Recently I had the pleasure of delivering my feisty co-founder’s Investment in Legal Tech Darwin Talk in Toronto, Canada. As I was preparing, I thought how much other legal tech startups could benefit from hearing about some recent fundraising efforts. I reached out to Evolve Law members who have raised capital and added in my Traklight experience.
When was your last round and how much did you raise in what type of round?
Contactually: Last round was $8M Series A in the fall of 2014.
Ebrevia: We raised a $1.5 million seed round in November 2014. We have raised $2 million in total.
Hire an Esquire: Hire an Esquire is in the midst of a round and therefore could not share.
PactSafe: Our last round was a seed round of $1.2M.
Traklight: $435K seed round from individual angels in NYC and Boston in 2014.
Any challenges to being in the Legal Tech space?
Contactually: We are largely vertical-agnostic. From Day 1 we built Contactually to help people build personal, authentic relationships with the people that matter most to their business. We sell across all the professional service verticals: consultant, financial advisor, realtor, or a lawyer. The biggest challenge we face is better understanding the legal space so we can best describe how Contactually can meet the needs of a lawyer, and our team can set each lawyer up for success on Contactually during their coaching call. We’ve been doing a lot of research and due diligence to make that happen.
Hire an Esquire: Investors are cautious of investing in the legal space because of the industry’s extreme resistance to change and the brutal sales cycle (for enterprise legal products).
PactSafe: In terms of fundraising, we occasionally will get some pushback from investors regarding the historical challenge of selling legaltech to lawyers. We’ve tried to position our product as a business process automation tool that has benefits to a business as a whole – not just its legal team. That positioning has allowed most investors to see us as more than just “legaltech” even though are solution strives to remove friction from the contracting process (a very “legaltech” thing).
Traklight: We are not exclusively in the legaltech space but we did have some potential investors reach out to the wrong type of attorney (litigation rather than transactional) and of course, they did not see our value proposition. We also focused on non-attorney sales for our revenue projections.
Did you raise money from attorneys? Any particular challenges?
Contactually: Nope. Many of our previous investors (largely angel investors and a couple small funds) reinvested in this round. We also brought two additional VC firms: Grotech and Rally Ventures.
Ebrevia: Our investors include attorneys though the majority are not. The fact that the attorneys have experienced firsthand the pain points our contract analytics software address was an important element in their decision to invest. It is not uncommon for an attorney user at one of our clients or who has seen a demo to inquire about investing.
Hire an Esquire: We have attorneys as angel investors who are incredibly enthusiastic about our mission. Our attorney investors have been key for sales introductions as well as building our community of attorneys. One challenge with attorneys in the fundraising process is that VCs will call an attorney they know to vet a legal tech product. Often their attorney friend has no insight into the firms business operations or tech and will insist lawyers or their firm will never use it. We’ve had lawyers provide this feedback not realizing their law firm was our client.
PactSafe did not raise any money from attorneys.
Traklight: We do have several attorney angel investors and the level of due diligence was higher among those investors.
One tip for fundraising for other legal tech startups
Contactually: Investors wanted to see a big vision, great team, and significant traction. Demonstrating those three elements is key for any company raising money.
Ebrevia: If your product is going to be sold to law firms or in-house legal departments, it is important to have a balanced team with both legal industry and technical expertise.
Hire an Esquire: If you are selling into law firms, start selling and building brand recognition and relationships immediately— even before your product is released. Plan for at least 12-18 months of consistent follow up and relationship building to socialize the idea of your company and product since law firms are hesitant to implement or try anything without trust and track record.
PactSafe: Don’t narrowly and bluntly label yourself as just a legaletch business. Focus on the business value of your solution, and assess your market and positioning from there.
Traklight: Agree with PactSafe, if you have other markets discuss those with potential investors. We had a lawyer, who did not invest, scare other potential investors by bringing up the unauthorized practice of law (UPL). Of course our software is just an issue spotter and not a replacement for an attorney – this just added more work to fundraising. I would be upfront about issues like UPL when fundraising.
Bottom line is that sales revenue can be the best option for LegalTech companies after bootstrapping or friends and family round. Thank you again to Julia Shapiro of Hire an Esquire; Ned Gannon of Ebrevia, Tony Cappaert of Contactually, and Brian Powers of PactSafe for sharing. Any Evolve Law members interested in guest blogging for us, please reach out at email@example.com.