Much has changed in the LegalTech market in the last two years since Eric Chin, David Bushby and I published our article surveying the Australian LegalTech funding market.
This update focuses on the Australian and New Zealand LegalTech companies that have ostensibly broken away from the pack and now have dozens of employees, raised millions in venture capital and aspire to create a global franchise. It also attempts to highlight the trends and observations that I think will continue to propel this category and make it attractive to investors.
LegalTech Market Background - Australia and New Zealand
Over the last two years Australia and New Zealand has seen a number of acquisitions, IPOs and other corporate actions which show the various different potential exit paths and valuations for scaled up businesses. The most significant have been:
- In May 2019, Coupa’s acquisition of Melbourne founded contract lifecycle management solution Exari (for US$215M consideration - the biggest private legal tech exit in ANZ, 20 years after the firm was founded)
- In Feb 2020, thedocyard Limited’s Stuart Clout took the novel step for a 6 year old LegalTech of listing on the ASX (ASX:TDY) and raising $4M on revenue of ~$0.5M. In December 2020 TDY announced it had acquired Ansarada, bringing together data room and virtual deal room technology. It raised $45M to fund the acquisition and provide working capital. TDY then changed its name to Ansarada Group Limited (ASX:AND) and is currently trading at a ~$90M market cap.
- In September 2020, Serent Partners, a US PE firm, announced it had acquired ~84% of ActionStep. Actionstep, was founded in 2004 in New Zealand and provides a cloud based legal practice management solution that has many US customers.
- In December 2020, Nuix Limited, a provider of ediscovery and other forensic services raised $890M in the largest listing of 2020 and now trades as ASX:NXL. Nuix was founded in Sydney in 2000 but claims many US companies as customers and reported $176M revenue for FY2020. It has a market cap of ~$1B and its share price has roughly halved since listing.
- The “will they, won’t they” listing of PEXA continues. PEXA may have a valuation of $2B-3B which, if listed, would see it become the largest listed LegalTech / regtech player in Australia. It is claimed to have $181M revenue in CY2020 and EBITDA of $82M.
- In April 2021, the ~$102M sale of DocsCorp to Litera was announced. DocsCorp provides document comparison and management tools to lawyers and law firms, with over 500,000 individual users in 70 countries. It was funded by a listed venture capital firm, Bailador (ASX:BTI), which provides insight into the returns available for venture capital investors. Bailador turned a $5M investment to a $17M exit over 5 years delivering a 30% IRR.
LegalTech Market Background - North America and UK
In the much larger US and UK markets, there is considerably more corporate activity - more money, bigger and more frequent funding rounds. Below is a sample of large scale US and UK companies spanning document and contract management, legal practice management and ediscovery (sorted by last capital round raised). Together they have raised over US$1B, attracted capital from some of the largest venture capital firms and used that funding to fuel rapid expansion and acquisitions:
- Icertis, 2009 (2015 Series A), US, Series F last raise, US$291M raised. Investors include B Capital, Greycroft, Meritech Capital Partners, Ignition Partners and Eight Roads Ventures.
- Clio, 2008, Canada, Series E last raise, US$386M raised. Investors include T Rowe Price, OMERS, TCV, Bessemer and Point 9.
- Disco, 2012, US, Series E last raise, US$233M raised. Investors include Bessemer Venture Partners, Georgian and Live Oak Venture partners.
- IronClad, 2014, San Francisco based, Series D+ last raise, US$184M raised, one acquisition (PactSafe). Investors include Accel, Sequoia, Salesforce Ventures, Lux and Emergence.
- Everlaw, 2010, US, Series C last raise, US$97M raised. Investors include Andreesen Horowitz, Menlo Ventures and CapitalG.
- EviSort – 2016, US, Series B last raise, US$55.6M. Investors include M12, General Atlantic and Vertex US.
- ContractPod AI – 2012 (2018 first raise), UK, Series B last raise, US$55M raised. Investors include Insight Partners.
- FileVine, 2014, US, Series A last raise, US$33M raised, one acquisition (Lead Docket). Investors include Signal Peak Ventures.
- Peppermint, 2010 (2015 first raise), UK, Series A last raise, £17M raised. Investors include Scottish Equity Partners and Accel-KKR.
- Simple Legal, 2013, US, Series A last raise, US$10M raised. Investors include Emergence.
Not everything has been plain sailing: Atrium legal, founded in 2017 with the aim of using technology to create a new law firm for the ages, was closed in 2020 after raising US$75M. There have also been many, more silent, acquihires and failures in the LegalTech space.
DocuSign, founded in 2003 is the largest listed LegalTech company at a US$38B market cap with 890,000 customers (600 of which with $300K annual contract value) and hundreds of millions of users. Thomson Reuters is larger at US$48B but it services a broader range of industries than just the legal sector.
DocuSign provides digital signing, contract lifecycle management, AI analysis and e-notary services and uses a subscription model. It achieved US$1.45B in revenue for FY2021 growing at nearly 50% yr/yr and was a clear beneficiary of Covid’s move to remote signing of documents. It is still losing money (US$-72M net income for the quarter ending Jan 2021). DocuSign has acquired nine other legal tech companies including SpringCM (US$220M, July 2018), Seal Software (US$188M, Feb 2020) and Liveoak Technologies (US$38M, July 2020).
There are many lessons that can be learned from studying each individual situation above. Perhaps the clearest for Australian and New Zealand founders is that unless you are PEXA (with a large captive Australian market) the surest way of achieving an exit or substantial investment is to expand beyond local customers and achieve relevance in a large market, such as the US.
