Summary List PlacementThe legal tech market isn't just disrupting the way law firms do their work — it's also shaking up the way investments and acquisitions are made.
Although traditional investors like venture capitalists and private equity funds are still pouring in money into the space, more legal tech companies themselves are taking on the mantle of strategic investors as they look to grow their businesses.
E-signature and agreements platform DocuSign, for example, participated in the $3.2 million funding round for BlackBoiler, an AI-powered contracts review software, in October.
"When you look at players like DocuSign, you're seeing the definition of what constitutes a strategic investor in the legal market expanding," said Scott Mozarsky, a managing director at investment bank JEGI. "People need to do it in order to differentiate themselves, and the quickest way to do that is to acquire."
Read more: Legal-tech startups are catching the eye of DocuSign and other big strategic investors. These 21 deals showcase how a huge consolidation wave is underway.
Demand for legal tech has only spiked with remote work amid the coronavirus pandemic, and strategic investors are responding accordingly. "Since we can't do everything ourselves to deliver on what our customers need, we're more open to partnering than ever before," said the CEO and cofounder of Rocket Lawyer, Charley Moore.
Business Insider spoke with five legal tech companies about their acquisition strategies for growth. Here's an inside look into what they look for in a startup:SEE ALSO: Legal-tech startups are catching the eye of DocuSign and other big strategic investors. These 21 deals showcase how a huge consolidation wave is underway.
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Acquisitions: Liveoak Technologies, Seal Software, SpringCM
Investments: BlackBoiler, Clause.io, Pactum
E-signature and cloud agreement company, DocuSign, has been making waves with its investments and acquisitions, including participating in the recent $3.2 million funding round of BlackBoiler, a contract-editing startup.
"Whether we build, buy, or partner, DocuSign is always looking at the best technology to simplify and accelerate the process for managing the agreement process — whether specifically in legal technology, or further afield," explained Jim Wagner, vice president of agreement cloud strategy at DocuSign.
DocuSign's strategic investments and acquisitions are aimed toward doubling down on the space it currently dominates: agreements.
Seal Software, for instance, which it acquired for $188 million in May this year, uses AI to extract and analyze data in contracts, while SpringCM, acquired in September 2018 for $220 million, generates documents, stores them in the cloud, and manages contract lifecycle processes.
Wagner added that most of their investments and acquisitions are built upon existing partnerships. For example, prior to its July 2020 acquisition of Liveoak Technologies, DocuSign had already integrated its e-signature technologies with Liveoak's agreement-collaboration platform.
With the acquisition, Wagner said that it's now able to accelerate the launch of DocuSign eNotary, its remote online notarization offering — especially timely given the pandemic.
Read more: Check out the 14-page pitch deck that a contract-editing startup used to nab $3.2 million from investors including DocuSign
Acquisitions: TyMetrix, Datacert, Legisway, CLM Matrix, Vcorp Services, Enablon, Triad Professional Services, Effacts, National Registered Agents, Inc.
Wolters Kluwer is one of the biggest investors across various industries, offering information and software solutions for sectors ranging from health and finance to legal and compliance. The company has four businesses focused on legal tech, which themselves were grown out of a series of strategic acquisitions, according to Jonah Paransky, executive vice president of Wolters Kluwer's enterprise legal management (ELM) group.
Wolters Kluwer's business model can be summed up as "a combination of investment of organic development and strategic acquisitions," said Paransky.
The group he heads, ELM Solutions, was formed with the 2014 acquisition of TyMetrix, an e-billing and legal matter management software. It then bought another enterprise legal management platform, Datacert, the same year, to boost its existing offerings, before deciding to enter the contract lifecycle management space with the acquisition of CLM Matrix, a contract software, in 2019.
When eyeing a new market, Paransky said that he considers Wolters Kluwer's level of experience, customer base, and the competitiveness of that market.
"We decided to acquire CLM Matrix because we had less organic experience in that space," explained Paransky. "And so we believed we needed to learn the market through an existing company with a strong base of customers and tried-and-true technology."
There are three things that Paransky looks for in a good company. The first is that it offers a "differentiated value for their customers." The second, strong financial management, and the third, cultural fit.
"We're seeing significant growth in the legal tech market," Paransky said. "It's a very exciting time for growth."
Though it's only acquired one company so far, Clio, a cloud-based software platform that helps law firms manage cases and client relationships, has long actively integrated its platform with the technologies of other, smaller companies, explained Jack Newton, Clio's CEO and cofounder.
Its acquisition of Lexicata in October 2018, in fact, was borne out of an "integration partnership" with Clio. Lexicata, a client intake solution, already offered a "value-add extension" of Clio's offerings, all of which are primarily aimed toward boosting law firms' client relationship management. Given the synergies — including hundreds of shared customers and a shared central tenet — "it made acquiring them a very natural next step," said Newton.
