Picking an AI LegalTech isn't Easier than Finding a Lawyer
LegalTech: A simpler legal process is what everyone wants since 2000
We thought picking a legaltech platform would be easier than finding a lawyer. Yet we almost hear one hot new AI “paralegal” in the news every two weeks.
To list a few: Harvey, Eve, Juro, Paxton, Darrow, EvenUp, Trellis, Doctrine, Legitquest, Premonition, DeepJudge, Robin AI.
Here is a gross generalization of a few areas they are working on:
NLP in Legal Research: Harvey, Eve, Paxton, Doctrine, DeepJudge
Contract Automation: Juro, Robin AI
Litigation Discovery (Web Crawling) + Case Building: Darrow, EvenUp
Client, Competitor and Judge Analytics: Trellis, Premonition, Legitquest
It will likely be a winner-take-all environment for every category, as the tools are extremely similar to each other. Some differentiations include: integration with other databases/software, live web crawling and updates, and accuracy of end result.
We are in the 3rd wave of Legal Tech Transformations.
Ironically, the excitement around LLM applications in LegalTech translated into an avalanche of investment money in 2023.
The 3rd Wave is the Winner-Take-All Wave
2000-2010 (Wave 1): Companies embracing online platforms, marketplaces, and SaaS.
Incumbents: DocuSign, Clio, Icertis, Rocket Lawyer
2010-2020 (Wave 2): Emergence of AI-based legal contract intelligence, process automation, and analysis.
Leaders: Ironclad, ontra, DISCO
2020+ (Wave 3): The era where incumbents are adopting new LLM technologies while competing with emerging startups, focusing on big law firms, and enterprise financial services. Applications focused on automation of critical but repetitive tasks, human-in-the-loop AI consultations, and efficiency.
Potential Leaders: Harvey, Darrow, EvenUp, Casetext (now part of Reuters)
The surge in AI-LLM and legal tech investments paints a 'tale of two cities.' Positioned at the forefront of AI-driven automation, the legal industry—with its text-heavy, repetitive tasks and structured workflows—seems primed to spearhead the investment landscape in legal tech. Yet, 2023's year-to-date global legal tech funding, as reported by Crunchbase, unexpectedly echoes 2017's figures, a time predating the current fervor.
Could the reason be that the problem is too well-defined?
Enhancing efficiency in legal procedures is a well-defined challenge, and the deployment of large language models appears to be a straightforward solution. However, the real differentiation lies in the quality of implementation, experienced talent collaborations, resource allocation, business strategy, and partnerships. This perception leaves little room for creative speculation. This sector may be moving towards a 'winner-takes-all' dynamic, driven by the notion that a single, effective tool could suffice for each specific functionality.
Riding any wave of innovation, the true anchor remains: a solid business model is the cornerstone of any product's triumph.
Less is More — DocuSign vs LegalZoom
Perhaps we don’t need an all-rounder platform, but simple products that do their parts of job automation as good as human beings.
DocuSign and LegalZoom are founded in the early 2000s. Both companies are intended to streamline the legal processes for individuals and/or small businesses. Today, DocuSign is worth more than 4x LegalZoom’s enterprise value.
One thing and one thing only — No unsatisfactory results
DocuSign focuses on a central piece of contract—Digital Signature. Instead of sending the document by mail to be signed and sent back, one can send the document through email with DocuSign and have a digitally verifiable signature on the document. The process is easy for users to understand, and exposes less potential points of faliure.
LegalZoom tries to capture a longer part of the contract value chain. But the automation adds more cost to the process, as one YouTuber pointed out, a person would pay 10x+ the filling fee using LegalZoom to form a company, and end up with a slower process than using the state’s online filling system. LegalZoom is exposed to more technology-obsolete and process-update risks than DocuSign, because any improvements in the form filling process would disrupt its value delivery to the customers.
Subscription vs one-off service
If we look at DocuSign and LegalZoom’s latest annual reports, DocuSign relies heavily on subscription, versus LegalZoom focusing on one-off services with optional add-on subscriptions. In fact, LegalZoom’s revenue source distribution was the exact opposite of DocuSign when it was listed in 2012.
Note that DocuSign operates its professional services at a -49% gross margin, up from -76% in 2022 yet still at a loss, and the subscription service has maintained a 83% gross margin across both years. LegalZoom does not publish the respective gross margins, but we believe subscriptions are at a significantly higher gross margin than professional services.
The subscription model provides a clearly superior total gross margin, and a more stable source of revenue.
🔥 AI Deals of the Week
🌏 Climate Alpha Closed $5M Seed Building ML + GIS Platform to Predict Climate Risk in Investments
Keywords: GIS, Climate
Climate Alpha uses machine learning models to predict climate volatility’s impact on investments across the globe. The use cases span from real estate investment screening to insurance underwriting. The seed round is led by Jungle Ventures.
🛰️ Databourg Raised $1M in Seed Funding, Using Satellite Signals for Rainfall Monitoring
Keywords: Weather, Climate, Remote Sensing
With concept conceived at University of Luxembourg, Databourg repurposes existing satellite ground station signals to monitor rainfall with 5min window. It has deployed the system in Philippines and is expanding to other countries in Asia. The investment is boosted by investments from Asian Development Bank (ADB) Ventures and a received R&D grant.
🏎️ PhysicsX Raised $32M in Series A for Physics Simulation
Keywords: Manufacuring, Simulation
PhysicsX develops machine learning applications to massively accelerate physics simulations. The round is led by General Catalyst.
🧬 Cradle Raised $24M in Series A for Protein Design
Keywords: Biotech, Renewable
Cradle uses machine learning to help synthetic biologist design proteins in areas such as material science, fuel production and waste processing. Index Ventures led the round.
📹 Pika Raised $35M in Series A Funding to Build Text-to-Video Platform
Keywords: Video Generation
Pika creates high-quality videos with prompt input from user. Now into its sixth month, it has attracted a user base of half a million users. The round is led by Lightspeed Venture Partners.
🤖 Kognitos Raised $20M in Series A to Build Natural Language Business Automation
Keywords: Business Automation
Kognitos provides business automation for enterprises, enabling business process automation through natural language instructions. The round is led by Khosla Ventures.
🏢 Accenture to Acquire Ammagamma
Keywords: Digital Transformation, Consulting
Accenture agreed to acquire Ammagamma, an Italian company helping enterprises advance their uses of AI. The company focuses on Italian market.
📊 Braincube Raised €83M in Funding to Build IoT Analytics
Keywords: IoT, Manufacturing
Braincube provides IoT analytics and digital twins solutions for companies in food and beverage, pulp and paper, building materials, and tire and plastics sectors. The funding is led by Scottish Equity Partners and Bpifrance.
🏦 Rich Data Co Raises $17.5M in Series B Funding to Help Banks Make Lending Decisions
Keywords: Fintech, Lending
Rich Data Co is an Australia-based company providing lending decision platform for banks. Westpac and nCino led the round.
📄 Aptus.AI Raised €3M in Pre-Series A, Creating Proprietary Machine-Readable Documents
Keywords: Regulations
Based in Italy, Aptus.ai creates machine-readable regulation documents. It has secured a few financial institutions as clients. P101 has led the investment.