Legal tech is one of the youngest sectors around and has already become an industry disruptor. However, given its current lack of funding, don’t set expectations too high just yet
From General Data Protection Regulation (GDPR) compliance to company liabilities, running a business unearths legal jargon that makes you paranoid you’re missing something critical. But getting lawyers to decipher the fine print isn’t cheap. “Small and medium-sized businesses are indeed sensitive to bills issued for legal services, particularly those charged by the hour,” says Arthur Shay, partner at Shay & Partners, the law firm. Given last year’s legal fees collectively cost SMEs £7m an hour, according to a YouGov survey, sidestepping face-to-face consultancies and letting cheaper lawbots take over seems the perfect solution for small businesses. “Mobile communication combined with digital technology is helping close the gap between lawyers and SMEs,” Shay continues. However, can artificial intelligence (AI) really offer better service than someone with years of legal experience?
It will come as no surprise that fintech, regtech and all the other abhorrent abbreviations with the word tech in them didn’t exist in entrepreneurial vocabulary until at least the birth of the internet. However, legal tech was even slower to the race than most thanks to the archaic industry it challenges. “There are plenty of lawyers that like the old way and official way of doing things,” explains Nicholas d’Adhemar, founder and CEO of Apperio, the legal tech scaleup. Indeed, 66% of consumers say law firms don’t even offer basic digital communications such as video conferencing and instant messaging, according to Olive Communications, the cloud communications provider. And solicitors are feeling the heat – the same study noted that 66% of legal firms worry they aren’t keeping up with the digital revolution. “Law firms tend to have pretty antiquated technology,” d’Adhemar continues.
So it’s no wonder why consumer demand is turning the tide, especially when you consider how legal tech provides clarity to clients about what they’re paying for when law firms hold all the cards. “Fundamentally, the law firms have a lot more information than their clients who are paying the bills do,” d’Adhemar says. “All of the pre-bill information, all of the work as it’s happening – we’re able to provide a real-time view of that legal spend to clients as it builds up.”
Considering how businesses would happily rid themselves of bureaucracy, it’s hardly a secret why 87% of legal tech startups focus on serving businesses rather than individuals, according to Reuters. “When it comes to dealing with businesses, our communications preferences are based on convenience, speed and generally wanting to focus on the outcome and not the process,” says James Woodall, CTO of Intoware, the software company. Indeed, seven in ten consumers would choose a lawbot over a lawyer to save cost, time and complexity, with 56% willing to splash out more for a faster resolution, according to research by Olive Communications. For companies, there can be plenty of inefficiencies to make that an option. “Issues around document retention, audit trails and compliance mean that paperwork is often duplicated online and offline – which is hugely inefficient, expensive and wasteful,” Woodall continues.
Demand for solutions isn’t going unnoticed. For instance, Barclays has joined forces with the Law Society to unveil several Eagle Labs – incubators for legal tech startups that can be found in Notting Hill, Manchester and Salford. And investors are increasingly noticing the potential of the sector too. For instance, by June 2017 the sector had raised $6.8m in VC investments – nearly already outdoing 2016’s $8.3m total, according to Reuters. “I think in the coming years there will be a number of VC [firms] monitoring legal tech’s progress,” d’Adhemar says.
However, despite funding increasing, legal tech is still an emerging sector compared to other tech sectors, which has yet to attract as much investor attention as other industries. “The number of companies coming through that have the adoption and the revenue to justify an investor to put money in at a series A level are comparatively few compared to the fintech world,” d’Adhemar explains. Seeing as between 2016 and 2017 the sector reached £16m total in VC funding reveals Reuters, it’s clearly yet to blow minds. Especially considering the entire legal services market commands £25.7bn each year according to the Law Society. “It’ll take a few years for startups to funnel through and have the capital,” d’Adhemar admits.
Low funding means the gear legal tech sports is yet to see its full potential. “Lawbots can capture routine biographical information, which almost all legal processes require but where a client is at a disadvantage is when they have to describe something, such as the circumstances of a specific event,” says Michael Hanley, partner at Wilson Solicitors, the law firm. Moreover, while utilising legal tech works out cheaper for clients, it’s not the same story when it comes to creating and updating it. “There’s a relatively significant investment required,” d’Adhemar says. “You can build a nice looking piece of tech but actually you’ve got to invest time and money into the security side of it, otherwise it’s never going to be adopted and get off the ground.”
Although at an embryonic stage legal tech has already shown signs of evolving, such as through its AI advancements. “I think a year or two ago [legal tech] reached peak AI height,” d’Adhemar recalls. And the sector’s leaps are gradually modernising a traditionalist legal industry. “A lot of law firms in particular were falling over themselves to adopt the latest AI solution,” d’Adhemar continues.
However, even if legal tech one day spawns cyborg lawyers, this sector’s fundamentally designed to assist rather than replace. “There’s no substitute to speaking with a fellow human so to speak,” d’Adhemar concludes. “But what I think you can do is free up lawyers so they can actually provide the opinion they’ve been trained to provide.”