State of Legal Venture Funding 2021

State of Legal Venture Funding 2021 is a summary of 340+ venture rounds, capturing a total of $6.5 Billion. Are big checks, big business?

The 340+ venture rounds are roughly the same as 2020 and is the only number that remained flat. Most other metrics went up. According to CB Insights, the total $612 Billion of venture funding set a record with a 111% increase over 2020. By comparison: Legal managed to raise 166% more capital than 2020. This means that companies impacting the legal industry got a little more love than the rest.

So checks are getting bigger, but did Legal Tech do better? Well kinda, but there is a catch. There are several factors at play. First, the median round size for mature companies increased by 175%*. This means later stage companies have been getting almost triple. Yet, the number of deals was nearly identical to the previous year. This happens in a saturated market when investors are padding companies to protect their portfolio.

Did big checks only follow big business, or did startups also get a cut? Actually, startups were the biggest beneficiaries of the overall boom in funding. Not only did more legal tech startups raise seed funding, but their round size got a massive 548% bump*. Early fundraising was up almost everywhere, and some gave more than others. In an attempt to reclaim the crown, Y Combinator raised their $125K offer to $375K per startup. This means good startups can comfortably shop for the best local or global VCs.

Just be careful approaching current investors to your competitors. They may have a conflict of interest with their portfolio companies. Remember: when they are eager to take your call, they aren’t obliged to keep your secrets. The ideal investor may be one that hasn’t yet invested in your area and fears missing out. This brings us to the factors.

Here are three stats to shed light on our surreal economy. First, The Netherlands Bureau of Statistics reported the lowest number of bankruptcies in 2021 since 1990. Second, DocSend reported that time spent on pitch decks dipped below 3 minutes. As VCs scramble to quickly allocate capital to companies, that number keeps dropping in 2022. Finally, Netflix is raising prices.

Point: stimulus and venture funding are keeping large parts of the economy afloat while overall demand is slowing. How does this impact Legal? Well, oddly enough, positively. But here’s the catch, and it’s determined by what we consider to be “Legal Tech”.

Strictly speaking, there were two main drivers for most of the activity in 2021: analytics & automation. Contracts kept grabbing headlines, yet the valuable part of a contract isn’t legal but finance. Deals are based on the value of assets. The value of assets is calculated from analytics on various financial documents. One can speed that process up with automation. The tech supporting these processes operates within companies separate from lawyers. Therefore, we classify most of these businesses as a subclass of Legal called Risk Tech.

The irony is that deals and the inevitable claims always involve lawyers in some capacity. Therefore, law firms profited from a record amount of good and bad deals in 2021. While Legal Tech is racing to raise capital on public and private markets with help from lawyers, the question remains: do lawyers need to use any of it themselves?

If the above raises questions or blood pressure, reach out to me via LinkedIn or schedule a chat.

*Percentages in the images are median of both Seed and Series funding

Originally published at https://www.legalcomplex.com on January 25, 2022.

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Legalcomplex

Creator · Mobile · Legal · Geek · Urban · Father · Friend · Focused