3 legal tech founders share their perspectives on raising money in the current environment
Ari Kaplan. Photo by Tori Soper.
Ari Kaplan recently spoke with Katherine Allen, the CEO of Flo Recruit; Ross Guberman, the CEO of BriefCatch; and Jim Wagner, the CEO of the Contract Network.
Ari Kaplan: Tell us about your background and the genesis of your company.
Katherine Allen: My co-founder and I were studying at the University of Texas at Austin. We were attending career fairs and networking events to find our first job after college. We noticed that recruiters were taking paper resumés and wondered where that paper went when we applied online. That question inspired us to build software to help companies create a candidate pipeline at recruiting events and track it through to hiring. We focus entirely on the legal industry and work with 200 legal clients, and our software powers all of the virtual on-campus interviews for 100 different law schools and job applications for 40% of the Am Law 100.
Ross Guberman: Legal writing has been a longtime passion, and I have delivered workshops on the topic around the world for law firms, courts, government agencies and legal departments. In 2017, I created a prototype product called ContractCatch, and then we replaced it with our signature tool BriefCatch in 2018. It is an editing product similar to Grammarly but specifically tailored for lawyers and with many explanations and examples. We recently introduced our third version [of BriefCatch], which is cloud-based and boasts a range of advanced features. Our subscribers range from individual practitioners to the world’s biggest firms and to many judges and governmental agencies.
Jim Wagner: I co-founded DiscoverReady, which is now part of Consilio, and also Apogee Legal, which focused on using AI for contract analytics. We then merged Apogee with Seal Software, where I ultimately became president before we sold the company to DocuSign in May 2020. We’re excited now to launch the Contract Network, which is a place where all parties can come together and negotiate their agreements faster than they do under the status quo.
Ari Kaplan: At what point in your growth phase did you decide to begin fundraising?
Katherine Allen: We decided to fundraise right out of the gate because we were starting the business just after graduating from the University of Texas and raising money allowed us to work on the business full time without the distraction of a traditional job. We made the decision to first participate in Y Combinator to surround ourselves with resources and support our hiring to grow the business.
Ross Guberman: I found bootstrapping appealing and maybe even romantic. I was lucky that the product was profitable early on. I was so immersed in the product, sales and just running the business that years went by before I faced the Hamlet choice of coasting or going big and exploring funding options. I chose the latter to scale and see where it takes us.
Jim Wagner: My co-founder Bill Murphy, most recently the CTO of Blackstone, and I sought outside funding before forming the company. Given the hill that we wanted to climb and the size of the product we needed to build, we knew we would take on outside capital to get there.
Ari Kaplan: How much did you raise, and why did you decide to have a combination of institutional and individual investors?
Katherine Allen: To date, we have raised $7 million through several vehicles, as well as through individuals and institutional investors. The individuals are largely angels, with whom we had strong relationships. In our most recent round, we raised $4.2 million from institutions and a single individual investor, with whom we are super excited to work because of her background in legal and partner recruiting. Our institutional investors contribute a ton of experience to help us solve unique problems. We are grateful for the mix and are excited to keep them all engaged as we continue to grow.
Ross Guberman: We just raised $3.5 million, which could increase in the next few weeks. I focused exclusively on institutional investors, but I’m pleased that we also have a select group of individuals who approached me directly, and I am grateful for both.
Jim Wagner: We raised approximately $8 million in our seed round, which excludes the initial founding capital that we contributed. Our lead investor was Tusk Ventures. Andrew Seija, founder of Relativity, is an individual investor but through his family office, so he is a bit of a hybrid investor. Mayo Ventures and Toba Capital also participated. It always makes sense to have friends and family who are passionate about what you’re doing and believe in the product to help you strategically.
Ari Kaplan: When did you close your current round, and what challenges did you face in raising money in the current environment?
Katherine Allen: We announced it just a few weeks ago. Previously, in the market where money felt like it was free to many outsiders, it was really all about growth. As we’ve seen the market calm down, it has become a lot more advantageous to look at efficiency metrics, retention numbers and customer base stickiness, which is where Flo Recruit really shines. Our customers love us, and we have a super-high retention rate. We have grown with them and continue to deliver new products that they adopt. As a result, this deeper look at the business ended up being an advantage. Still, the fundraising process took longer than what we had seen in a prior market with other peer companies because investors were conducting enhanced due diligence to verify the fundamentals of the business.
