Venture Capital Investments in Legal Services

Volume 39 Number 4

By

About the Author

Mary E. Vandenack is a founding and managing partner of Parsonage Vandenack Williams, an Omaha, Neb., tax, business, estate planning and health care law firm. She would like to acknowledge the research support of the firm’s law clerk, Jeffrey McGuire. 

Law Practice Magazine | July/August 2013 | The Big Ideas Issue

“The early 2000s witnessed an initial period of venture capital investments into legal service enterprises. Although most of these early undertakings fell by the wayside in the dot-com bust, there are some, including USLAW Network, Inc., MyLawyer.com and TheLaw.com, that continue today."

Recently there’s been another round of venture capital investments into legal service providers that have encompassed services provided directly to consumers as well as services provided to lawyers and law firms. Venture capital investment into the legal industry has created more choices for lawyers and for consumers.

Services that are provided directly to the public can compete with law firms, so lawyers and law firms are best served by paying close attention to these trends. That venture capitalists are investing significant sums in legal services is an important statement. Remaining competitive in a changing legal market requires adjusting services, and their delivery, to reflect the current state of that market.

Venture capitalists are continuing to invest in a variety of legal services, and I discuss some key examples from the past few years below.

SOFTWARE AS A SERVICE PROVIDERS

Software as a service (SaaS) is a software delivery model that involves access to software via the Web. SaaS has become a common delivery method, and its advantages include automatic and continuous updates, ease of collaboration, compatibility and a reduced need for hardware owned by the user.

Total Attorneys is a Chicago-based company whose mission is to be a comprehensive solution for solos and small law firms. Total Attorneys is best known for its marketing software, but also supports lawyers with a suite of case management tools, billing software, document management and collaboration services.

Total Attorneys was founded by Ed Scanlan in 2002 and received an infusion of venture capital from BIA Digital Partners, a Virginia-based venture capital firm, in 2010.

A practice management system manages all aspects of the legal practice, from intake to invoicing. Numerous options are available to lawyers and law firms. Clio offers a cloud-based practice management system that is particularly popular with small law firms. The service includes project management tools, secure storage, billing and collaboration solutions.

Clio was founded by Jack Newton and Rian Gauvreau in 2007 and received an infusion of $6 million of venture capital through Acton Capital Partners and Point Nine Capital in 2012.

DOCUMENT SERVICES

Automated services that provide documents directly to consumers are a growing trend and an area that is attracting the interest of investors. LegalZoom.com was one of the well-known and early competitors in this market. LegalZoom was slated for an initial public offering in the fall of 2012 but withdrew the offering the day before it was scheduled.

A recent recipient of venture capital investment in this area is DocRun, which is a document service that provides legal documents primarily for entity formation and business issues. DocRun’s website suggests that consumers can “save costly legal fees” by using its services.

DocRun was founded by Jennifer Reuting, who also founded InCorp.com (one of the top registered agent services) and MyLLC.com. In 2012 DocRun received an infusion of venture capital through Resolute.VC and Kima Ventures.

Another document provider is Rocket Lawyer, which provides legal forms to businesses and families. Rocket Lawyer offers forms for almost every legal topic. Consumers pay a monthly fee for access to documents and other services. Rocket Lawyer was founded in 2008 by Charley Moore. It received $30 million in funding from Google Ventures in 2012 as well as various other investments.

CROWDSOURCING

Crowdsourcing is a phrase used to refer to soliciting problem-solving from a large group. With the evolution of the Internet, crowdsourcing is often accomplished via an online community.

LawPivot is a question-and-answer service for legal issues that brings together primarily start-up companies short on cash with lawyers. Customers can visit the website and ask questions on entity structure issues, trademark issues and basically any business issue that might arise. Customers can currently ask a certain number of questions per month for free, or pay a monthly subscription fee for additional questions. LawPivot maintains a roster of lawyers to answer the questions posed on the website. Those lawyers don’t get paid for responding to questions but do get leads.

LawPivot was cofounded by Jay Mandal, the former lead mergers and acquisitions attorney for Apple. LawPivot received venture capital investment in 2011 through Google Ventures. It was recently acquired by Rocket Lawyer.

