What is legaltech?
Although most lawyers and aspiring lawyers have most certainly heard about the term ‘legal tech’ in the past few years, many often do not understand what it really entails. More and more firms continue to talk about the idea of ‘legaltech’ and innovation at their insight events, and many firms (such as Herbert Smith Freehills) even ask about the applicant’s coding abilities as a part of their application process. This article is a brief introduction to what legal tech is, what is the legal tech market environment like in the UK and what are some of the ‘big players’.
What is legaltech?
Legaltech, much like fintech or healthtech, is a simple way to refer to the use of modern technology within legal services. Lawtech generally covers a wide range of uses of technology such as smart contracts, document automation, legal open-sourcing, online legal guidance, risk management, AI-based problem solving and many more.
One of the most prominent authors specialising in legal technology is Richard Susskind, who has focused on the problematics of technological disruption within the legal sector in most of his works since the 1980s. Susskind, in his book ‘Tomorrow’s Lawyers’, managed to emphasize the overwhelming growth and importance of IT very well: “… every two days, according to Google’s Eric Schmimdt, we create as much information as we did from the dawn of civilisation up until 2003.” Not only does technology evolve in such an exponential way, but it is obvious that no sector, including the legal one, will be able to dodge its impact.
Despite the term ‘technology disruption’ being often viewed negatively, I believe most legal scholars and professionals refer to the term in a rather ‘positive’ manner; rather than the often feared perception of loss of jobs as a result of technological advancement, it is the belief that legal businesses and their traditional practice will be forced to undergo a massive restructuring, often for their own benefit. It is inevitable that technology development, mainly automation, will result in job displacement in multiple sectors (i.e. as is already the case with manufacturing jobs), but the legal sector is one of the sectors which is more likely to reap the benefits of innovation, rather than being damaged by it. After all, the simple nature of human-lawyer/human-client relationship is unlikely to be replaced for a long time to come by artificial or ‘robot’ lawyers.
Additionally, it is important to note that many of the emerging businesses are becoming considerably dependent on technology, as their platform and business practise revolves around mainly around it. It, therefore, makes sense that understanding what kind of technology stands at the core of a client’s business practice will drastically improve the relationships between lawyers and their clients. The same way commercial lawyers are now expected to be ‘commercially aware’, it might be soon that clients start expecting lawyers to understand not only what their business does, but how exactly does it do that.
Growth of legaltech in the UK
The popularity of legal tech funding worldwide has drastically increased in the past two years. A 2019 Legaltech Startup Report produced by Thomson Reuters and Legal Geek showed that in 2018 alone, U.K. legaltech startups received around £61m from external investors, nearly a triple the amount raised in 2017.
Without a doubt, the UK has become the dominant startup and tech hub of Europe, with UK legaltech startups making 44% of all European legaltech startups. Multiple indexes, such as the 2016 European Digital City Index and the Tech Scaleup Europe Index 2019, rank London in the first place as Europe’s friendliest environment for the emergence of new startups and scaleups. Moreover, the UK has the largest availability of venture capital (VC) among all European countries; the UK has received over £10 billion in VC investments in 2019, more than France and Germany combined.
Among the UK-based leaders of the legal tech sector in the UK at the moment are Tessian and Luminance. Tessian, founded in 2013, has raised £10.4m in Series A funding (the first round of venture capital financing) in 2018, and £32m in Series B funding in 2019.
Firms like Dentons, Clifford & Chance, Hill Dickinson or Clyde & Co have adopted some of Tessian’s services, the main being the use of machine learning to prevent misdirected emails and spear phishing (the practice of sending emails to persuade targeted individuals to reveal sensitive information).
The table below shows that more of the UK’s top firms are adopting the use of Tessian. The other two notable players are Canada’s Kira Systems and UK’s Luminance, implementing machine learning to help lawyers analyse contracts and other documents, which received £8m in funding in a Series B round (one of Luminance’s leading investors and collaborators on the project is Slaughter and May).
“The speed at which the legaltech market is maturing is evidence both of demand for these products and the quality of the support infrastructure in place for startups. Investors from across the world have clearly spotted the growth potential.”Jim Leason, vice president, customer markets at Thomson Reuters (source)
The respective uses of the top 10 most significant legaltech startups within the UK will be discussed in a separate article next week.