If you’re not going to bootstrap your legal technology startup (fund it yourself), you’re going to be looking for funding (someone else pays for all or part of your business costs in return for an equity position within the company). Sometimes, even founders with money will choose to access funding, both to decrease their personal risk profile, and also to speed development and acquisition of market share — because, if you can spend some money, spending more money is even better, right?
Probably the best analogy I can make to finding funding for your early stage startup would be to say that it’s like writing an unfinished novel . . . and, then finding someone to publish it. When you’re seeking funding for an early stage company, in the vast majority of cases, your actual product is a work in progress or even just an idea. Getting someone to pay you money based on a notion is incredibly difficult. In the case of the publishing world, it’s hard enough to get a finished novel published; imagine pitching a suggestion. You need to work hard to exploit every opportunity; and, you must remain invested, even when you’re having lots of dead-end conversations, and facing tons of rejection. This is not a project for the meek.
Perhaps that’s why it makes sense for most entrepreneurs to start looking for money from those closest to them, in an initial round calling for a raise from initial investors labeled as ‘friends, families and fools’. If you’re not prepared to ask people you know for money when you launch your legal technology startup, you may want to look for another line of work. ‘Fools’ is certainly a harsh term; but, it’s also true that most new small businesses fail, many due to lack of capitalization. Investing in new businesses is like playing craps; more often than not, you’re going to lose; but, the trick is to hit big often enough.
Beyond those you already know, there may actually be people you don’t know who will give you money to support your business. The first place most startups turn in this regard to is to so-called angel investors, who are willing to offer capital to new businesses at a very early stage. Angel investors often congregate in groups, which offer busy investors an organized format to vet new companies. Angel investor groups will hold ‘pitch’ contests or provide entrepreneurs solo opportunities to pitch their product to well-placed investors. ‘Pitching’, depending on the format, can seem impersonal; but, it is an opportunity to acquire funding that startups should lean on. You can get good at it; and, some startup founders become so polished that they can keep their businesses running solely via acquiring funds through pitch competitions. It is true that many entrepreneurs become very, very good at raising capital, even if their companies don’t ever generate truly meaningful revenue.
Incubators and accelerators are also popular options for founders, because these opportunities allow new companies to acquire funding, but also to gain expertise and experience by working with successful entrepreneurs in a structured, learning environment. This is especially helpful for entrepreneurs who are new to the business world. And, some accelerators, like Techstars, have sterling reputations and can provide access to major league sources of capital and support.
Venture capital funding is another option for new-stage startups. Venture capital funds are run by investment professionals, who are approached by and who actively seek out, intriguing startups with the potential to become worth a ton of money. This is when you get asked questions like, ‘How do you become a $500 million company?’ Hooking on with the right venture capital firm can be essential for a start-up, since these organization will not only provide funding, but also consistent and engaged support in building out a strong corporate structure and management protocol.
Of course, nobody’s just going to give you money. It’s like the Dire Straits song says. And, the earlier you get investors, the more you give up: in terms of equity, in terms of quality. Anybody who says you should start your own business so you won’t have a boss is full of shit: Small business owners have dozens of bosses (their clients) and big business owners have dozens of bosses (their investors and shareholders). So, that’s the trade-off. But, for many, it is a far more appealing option than taking on credit card debt, or bank loans with collateral attached that can make you gulp.
Regardless of how you try to fund your startup, the watchword is hustle. You’ve got to hustle like crazy to make that paper. And, the legal vertical is an especially hard sell. Savvy investors are wary of the legal industry because they know selling into law firms is difficult since lawyers are so cheap; and, even if you can make the sale, the sales cycle is long and expensive. Savvy investors also understand that businesses focused on the legal vertical typically are not as valuable as businesses focusing on other verticals.
That all being said, it’s not impossible to get funding for a legal tech startup. Plenty of innovative companies have done it, with the right mix of team, traction and idea.
When you’re ready to get started, make sure you’ve built out a killer pitch deck, and have a sensible financial model to present.
Jared D. Correia, Esq. is the CEO of Red Cave Law Firm Consulting, which offers subscription-based law firm business management consulting services for law firms, bar associations and corporations. Red Cave also works with legal vendor to develop programming and content. Jared is also the COO of Gideon Software, Inc., which offers intelligent messaging and predictive analytics software built exclusively for law firms. A former practicing attorney, Jared has been providing services to lawyers and law firms for over a decade. He is a regular presenter at local, regional and national events, including ABA TECHSHOW. He regularly contributes to legal publications, including his column, ‘Managing,’ for Attorney at Work, his ‘Law Practice Confidential’ advice column for Lawyerist and his column for Above the Law focused on the legal technology startup community. Jared is is the host of the Legal Toolkit podcast on Legal Talk Network. Jared also teaches for Concord Law School, Suffolk University Law School, Solo Practice University and Becker College. He loves James Taylor, but respects Ron Swanson; and, he tries to sneak Rolos when no one is looking.
