Technology

Bringing The VC Into The Law Firm

Dentons successfully fostered the growth of the industry’s first legal technology and innovation advisory and legal tech capital fund. Which firm is next?

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In what’s become an annual pilgrimage for those in the industry, last month we saw attendees descend upon the New York Hilton Midtown to learn about the latest trends in legal tech. Despite significant enthusiasm by all, I was struck by just how challenging it continues to be for vendors to drive adoption of their new solutions in the legal industry. Crossing the chasm still seems elusive for many offerings.

Perhaps the issue lies not with new technology itself, but rather in the approach that we collectively are taking towards driving innovation. I recently had the opportunity to discuss a unique and powerful strategy for partnering with law firms with Dan Jansen, CEO of Nextlaw Labs and Nextlaw Ventures.

As an entrepreneur and investor, Dan has helped to conceive, fund, grow, or sell disruptive businesses in many sectors, including legal, social media, financial services, and online recruiting. He got to know some of Dentons’ leaders through friends of friends, and they got to talking about Dan’s experience disrupting other industries and his time at the Boston Consulting Group. Dentons asked if Dan would be interested in creating a similar model for the legal industry. Dan initially cautioned that he was not a lawyer, but Dentons didn’t exactly need more lawyers (the firm has thousands of those) — the firm needed an entrepreneur and someone to lead investment in legal technology-driven innovation.

What resulted was Nextlaw Labs, the industry’s first legal technology and innovation advisory. “Our vision was to do three things: create proprietary solutions, partner with outside players to create companies or solutions, and start to invest in legal tech companies on a selective basis,” said Dan.

When Nextlaw Labs was founded in 2015, the legal tech market was still in its very early stages. Since then, the field has gotten a lot wider, with more than 1,400 legal tech companies — making Nextlaw Labs’ third go-to-market strategy much more significant. Dentons then created Nextlaw Ventures, an independent, autonomous, early-stage legal tech capital fund — in which Dentons was the anchor investor — to put a stake in promising legal tech startups.

As the world’s largest firm by lawyer count, Dentons offered Dan’s team a vast ecosystem of subject matter experts and tens of thousands of clients, as well as access to legal markets and legal tech solutions worldwide. Dentons also founded the Nextlaw Referral Network (NRN) which includes over 650 small and mid-size firms around the world. Dentons and the NRN have provided the foundation for Nextlaw Labs and Nextlaw Ventures’ formula for success: bringing together the right combination of legal professionals, startups, and investment.

“We use subject matter experts across our ecosystem to help us in our diligence process,” Dan explained. “If we’re interested in an IP platform from a commonwealth country, we’ll get some of our partners from countries like the UK and Australia on a call and have them demo the platform. If they get excited about it, we’ll ask them if they’re interested in piloting it within their offices, practices or clients — and if the answer is yes, then I become interested in investing in that startup.”

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“If we get to that stage, we call that our win-win-win model. It’s a win for the legal tech company, because they’re getting a team of high-profile lawyers to help them develop their product market fit and potentially compress the sale cycle from 18-24 months to 2-3 months. The lawyers benefit because they get a first look at a legal tech solution that they can shape to their practice and their business. And it’s a win for me as an investor, because when a high-profile law firm or company starts working with the startup in which Nextlaw Ventures has a stake, that startup’s worth rises.”

The structure of Dan’s team is perhaps one its most unique qualities. Within Nextlaw Ventures, Dan’s primary role is to identify innovative legal tech companies to invest in. The Nextlaw Labs team’s role is to help move ventures portfolio companies into Dentons’ ecosystem and identify ways to help them access that ecosystem. Nextlaw’s relationship to Dentons is unique as well; rather than being an enterprise solutions group for the firm, Nextlaw’s purpose is to plant flags of innovation — whether it be a pilot program, a client, or a practice — and drive the development of impactful solutions.

“The way that all of these pieces work together is meant to be synergistic,” he explained. “There could be a company that we haven’t been able to invest in yet, but we would be interested to consider that company more seriously if we could see its product at work within a large law firm or corporate legal department.  We have team members within Nextlaw Labs whose sole job it is to work with companies like those, to help push them into our ecosystem and get them adopted.”

With more than 1,400 legal tech companies out there, determining what startups to work with might seem daunting to an outsider — but an investor-minded approach keeps Nextlaw focused on tech trends, evolving business model trends, and specific use cases or pain points. Nextlaw has worked with Dentons’ network to identify specific pain points — notably, those less saturated than areas like eDiscovery — to invest against. This approach allows them to more accurately identify companies that are developing solutions with real potential to succeed. And as Nextlaw Ventures moves into its next funding round to scale its existing model, its capacity to find more of those companies is expected to expand as well.

There are many advantages to the way that Nextlaw Labs and Nextlaw Ventures have been set up — and while this model would not suit all firms, there are clear signs in the market that Dentons is no longer alone in its dedicated pursuit of innovation.

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“Nextlaw Ventures is delighted to see other law firms creating their own versions or hybrids of what we’re doing,” Dan said. “We believe that a rising tide will lift all of our boats, and there is a lot to be gained in the market as we see more focused resources and investment in legal tech.”

May Goren Photography

Dean Sonderegger is Vice President & General Manager, Legal Markets and Innovation at Wolters Kluwer Legal & Regulatory U.S., a leading provider of information, business intelligence, regulatory and legal workflow solutions. Dean has more than two decades of experience at the cutting edge of technology across industries. He can be reached at Dean.Sonderegger@wolterskluwer.com.

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