Pivot: Does Your Business Still Hold Value Without AI?
While everyone sprinkles spicy AI sauce on their product, some realize that their customers' appetites are changing. So, should you pivot?
TL;DR: AI presents current products with this warm blanket of extra usage. However, more AI usage on top will impact the bottom line. Tokens look cheap now, but they are heavily subsidized. Hence, the question: where is a product's value if it needs AI?
Burn 🔥
Why are we talking pivots? We never did before, plus now is the best time. Between 2020 and 2022, about 953 companies raised funds in 1546 rounds, taking advantage of the low cost of capital. Yes, some raised multiple rounds due to low-interest rates. In 2023, the music stopped. However, those companies have to keep dancing. Now, focus on the little flame, where it says ‘ Burn’ in the dashboard above. The 120 number represents the median number of days between rounds during that stretch across all fundraising activity.
We’re proud of our Burn metric in our dashboard. It estimates when a company will need more capital after fundraising. Burn is influenced by the type of business and geography, and is not equal for any two companies. Case in point: a legal tech company in Brazil becomes profitable faster than its counterpart in the USA.
Ultimately, Burn is the most probable answer to performance for any segment, area, and geography. Probably, a large language model will come up with a better indicator for performance. Perhaps that will be a sign to pivot.
In general, we’ll keep track of fundraises especially of Debt Financing. Since Debt is a strong indicator of economic health over time. Debt also fuels the greatest power in our industry. Debt not only causes us to lose friends, but it may also cause friends to lose jobs.
We’re chatting off-air about me being invited as an expert on a radio show. I said: “nobody can realistically call themselves an expert in anything anymore”. AI has now surpassed our knowledge capacity in almost everything. I’m only slightly more reliable at processing speech in real-time. Many aspects of my value as a productive human are debatable compared to AI. A fact that some consultancy firms may already be experiencing. I made my peace and started focusing on what would be worthwhile. Part of this journey was looking at the most valuable legal business models in Data, Distribution & Deals.
Our analysis concluded that legal data will be completely absorbed by LLM’s and copyright can’t stop it. Distributing anything with AI looks cheap now because access to AI is heavily subsidized. With interest rates still high, deals are drying up. Currently, litigation is booming but mostly for Elon and OpenAI lawyers. Remember, ‘booming’ in legal is impacted by geography as well as in which season we are. More on where money is made in legal? Check the Capital & Conflicts analysis.
In short: At the moment, value in legal is fuzzy. Value is much clearer in segments like Governance, Risk, and Compliance (GRC) also known as Reg Tech. Hence, law firms building chatbots instead of buying legal tech. In case you missed our earlier hint: Legalcomplex will also pivot to a different model. Generating any deep insight is now firmly in the hands of machines. The future value lies in helping machines bring those insights closer to us.
Pivot 🌱
A pivot is a beauty and a beast. We can start fresh and shape products of the future. That means we have to start over and relive the pain of the past. On the one hand, we are not in a panic about allocating $8 Billion to rescue revenue. On the other hand, we don’t have that luxury either. We can not just tap $600 Million in credit to buy time. What does this all mean? Everyone is putting their chips on the table. With AI, everyone has a seat at the same table. The question is: Where will we place our bets?
We assist enterprises in finding opportunities by calculating investments. We use the Burn and Growth metrics to gauge each segment, area, and geography. There are roughly 1151 companies globally in Legal that need cash and are open to talk.
The image above shows us how many companies want to have a conversation each quarter. The number in each column represents when they burn out of capital and need to raise again. The quarter represents the time, we most likely can expect a call from them.
Call 📞
So we’re meeting with a few of the 1151. Helping them raise more capital or exit fast. During these talks, the topic of a pivot has come up. A pivot helps with pitching your product to investors and acquires. The reason is that a new direction would increase the value of a company. So how do we determine value?
The value of companies in legal relies on that other holy trinity: Targets, Talent & Technology. Presently, companies with income from customers (Targets), have more time to assess a new direction. Those with just tech and talent may need to pivot sooner. And steer away from burn faster.
To conclude: Eventually, everyone in legal has to pivot to value. The best time to pivot is now. Where too is up to you.
Originally published at https://www.legalcomplex.com on March 19, 2024.
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