Legal tech buzzed throughout 2021 with IPOs, new 'unicorns'

Summary:

• LegalZoom.com Inc, CS Disco Inc and Intapp Inc went public over the summer
• At least two companies in the legal tech sector surpassed $1 billion valuations this year

2021 was a busy year for the still emerging legal technology sector as several companies went public, and investors poured capital into private companies in the space.

LegalZoom.com Inc, CS Disco Inc and Intapp Inc had initial public offerings this year, and a number of legal tech companies attracted venture capital and private equity investors in large funding rounds, a few reaching into the hundreds of millions.

At least two companies, Clio and Everlaw Inc, achieved "unicorn" status by reaching valuations that exceed $1 billion.

"Everywhere you look, there's a headline about an acquisition or a big fundraise . . . I also think when you layer on top the IPOs that have happened, there's kind of a maturation signal that I think is quite important," said Christian Lang, head of strategy at legal tech "app store" platform Reynen Court Inc and founder of NY Legal Tech Meetup.

Other legal industry observers also said the activity in the market this year, which included a spate of mergers and acquisitions, indicated a maturing sector.

Legal tech encompasses companies that market a variety of tools and services to law firms, corporate legal departments and consumers. The sector includes products for e-discovery, legal spend analytics, lawyer selection, document review and contract management.

This year saw "significantly higher" overall capital deployed in the legal market compared to the previous two years, said Scott Mozarsky, managing director at M&A advisory firm JEGI Clarity.

Investor attention has been gradually building for several years, alongside slowly growing legal industry adoption of technology, according to industry watchers.

Some cited as a factor increased tech usage due to Covid-19, as law firms and in-house legal teams considered newer ways to work. But they said adoption among lawyers and consumers is still in its early days.

"The pandemic has certainly shone a light on tech capabilities that some legal professionals would never have sought out proactively," said Lucy Bassli, founder and principal of consultancy InnoLaw Group PLLC and a former assistant general counsel at Microsoft Corp.

She said this has led to investments and "market possibilities."

The three legal tech-related companies that went public within weeks of each other this summer address different parts of the sector. Glendale, California-based online consumer-facing legal services company LegalZoom and Palo Alto, California-based professional services software provider Intapp went public in June, while Austin, Texas-based e-discovery provider CS Disco went public in July.

Legal tech IPOs have been relatively rare. Zach Abramowitz, founder of consultancy Killer Whale Strategies, said the number in 2021 was "legitimately unparalleled."

Legal tech companies of all sizes attracted infusions of private capital this year, including the newly minted "unicorns."

Vancouver, Canada-based legal practice management company Clio raised $110 million at a $1.6 billion valuation in April. Oakland, California-based e-discovery software provider Everlaw said its valuation is north of $2 billion after a $202 million funding round in November.

A part of the commitment to funding in legal tech this year came through private equity.

Private equity firms have been ramping up investments in the legal market for about five years, Mozarsky said, but private equity in 2021 "put an exclamation point on its commitment to the market," based on the number and size of deals.

Francisco Partners invested in legal software platform Paradigm in a deal valuing the firm at $400 million, Reuters reported in October. K1 Investment Management said in January it poured $200 million into e-discovery company Reveal's merger with Brainspace.

It's unclear whether funding of private legal tech companies will continue at similar levels in 2022, but there are signs more companies will go public in the industry soon.

Legal data and analytics company FiscalNote Holdings Inc said it would go public through a merger with a blank-check firm in a deal valued at about $1.3 billion. Exterro Inc CEO Bobby Balachandran recently confirmed the e-discovery and information governance company is eyeing an IPO, potentially next year.