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If Software is Eating the World, Is Law Next?

“A lot of people have recently jumped in [to the legal tech/startup space] but the fact is that law isn’t any different than any other industry.” Josh Kubicki – Co-founder Lex Redux

In August 2011 Mark Andreessen, co-founder of Netscape and noted venture capitalist, wrote an essay in the Wall Street Journal entitled “Why Software is Eating the World.” In it Andreessen stated that software had already revolutionized many industries: bookselling (think Amazon vs. Borders), video rental (Netflix vs. Blockbuster) and music (iTunes, Spotify, and Pandora) and warned: “Companies in every industry need to assume that a software revolution is coming.” (Emphasis added.)

Fast forward less than three years and Lex Redux may be the sound of the software revolution arriving at the legal industry’s doorstep. Lex Redux brings together legal startup entrepreneurs and investors interested in investing in legal startups with the goal of exploring how fast-growing, scalable startups can disrupt the rather stodgy legal industry.

Lex Redux was founded by legal entrepreneurs David Perla, Rob Sacconne and Josh Kubicki. The group has hosted two well-attended events. One in February in New York City and another last Wednesday, April 30th at Stanford Law School.

While there is no broadly accepted definition of a “legal startup,” Josh Kubicki has two general definitions, a narrow definition and a broad definition. The narrow group is those focused exclusively on the legal market and includes companies like the lawyer-directory and advertising service, Avvo, the legal analytics provider, Lex Machina, legal research startups, Ravel Law or Judicata, the intellectual property audit service, Traklight, and others. The more expansive definition includes those in the strict view as well as companies like the electronic signature provider, Docusign, patent search and analytics company, Innography, and others.

The event in February in New York City was a two-hour evening event covering the challenges and opportunities of founding and funding a legal startup.

Wednesday’s event was a longer, half-day affair with sessions on marketing to Biglaw, seeking funding for a legal startup, and selling techniques and tactics. And if Wednesday’s event was any indication, there is significant energy about legal startups (looking at numbers alone both events have pulled more than fifty people on an invite-only basis).

When David Perla quit his job as General Counsel of Monster.com in 2005 to make his entrepreneurial jump and found legal process outsourcer Pangea3, which was subsequently acquired by Thompson Reuters, many questioned that decision. “Ten years ago it was a pretty radical thing to leave a good general counsel job to go join a startup,” Perla said. Now several Stanford law students at Lex Redux said they planned to forgo legal practice in favor of founding legal startups and seeking funding to further their legal startup endeavors.

Similarly, many Lex Redux attendees talked about the nearly $74M that legal companies in the “strict” definition, and the more than $170M including those in the “expansive” definition, have raised in 2014 alone. In isolation, these numbers suggest that opportunities abound for legal startups.

Finally, there was extensive discussion about the significant economic opportunities for those who can bring legal technology solutions to the masses of underserved consumers and lawyers. A large portion of the United States’ population has little or no access to legal services. The innovator who can bring affordable legal services to the under-lawyered masses stands to do quite well. Similarly, while BigLaw is the largest concentrated economic force in the industry, there are many more lawyers practicing in solo and small firms who would pay for services and tools to help them practice more effectively and efficiently.

Participants also expressed skepticism about the opportunities for legal startups.

Despite the relative absence of technology solutions in the legal industry, the slow adoption of technology by lawyers, and the significant need for disruption to the traditional legal business model, the consensus was that there is no greater likelihood of success for legal startups than for regular startups. And the statistics for regular startups are not encouraging: Nearly 75% of venture-funded startups do not return cash to investors. The failure rates for all companies, venture and non-venture funded combined, are even higher. Therefore, despite the best intentions or the significant promise of a given legal startup, most legal startups are much more likely to be out of business in 18 months than they are to survive, let alone thrive.

Miriam Rivera the second lawyer hired at Google and a cofounder of Ulu Ventures provided a poignant and personal observation about legal startups: when asked why she thought there was more litigation on and around legal startups than startups in other industries – is it because startup founders are by nature legally-inclined and often legally-trained or is it the highly regulated and litigious nature of the legal industry? – she responded “If the only tool you have is a hammer ….”

The startup ethos is relatively new to the legal industry. The recent Lex Redux events suggest that the changes that the vehicle of venture-funded startups will bring to the legal industry, most likely though software, will come haltingly and with high failure rates, just as they have in other industries.

Law will not be immune from the forces that have driven software to revolutionize so many other industries. Much of what lawyers do is highly routinized and, with the right technology, it may even be more cost effective and accurate to utilize software tools to perform many types of legal work. But right now it’s nearly impossible to predict how quickly software will eat law or how large an appetite it has for the rather staid profession.

Dan Lear is an attorney, blogger and facilitator in Seattle. He is the co-founder of the Seattle Legal Innovation and Technology MeetUp a self-styled “legal hacking” group with over 200 members. He serves on the Washington State Bar Association’s Future of the Profession Committee and has spoken and participated in a number of legal technology and innovation projects. He blogs at http://right-brain-law.blogspot.com/ and is on Twitter @rightbrainlaw

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