The first panel at our recent Evolve Law Summit brought together an expert panel on the topics of venture capital and angel investment. The panel was able to offer their own insights on what they look for in legal tech companies when they are looking to invest.
When investors are looking at investment opportunities, there are a number of different things that they can consider when deciding if they want to invest. For legal tech companies, what problems are their products solving, and is it an elegant solution? Is the product marketable to a large enough audience, whatever the audience might be? Does the company have a good team in place who are able to support the product and are willing to learn and do the hard work that is required in selling to law firms and lawyers? It is all well and good to have a great idea, but successful companies need to have the right process in place to make, market and sell their product in order to impress investors. Perhaps most important, legal tech entrepreneurs need to consider what they do differently and what they can offer to a lawyer in order to improve their practice.
Many entrepreneurs can make the mistake of trying to do too much too early in the life of their business. It's great to have ambitions to automate and improve multiple facets of the practice of law, but it's not realistic to try and tackle all of that, especially in the early days of your business. Investors are looking for legal tech companies that have focused and mastered one core competency, rather than trying to be a jack of all trades.
Also underappreciated is the time and effort and patience needed to sell into law firms. The challenge of selling to a law firm is the locked-down nature of law firms, and the bigger the firm is, the harder it is to get anything implemented. While bigger firms might have a more established purchasing procedure than small or medium firms, the number of stakeholders and decision makers means a longer, drawn out process, and if they do buy into legal tech, bigger firms are generally going to go with more established companies. The different sizes and types of law firms are going ot require different strategies, so don't be afraid to try different things or to reach out to different people to make inroads on the sales process.
When it comes to exit strategies, the approach you take can depend upon the type of investment you've taken, and the goals you have for your business. If you have angel investors that are due a certain percentage of return on their investment, your outlook and approach might require a longer view towards continuing to grow than if you're closer to hitting your mark for an exit. And not every entrepreneur is looking to make an exit — many entrepreneurs go into business for themselves because they grew tired or frustrated by their previous career path, and they wanted to create and wanted to create their own company where they could determine the course and culture. Investors need to know that you plan to exit eventually, or are willing to take a minority share, if they are to invest in your business.