It’s been a wild ride the last couple of years, but what should we be looking out for as we move into the Autumn of 2022? Here are some thoughts from Artificial Lawyer.
Conferences and More
First, the autumn is also legal tech conference season in the UK, although some have been moved forwards into September, rather than taking place in October. For example, Legal Geek will be on 28/29 September for a change.
Meanwhile, Artificial Lawyer’s Legal Innovators two-day conference in London has gone the other way, and will take place on 10/11 November. Day One: law firms and ALSPs, and Day Two: inhouse and legal ops. (Tickets and information here.)
And there is also CLOC’s legal ops summit in London on 10 October, which I am very much looking forward to attending as well. If there is one area where we are seeing ‘green shoots’ of exploration and change, then it’s inhouse, which seems to have been turbo-charged in the last couple of years by the opportunities to improve contracting.
Over in the US on 9 October you also have the American Legal Technology Awards gala and award ceremony for the winners this year, which will be in Tennessee, if you fancy flying over for that.
Meanwhile the European Legal Technology Association (ELTA) is holding its annual conference in Israel this year, on 29 November. Meanwhile, one of my personal favourites, Nordic Legal Tech Day, will this year be held in Helsinki, Finland, on 17 November, and I’ll be there as a speaker.
And then, well, it’s the run down to Christmas, which reminds me of one housekeeping point for all of Artificial Lawyer’s advertisers: please make sure to use any campaigns, such as adverts and sponsored articles, that you have booked before the end of December 2022, as everything starts afresh in 2023 and nothing can be carried over to the New Year.
One last thing. Even though it’s still some time away, we are just starting to put together our June 2023 Legal Innovators California conference, which once again and after a very successful inaugural event, will be in San Francisco. Looking forward to that one as well!
Macro Market Changes
So, that’s the housekeeping done. What about the legal tech market? Well, it’s a strange time at the moment. Below are some key factors to consider:
- The pandemic didn’t kill off legal work as expected, it multiplied it like bacteria in a petri dish. We saw a surge of M&A and IPO activity over the last two years, and plenty more. This has kept everyone very busy and the larger commercial law firms have been overflowing with revenue and profits. Now, you might think that would translate into an equally massive rise in legal tech spending to match, but it didn’t. What we got was a healthy uplift – but which is really just part of a longer-term trajectory of law firms and inhouse teams (driven by a surge of interest in improving contracting processes e.g. via CLM systems) spending more on legal tech.
- Now, we have a dropping off of activity. There appears to be less M&A deals (outside of the legal tech world….see below for that), the financial markets also seem to have lost their mojo. Meanwhile the world’s largest economies can’t quite decide if they’re going to have a full-on recession or not. It’s like one of those gigantic sneezes that seems to bottle up a ton of pressure inside your sinuses, but then it can’t figure out what to do next and just sits there, not sure whether to dissipate or come charging out causing an almighty mess. And yet…..as with the surge in law firm activity, unless we are heading for another 2008 ‘on the brink of a systemic banking collapse’ moment – which seems very unlikely – then these economic doldrums don’t seem to be affecting the legal tech world (aside from in terms of funding….which may then drive more mergers….but that’s another matter….see below).
- The weird thing is that although one could argue the Western world has never been so fragile in so many ways, but when it comes to legal tech adoption the outlook has never been better: there are more lawyers on a global scale; growing inhouse teams that want more innovation to handle process; more awareness of how tech tools can support the work of lawyers in general – whether that’s data gathering and KM insights, speeding process activities, or a dozen other areas. If I was a betting type of person (and I’m not…which is perhaps why cryptocurrencies give me the heebie-jeebies) and had to pick from a basket just one software area to invest in because I believed that one had a really good long-term future, then it would be legal tech – hands down, no competition. It seems an absolute impossibility that tech tools for lawyers will not grow in use overall on a global scale over the long-term. It’s like predicting the growth of personal computers in the mid-1980s, i.e. it’s happening and there’s not much that can stop it from happening – albeit it will be a much more incremental journey….as is often the case with legal tech.
- However, that the market is steadily growing does not mean it’s plain-sailing for tech companies. An ever-growing market means your competitors keep growing. The total addressable market for some tools aimed at large commercial law firms is actually quite tight, while even if you can sell to smaller firms the cost of sales is a barrier. So, steady sector-wide growth is – I believe – a certainty. But, it’s not going to make life suddenly easier for legal tech companies. If anything the battle for market share, from CLM companies selling to Fortune 500 giants, to NLP due diligence doc review players selling to the 100 or so large commercial law firms that will really get some mileage from such technology, to the literally dozens of doc automation companies, to even the battle between the giant legal research companies and their growing rivals….it is all only going to get fiercer.
- Why will it get fiercer? Because there is more to play for and even if the customer wallet is slowly enlarging, there is only so much of it to go around. (Plus the larger tech companies get, the more of that wallet they need to survive.) Moreover, as explored below, because some of these companies are running on VC rocket fuel – which if not topped up will run out – many VCs will favour those that can show the greatest revenue creation, especially once they get past Series A. Other companies are owned by private equity funds, which are not famous for having a charitable view of anaemic growth after they’ve coughed up $10,000,000s for a company. And, for those that are now public….well, as this site has explored, stock market analysts are about as sentimental as a rusty meat grinder when it comes to missed growth targets. One could argue that there has never been more pressure on legal tech companies to drive growth – and that’s because there has been so much investment into the sector.
- So, law firms’ activity rises and falls, but legal tech marches on. But it marches unto battle, not to the sunny uplands of ease and leisure. Yet, the prize is only growing larger.