"With integration ecosystems, you have different kinds of value propositions, and we want a company that integrates but also offers a different kind of function that adds to Clio's platform," Newton added. Prior to acquiring Lexicata, Clio didn't have a client intake product, which automates and organizes new clients' information. In 2020, over 20% of new revenue at Clio has come from Grow (which Lexicata has been renamed), according to the company.
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Newton said that Clio has chosen not to make equity investments in other companies because it realized there's a lot of "administrative overhead" to owning equity stakes in numerous smaller startups. Instead, Clio uses the $1 million investment fund it set up a few years ago in initiatives like its annual Launch//Code Developers Competition. The "Shark Tank-like" competition is aimed "to drive innovation on the Clio platform, and provides a $100,000 prize to the winning legal tech startup.
Clio "absolutely" plans on further expanding its "integration ecosystem," said Newton. "It still feels like we're in early days on that front, but there are so many exciting opportunities for technology to be applied to help lawyers be more productive and deliver a better client experience. It's more than any one company can do, and we'll need a whole army of companies to drive that innovation forward."
Acquisitions: Advanced Productivity Software, The Frayman Group, Rekoop, DealCloud, Gwabbit, OnePlace
Intapp is a firm management system that provides companies with end-to-end business products, from timekeeping to conflicts review. The company has made a series of acquisitions over the years to expand its reach from the legal sector into other industries like finance and marketing, said Thad Jampol, the legal tech company's cofounder and chief product officer.
Jampol said that the decision to start expansion came toward the end of 2012, following an investment of an undisclosed amount from Great Hill Partners, a private equity firm, which enabled Intapp to become "more aggressive" with its growth strategy.
"We're an R&D company at heart, so organic development has been and continues to be our primary form of innovation growth," Jampol explained. "M&A is one way to augment that vision."
Intapp has two primary pillars in its investment philosophy: to look for smaller tech acquisitions that accelerate existing development plans on the one hand, and, on the other, to look for existing companies in spaces they compete in to drive Intapp's leadership in that area.
By acquiring Advanced Productivity Software, a timekeeping platform, in 2013, for example, Intapp was able to boost its existing time billing product, which was further enhanced with the purchase of Rekoop, a time capture software, in 2016.
Read more: These are the 10 hottest legal tech startups that have raised a combined $1.4 billion in VC funding from investors like Bessemer Venture Partners and Andreessen Horowitz
DealCloud and Gwabbit, both management platforms, were two acquisitions that enabled Intapp to penetrate the financial services and professional services industries, respectively. Jampol said that it's been Intapp's goal to expand into other industries "for a very long time."
"We always knew that our technology was broadly applicable, but we wanted to be very disciplined about it. Intapp's not meant to be a horizontal solution for 40 to 50 industries," explained Jampol. Instead, its target clients are "knowledge-based ones," like law firms, investment banks, accounting, and consulting firms.
The "in" in "Intapp" stands for "integration," summarizing the company's goal to consolidate what he views as a "fragmented" legal marketplace, where individual firms and attorneys use hundreds of different smaller tech solutions. Jampol said that Intapp "absolutely" plans on continuing to grow through strategic acquisitions.
Acquisitions: LawPivot, SlidePay
Since it was founded in 2008, Rocket Lawyer, a platform that provides small- to medium-sized businesses with online legal services like contract review and real estate agreements, has since expanded by acquiring two legal tech startups.
The first acquisition was of LawPivot, a legal Q&A service that sought to be the "Quora for legal advice," in 2013. Charley Moore, founder and CEO of Rocket Lawyer, said that he'd gotten to know the founder of LawPivot, Jay Mandal, at various Google Ventures events, and found that there was a strong strategic fit between the two companies, which were both aimed at connecting businesses to lawyers.
Moore said he knew it was time to expand Rocket Lawyer at that point because they'd achieved some scale, had access to capital from investors like Google Ventures and Morgan Stanley, and were growing fast, and were thus looking to acquire talent. He added that today, the company has been profitable for some time now, and is seeing a boost in revenue, enabling them to make investments out of positive cash flow.
Rocket Lawyer then acquired SlidePay, a payment platform similar to Square, in 2014. "At that time, we processed millions of e-commerce transactions at Rocket Lawyer, and SlidePay enabled us to get some know-how and to advance our payment processing platform to the next level," explained Moore.
With the boost through SlidePay's payment technology, Rocket Lawyer was able to develop its own blockchain contract payments system, Rocket Wallet, which is currently in beta testing.
Moore said Rocket Lawyer plans to make more acquisitions and investments, "if they're smart." He looks for three things in a company: cultural fit, a shared vision, and, above all, product-market fit.
"Something that resonates with me is, 'You can do anything, but you can't do everything,'" said Moore. "We recognize that we're good at a few things — legal documentation, digital signatures, digital attorney advice… Beyond that, we know that our customers need more, and we seek to do win-win partnerships with innovators that can fill those gaps."