legal tech startups, we’re clearly in the midst of an unsustainable bubble.
However, one law firm head of innovation told me recently that he regards PE backing as essential metric of reliability and sustainability. PE investment enables companies to scale fast, which, given the competitive landscape, can make the difference between success and failure, not least because law firm decision making is debilitatingly slow –an important conversation for another time. PE can also bring in better financial discipline and muscle, which is sometimes a big missing piece of the pie.
The legal sector has long been cautious about PE, but as GenAI and platform investment reshape the industry, whether we like it or not, that caution will have to be balanced with pragmatism.