Ross Guberman: We closed our round a few weeks ago in a market that is not considered the greatest for fundraising in legal tech. My sense is that all your numbers have to be perfect or close to perfect, and prospective investors want profitability and steady growth. They also want to make sure you haven’t spent too much and have a nearly flawless retention rate. Any deviation from this perfect scenario seems to raise questions, which is much different from what existed a year or two ago. You need to have almost every metric at an acceptable level, and that’s just not realistic for most businesses.
Jim Wagner: We announced our closing last week, and it is definitely a different world. It took some work for us to get our deal done, and it is not our first rodeo by any stretch. We really had to make sure that we nailed our story, which took some time. We also had to address some skepticism about our ability to execute on such a big idea. The venture community advertises that it loves big ideas and founders who are subject matter experts who want to transform the world. We definitely felt like we were in that category, but there is some conservatism in the venture community when it comes to the number of big bets they want to make. We also faced the issues with Silicon Valley Bank in the middle of our raise, and the generative AI wave also absolutely exploded within this period. Even though we are a company that leans very heavily into the AI experience, it wasn’t necessarily apparent in the product when we first went to market. Once we were able to show our AI strategy and implementation in the product more effectively, our fundraising trajectory radically changed.
Ari Kaplan: What advice do you have for legal tech founders interested in raising money now?
Katherine Allen: If you have a strong vision, it is absolutely possible to raise money in this environment, and there are some advantages to doing so. For example, we have been able to hire great talent because it has become less competitive. Founders should be confident in their story and business because no one’s operations are perfect. Being able to articulate your story, narrative and a really clear vision will help you find someone willing to say yes, and it takes only one yes to get a round done.
Ross Guberman: These concerns are cyclical, and for many months, we were getting the same questions about whether ChatGPT will replace our product. I know a lot of other founders seeking funds are having the same conversations, so those raising money need to prepare a thoughtful response about how to turn AI into a benefit and not an albatross. People will also tell you to make sure your pitch deck has a flashy story, and I did. But what they don’t tell you is that this just gets you an initial email or a call. Once investors express interest, everything changes, and it all becomes about ratios, gross margins and projections. So you need to figure out how to turn your numbers into a story that is not dramatic or touchy-feely but about money, total addressable market, pricing and penetration, rather than about grandiose or inspiring plans.
Jim Wagner: It is really valuable to be a subject matter expert in an area with a firm grasp of an unsolved problem that you can solve with a clear vision. Knowing your numbers and churn, as well as having referenceable customers, are incredibly valuable. You also need to have the passion and the stamina to really make that dream a reality.
Ari Kaplan: Now that you have received funding, what happens next?
Katherine Allen: Get back to work. Our team was absolutely continuing to focus on the business itself while I was spending much of my time fundraising. The biggest shift that we’ve seen and what I’ve been really excited about is that you spend all of this time pitching to investors, selling them on the vision and the opportunity, and describing how special your customers and team are, then once the deal is signed, they are on your team. You are no longer selling, you are bringing them into the fold. We have really helpful investors from Moneta Ventures and LiveOak Venture Partners that have supported us for a long time, and I’m seeing them continue to invest in helping us. It has been thrilling for our team to have one more resource helping us take the business to the next level.
Ross Guberman: The biggest challenge is trying to find the balance between getting advice and support from investors while still making sure to be true to yourself because right after receiving funding, all sorts of things do happen. I haven’t quite figured out what that balance is; it seems to be a work in progress.
Jim Wagner: We have been building a plane, and what we just got was the fuel we need to take off and fly. Even though when you close a deal, you want to take a breath and maybe even have a victory lap, the reality is that it’s just getting started when you’re at a seed stage. Yes, it is healthy to take a breath and compliment your team and yourself, but after raising money, you need to just go.
Listen to the complete interview at Reinventing Professionals.
Ari Kaplan regularly interviews leaders in the legal industry and in the broader professional services community to share perspective, highlight transformative change and introduce new technology at his blog and on iTunes.
This column reflects the opinions of the author and not necessarily the views of the ABA Journal—or the American Bar Association.