Investment in LegalTech and trends driving the sector
Legaltech has traditionally been regarded as not a very sexy area for investment: lawyers are reluctant to spend on technology, are often hard to deal with commercially, and often try to protect their professional practices by resisting automation for routine work. Until recently, there were few examples of companies valued over $1B and companies in this space don’t grow at the same rate as say, a fintech or D2C company could. There were simply easier pickings for investment.
Fortunately, there are now clear examples of where disruption has created new businesses and forced a change in general legal and commercial practice. DocuSign is perhaps the most public example. Who would have guessed that providing a way of signing documents online could generate over US$1B a year and, if growth continues at its current rate, will generate US$5B in 2025?
eDiscovery is another area where there are now multiple companies valued over $1B. Not surprisingly, finding emails and texts relevant to litigation is something that computers can do much better than humans.
There are several other trends that I think will drive the adoption of LegalTech and expansion of companies in the sector. Some of these are legal industry specific but most are macro economic forces which will increasingly be felt by the legal function:
- The continued movement of business activity to the cloud and mobile
- The rise of remote work - including remote signing and remote document management
- Globalisation of business - making the storage of, and access to, documents more critical and finding ways of collaborating cross border in different time zones, with resources of different levels of skill, more important
- The rise of data led decision making (and risk taking) and AI driving insights at a scale impossible at the individual practitioner or firm level
- The changing legal market, the rise of the inhouse counsel and the increasing desire of general counsel to be included in business decision making
- The potential for efficiency within firms driven by automation to produce quality interactive work that pushes down the cost of servicing more transactional and price sensitive customers
Up and coming LegalTechs in Australia and New Zealand
Below is my pick of the A/NZ legaltechs that, based on their publicly available metrics, appear to be making more progress than others. This isn’t a comprehensive analysis and I have somewhat arbitrarily limited it to organisations that fit the following criteria: over $1M in revenue (or ARR), employ ~20+ people, founded in the last decade, raised over $2M and are trying to create a global technology company (eg I have excluded newlaw players that provide legal services rather than supplying technology).
Note: Figures are from LinkedIn and Crunchbase unless provided by the company.
Here are their profiles (listed alphabetically):
Josef, founded in 2017 in Melbourne provides a no code legal automation platform for law firms and corporates using a conversational interface (eg chatbot dialog). The company’s products are used by a varied group of customers including big law firms like MinterEllison, Herbert Smith Freehills and Clayton Utz; and universities, legal associations and not for profits. It recently released updated flowchart functionality for decision making and claims to have one of the lowest learning curves of any LegalTech, making it ideal for new users to automate mundane and repetitive tasks around document creation, legal triage and standard advice. Josef recently announced its latest funding led by Carthona Capital with participation by The LegalTech Fund (US).
LawCadia, founded in Brisbane in 2015, provides a matter management and spend management solution. In 2020 it released additional no-code automation and machine learning capability. It has received investment from Artesian, ACAC, Queensland Government and boasts customers like the City of Gold Coast, RACQ and Metcash. It claims over 5,000 law firm users (in 150 law firms) and over 5,600 client side users.
LawPath, founded in Sydney in 2013, provides access for small and medium businesses to precedent documents and a system for customising and signing those documents. It claims to have helped over 200,000 people through its system. It was listed as number 301 on the Deloitte APAC Fast 500. Investors include Adcock Private Equity, Macdoch and US partner and venture backed company, LegalZoom.
LawVu, founded in 2015 in Tauranga, NZ is a connected software platform for in-house legal teams. Used by corporations in the US, Europe, Australia and New Zealand as a single workspace to manage contracts, matters, knowledge and legal vendors. Telstra, Nissan, AMP, Delivery Hero and PwC are some of its customers. It claims to have tripled its revenue during Covid. It recently announced a $2.3M raise from Airtree, NZ Growth Capital Partners and Shasta Ventures.
Plexus, founded in 2011 in Melbourne. It provides matter management, contract management and legal automation software. Customers include Optus, Australia Post, Woolworths, Loreal and Coca Cola. It has received $US4.7M funding in May 2019 from KPMG, Access Capital Partners, Leigh Jasper and Robert Phillpot.
Xakia, founded in 2016 in Melbourne has offices in Australia and North America. Xakia provides in-house legal teams with a matter, workflow and spend management solution with automated, interactive data analytics to provide real-time insight into the legal function and its priorities. Unlike many of the others, Xakia is privately held, keeps a low marketing profile and has an (almost) all female management team. It has offices in Australia and the US and a global customer base, including Virgin, Target and Movember.
There are plenty of exciting LegalTech companies that have not reached that scale yet.
Dozens of new LegalTech companies are started every year. Here are some of my local favourites that have been founded in the last year that I think have a chance to become big:
- Goodsign.io - a recently launched DocuSign competitor with a disruptive pricing model and a focus on usability, founded by the cofounder of AskNicely
- MilestonePay - a solution for specifying contract deliverables and linking them to project management and payment based on achievement of those milestones
- Leiver - an automated debt negotiation solution for consumers to settle outstanding debts with businesses and negotiate payment plans
As an ex-lawyer I get excited by the opportunity for innovation in the sector - to drive efficiencies for clients (lower costs, faster more customised service) but also to create more fulfilling careers for practitioners. I hope in the next update there will be even more Australian and New Zealand companies achieving breakout success.
Disclosure: I have worked with, invested in, consulted to and/or are friends with many of the founders of these companies so may well be biased in this assessment. I've used publicly available data in this article, and for the local breakout companies I have attempted to contact each company to confirm the details quoted. If I have it wrong, let me know! Data collected early May 2021.