The Fourth Catalyst in Legal: Claims
Contract, Copyright, Cannabis were the first three catalysts for the legal industry and now we’ve spotted a fourth in this illustrious line called: Claims.
TLDR: The catalyst behind all C’s is a technology break-thru to process volumes of legal work. Contrary to the other C’s, the volume in Claims are transactions with a financial and emotional value.
The Genesis of C
DocuSign rode the first catalyst of contracts all the way up to a public offering. They are still the only legal tech company we’ve seen in recent memory to list on a public stock exchange. Better yet, DocuSign is one of the best of the 2018 IPO class with a stock price almost double its initial value. Now, there are over 1080+ companies with Contract Tech trying to follow in their footsteps.
This is different for the next two C’s: Copyright and Cannabis. We tipped-off our followers on Copyright in the past. We noticed the high seed capital these startups receive. They have the most VC capital in legal tech, the quickest exits and fetch the highest acquisition prices. And all of these records came during the audio streaming wars but before the video streaming wars began.
Here’s an interesting stat: the money spend to create original scripted television exceeds the defense budget of Australia. As the writer puts this so eloquently: it cost “ Jeff Bezos $6 billion to take his new girlfriend to the Emmys”. Now, how do you manage copyright? We found 125 young companies with $1 Billion CAT aka ‘capital allocated to’ Copyright Tech. These companies represent just 10% of new companies. Yet, as illustrated in the video below., they managed to raise 39% of all the new capital in legal tech.
It gets better in Cannabis Tech with only 35 companies and a $1.02 Billion CAT. It seems well respected legal counsels still feel uncomfortable sharing at a soirée that they help sell weed. Trust me, you’ll be the life of the party if you do. We did aim to break the taboo with our analysis and maybe I should have struck a more serious tone. Now recent data indicate a slow down in Cannabis ventures citing the high costs of legal, license and compliance.
The Fourth Wave of C
However, we are here to discuss the fourth wave. The ‘Claims’ category surfaced from the CAT scans we’ve been performing on the legal industry. Claims are a special species within the law. Some examples: you are entitled to cashback within 7 days after a purchase. Another is when you have been unlawfully terminated, you can claim for monetary damages. The highest seed capital raised by a European legal tech company is processing labor law claims.
Most claims aren’t easy to exercise. They are also difficult to identify. Here’s where the machines play a part as pointed out in “ Who are your Challengers “. Not only with spotting claims but also processing them. Like recovering your ticket price upon delay of your flight or refunds on taxes paid on travel purchases. In the lather, one company was able to raise $12.3 million in venture capital to help recover taxes.
Once you know you have a claim, it may take a little capital to extract it. That’s why there is a burgeoning insurance industry surrounding these risks. Another avenue is to sell your claim to litigation funders, who will proceed to monetize your right. This happens when claims are bundled in a class-action suit against an entity. These are the cases we see in newspapers like data breaches, equal pay, sexual harassment or environmental accidents.
It starts with the discovery: where to spot claims? Courtrooms are a good place to start. A use case for AI is when litigation funders or insurance companies employ it to discover claims and calculate outcomes in court cases. One way of identifying claims in court records is simply looking for the numbers. By checking the amounts in damages awarded, one can start speculating on the value of certain types of claims.
To summarize the above, the business of claims centers around three areas:
Translated into questions: Do we have a claim? How much can we claim? And how do we settle it? We touched upon the companies that discover and recover claims. They received some substantial investments along with most of the spotlight. However, these companies operate at the tail end of an conflict after the damage is done. Most of the value actually lies in helping to avoid claims from materializing.
That’s why companies that suffer from employee or customer claims went looking for ways to suppress claims. Many used the legal quick fix of forced arbitration or mediation clauses in contracts. Some employed alternative or online dispute resolution platforms (ADR — ODR). ODR platform classics like Modria, in turn, benefited by getting acquired. More recently, companies have been developing smarter solutions on Blockchain. They are able to program ODR directly into payment platforms.
CV equals VC
As noted as early as the Roadmap analysis, payment platforms are set to become the next network to rule our lives. And to prevent claims on these platforms, they need legal tech components like:
- Fraud detection;
- Identity management;
- Contract management;
- Conflict resolution and;
- Brand protection.
That’s why Amazon now offers a legal marketplace to support merchants with copyright and trademark claims.
We’ve found about 567 Claim Tech companies with $3.34 billion in CAT, who address claims with tech. While the overall growth of new legal tech ventures is slowing, the C areas are growing., especially Claim Tech.
Now it’s ironic these legal business catalysts all start with a C. Perhaps the underlying message came from the ultimate C. Customers! No silly, Citizens. The largest source of disputes globally stems from estate or custody battles. In those conflicts, the emotional claims far outweigh the financial ones. So when an investor is calculating the market, they should not only count the volume of claims or the value but also look at the void it fills within our society.
Resolving claims is a vital legal process that powers world peace and fair society.
Originally published at https://www.legalcomplex.com on December 8, 2019.