NICHE PROVIDERS

Niche providers are receiving attention from venture capital investors. One example is Clearpath, which offers an online solution for the immigration process. Consumers are guided through the forms needed to seek citizenship. Clearpath was founded in 2008 by Michael J. Petrucelli, former acting and deputy director of the U.S. Citizenship and Immigration Services. Start-up funds were provided by ff Venture Capital.

Daylight Forensic & Advisory was initially a niche service providing forensic services and investigations as support to dispute resolution and litigation. It has received significant investments of venture capital. In 2010, Daylight Forensic & Advisory became a part of Navigant Consulting, a global experts service with various specialty areas.         

E-DISCOVERY

E-discovery refers to the exchange of information in civil lawsuits by electronic means. E-discovery service providers have evolved quickly.

Catalyst is an e-discovery firm that provides a cloud-based e-discovery solution. Catalyst partners with other litigation support vendors to provide a complete solution. Catalyst was founded by John Tredennick, a former oil and gas litigation attorney. It recently received $32 million in venture capital funding from FTV Capital.

UnitedLex is another provider in the e-discovery arena that has received venture capital investment. In addition to e-discovery services, UnitedLex offers document review, intellectual property and law firm support services.

The CEO of UnitedLex is Daniel Reed, who brought to UnitedLex a background that included financial, legal, technology and venture capital. UnitedLex has received venture capital investment from Helion Venture Partners and Canaan Partners.

WHAT THIS MEANS FOR LAWYERS

Lawyers will still be needed. Lawyers will not be replaced by online legal services, but the services provided by lawyers, and how they are delivered, will change. As online legal services evolve, it is possible to form an entity and get a basic trust online. Indeed, a consumer may be able to obtain a dynasty trust online, but a properly crafted dynasty trust involves considerations that require a lawyer. Lawyers bring experience and expertise that cannot be readily replaced. Lawyers also facilitate discussion and assist clients in identifying what they really need, which is not always the same as what they think they are seeking.

Consider providing information via well-designed, consumer-friendly websites. Free information is readily available over the Internet. Up-to-date and accurate information is less available. Law firms should make accurate and timely information available to consumers online. While providing good information at no cost helps establish you as an expert, the information does not have to be completely free (or always free). One model is to provide limited information with no login and at no cost, and more detailed information with a login and a charge for nonclients. Another option is to develop a knowledge management system that is available to clients for a fee. These services connect clients to you. In addition, when the client communicates with you, the client who has read materials has prepared for the conversation with you. That process can help reduce client costs, resulting in happier clients who are more willing to call.

Evaluate which services you provide that may become commodities. Evaluate your practice. Determine which services are most likely to become commodities. Let go of the idea that only a lawyer can properly put an entity together. Accept that clients are forming entities online, unadvised, every day. Focus on building services that are less likely to become commodities. As to those services that may become commodities, focus on how you can add to or offer alternative or additional services that create more value.

Compete on commodity legal services. The fact that some services will become commodities does not mean that you should quit providing them. Convert them into loss leaders. Online document services do not replace full-service and fact-specific legal advice to clients. Automate services such as entity formation, employment policies and powers of attorney. Any service you provide regularly is a candidate for automation. Instead of spending an hour explaining the ins and outs of health care directives for the thousandth time, make a video and put the video on your website. Let the video replace your hour and reduce the cost of the service. Create client intake forms that can be filled out by clients in the middle of the night and emailed to you or dropped into an automated document assembly program. Bundle the legal documents with personal attention and full service. Market the review of an operating agreement created for a limited liability company and that you provide comments on issues specific to the client’s business. Develop advisory letters to provide with your documents that inform clients on related issues and considerations.

Evaluate the way you deliver legal services. Are you still using a Dictaphone? Do you still have a secretary? Do you still have files in your office? Is practice management accomplished with a pad and a pencil? Are you still backing up files only within the same office? Are you still billing all services by the hour? Today’s clients expect Web-based services, availability and quick turnaround times. Even older clients expect Web-based services. Reevaluate the purpose of your website and how it is used. Reevaluate your software. Consider whether any of the services designed for lawyers can help you improve the delivery and cost-effectiveness of your services. Definitely review your billing practices.

Build your own legal service with venture capital. Perhaps you have been frustrated with the legal delivery systems to which you have been exposed and have an idea as to how to facilitate change in some area of legal delivery. Maybe you have a niche practice area that no one has automated yet. Your idea could be the next idea that venture capitalists will want to support. An automated legal services business could be a great supplement to standard legal services income.

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