The Funding Crunch and M&A
As explored, the funding crunch is real and here. And as noted above, if you live on the succulent nectar of VC rocket fuel it is indeed glorious when you watch it drive you forwards – but equally terrifying when you realise the rocket ship is coming back under the painful effects of gravity as the fuel dries up and few VCs are willing to top up your (now much larger) fuel tank.
That may in turn drive more M&A. Large companies with PE funds standing behind them, such as Litera and Hg, can do plenty – at least with legal tech startups and scaleups. So too can a small, but notable group of other companies with sufficient cash. Whether it’s Thomson Reuters, LexisNexis, or a PE-backed conglomerate, there are plenty of buyers out there who may see the current market as something of an ‘All You Can Eat’ M&A buffet.
Which then leads to the next point: how will this impact the buyers? Here’s some thoughts:
- Law firms don’t want to invest their innovation team’s time into companies that may not be around in 12 months. So, sending out a message you will still be here can help. Even better, make sure you are still here in 12 months by clocking up a lot more revenue. (Easier said than done, for sure, but revenue is reality, funding can easily become fantasy.)
- Law firms also have told this site over several years that they like to pick and choose their tools they buy. They don’t want all-in-one packages. Law firms are like independent backpackers who with a copy of a Lonely Planet guidebook wish to find their own way around the world, rather than like package holiday types heading for an all-inclusive week by the hotel pool in Benidorm, or on a super-organised, Saga Holidays boat cruise down the Rhine that you are not allowed to get off. Which means, that while being able to offer a firm, or inhouse team, a curated collection of products can be helpful (hence this site’s support for legal tech consortia), they don’t necessarily want to buy the entire catalogue, or feel they are tied into a deal where integration with their existing tech will be tricky. They want to pick and choose and have interoperability. That is the key. So, lots of consolidation is not necessarily a boon for the clients. Much depends on how those consolidated pieces are then sold and provided. Remember: discerning buyers of legal tech will always want to make their own choices. Forget that at your own peril.
What Else to Look Out For
- Work/life balance is about to enter an ‘interesting phase’. If law firms are stealth sacking people, i.e. letting associate attrition go back to usual rates after holding onto staff during the recent surge – in short, they want more people to leave – then does work/life still rank as an issue for managers? If you are a stone-cold cynic you may say: no. If you think longer-term then you may say: yes, 100%, because do you only want people who work like maniacs and can secure the firm the hours it wanted, or do you want people with broader talents who in time will become the future of the firm’s partnership…or for that matter the senior inhouse counsel of the legal team at a corporate? So much to explore here. But TL/DR version is: downturns should not be an excuse to dump work/life balance plans.
- Web3 and blockchain – There are some really excellent legal blockchain-based projects out there and they work well for very specific use cases. Blockchain, rather like automatic bread makers or curling tongues, has its uses, but to assume that it’s the beginning of a whole new world is a little bit over the top. So, Web3 is really just a projection of what could be, rather than what will be. If you are interested in legal blockchain, then check out companies such as iDefendo and Toca, which both seem quite sensible and are focused on real world use cases. But remember: think bread makers and narrow use cases. (P.S. crypto is really a side issue to all of this, NFTs are equally limited in use case scope for legal, and as explored before complex ‘smart contracts’ the likes of which a lawyer would recognise have still not taken off.)
- Metaverse – please, no. Sorry, but this is a ridiculous waste of time. If you can pick up a phone or use Zoom, then why do you need to use a virtual dimension to say: ‘Hi, could you maybe amend para 3 on page 27 where the bit about indemnities doesn’t match our playbook?’ You don’t need to play Second Life (v.2) to communicate this.
- What else….er….more cloud stuff…..all moving along very slowly, but there will be more of it. Kind of surprising on one level that this is even a subject of discussion. But it is.
- More CLM….of course. Goes without saying. And it’s all for the good, as the more inhouse lawyers think about legal data, process, and efficiency, with perhaps CLM implementation acting as the catalyst then the better.
- Standards will keep on chugging along and will keep meeting natural barriers within the legal world – but they are worthwhile and we need to keep pushing ahead, just also need to be able to navigate those barriers without it turning into an ideological battle. Check out the new Legal Standards Monitor, if you’re interested in this area.
- And Artificial Lawyer will keep increasing its focus on a more human-centric approach to the benefits of legal technology. One could call this perhaps the ‘Post-Legal Industrialist’ approach. But more on that soon.
- Er….I think that’s about it really. Did I mention it’s almost Christmas…?
Overall, there is so much happening in this field, but there are also a lot of diversions that don’t add much to the overall game. We need to stay focused on what really creates new value within the legal value chain, and that is a project that will go on for many decades to come.
Each year we can only do our best to move things forward and help the legal world evolve in new and exciting ways. And if we are doing this, it’s all because of you – the readers of Artificial Lawyer who are working night and day to drive legal innovation forwards. So, a big thank you to you all for doing that!
Have a great autumn everyone and hope to see you at one of the upcoming events this year – and especially at Legal Innovators in London, Nov 10 and 11.
Richard Tromans, Founder, Artificial Lawyer, September 2022.
Legal Innovators UK Conference – London, November 10 + 11
If you found the topics covered in this article of interest then come along to the landmark two-day legal innovation conference in London. Day One: Law Firms and ALSPs, Day Two: Inhouse and Legal Ops. We have a fantastic line-up of speakers from across the legal and legal tech ecosystems for this event focused on learning, sharing and networking. See you there!