Top tips to secure legal tech investors in 2020
Ari Kaplan. Photo by Lauren Hillary.
Ari Kaplan recently spoke with Jerry Ting, the CEO and co-founder of Evisort, an artificial-intelligence-powered contract-analysis system based in San Mateo, California.
Ari Kaplan: Tell us about the genesis of Evisort and its recent $15 million investment.
Jerry Ting: I started Evisort out of Harvard Law School, where I was volunteering to help entrepreneurs start companies. While I was excited to work with clients in a law firm, I realized that I had a bigger passion for technology and built Evisort, which uses artificial intelligence to read contracts and identify key legal clauses. It is able to highlight relevant risks, extract key dates, recognize the parties and detail the value, among other tasks that humans traditionally perform. We raised two rounds of funding in 2019: a $4.5 million seed round and a $15 million round led by Microsoft’s M12 and Vertex Ventures.
Ari Kaplan: What advice would you give to other legal tech entrepreneurs who are seeking investors in 2020?
Jerry Ting: The investing community has significantly changed because many investors did not believe that lawyers would actually use technology, especially artificial intelligence-based tools, so we had to do a lot of educating. The tables have completely turned, and now we receive very specific questions from educated investors. Part of that is driven by the emergence of unicorns and those with that potential in legal tech. Some have raised hundreds of millions of dollars, and because of the success of legal technology in the last five years, the investing community is now very aware and keen to understand more about this sector. That said, there is a difference between people being familiar with legal tech as a category versus knowing what lawyers actually do, so don’t assume that investors, for example, know the difference between e-discovery, contract analytics and matter management. It is, therefore, important be able to communicate complicated legal concepts and processes from a commercial perspective, clearly describe the ROI, explain the business case, and articulate why yours will be a $1 billion company someday.
Ari Kaplan: How do you think investors should evaluate early-stage, prerevenue companies in legal?
Jerry Ting: Legal is a category that investors are still learning how to properly evaluate. Podcasts like Reinventing Professionals are helpful for educating the VC community. It is important to assess the total addressable market. Although there are a lot of companies in legal tech, many are focused on a very specific problem, and despite being profitable, they are not usually backed by venture capital because the total addressable market maybe unclear. The question is: With the right amount of funding, can a business grow to become a public company? It is also critical to highlight the value that your product is providing and whether it is mission-critical to legal and legal operations teams or just nice to have. As an industry, we are still defining our identity and mission, but the criticality of the product is an important factor. And, finally, the team is very important. Just because someone is a lawyer does not mean that they are good at running a legal tech company and must be able to recruit the right go-to-market and product teams.
Ari Kaplan: How does a legal tech startup differ from a more traditional Silicon Valley venture?
Jerry Ting: A lot of the legal tech startups raising money in a first round today have actually been around for years. In the Bay Area, that is not what we consider a startup. When we look at legal tech companies, it is quite interesting to see that they are often established businesses.
Ari Kaplan: How do you recommend that those in law school contemplate careers in legal tech?
Jerry Ting: When I was in school, I felt a lot of pressure to stay on the law firm path, pursue a clerkship or engage in pro bono. Legal tech was not even considered as a career option. Only recently has it emerged as a viable path. My advice to law students is to consider ways that technology impacts lawyers and develop an understanding of how they actually practice. For example, learn how lawyers review a contract, rather than simply knowing its purpose. Doing so will provide a framework to develop something that helps the day-to-day activities of an attorney. Law students have become more proactive, applying for internships with our company and networking with other legal tech startups. We receive a lot of applicants with an MBA, but when I see someone who’s working in the legal field and also has a passion for technology, that’s very exciting for me as a hiring manager.
Ari Kaplan: Is your advice for students to embrace the study of law and then combine that with an understanding of the practical nature of being a lawyer?
Jerry Ting: Yes. When we were building Evisort, we thought that lawyers were spending a lot of time reviewing contracts and asked a contracts professor for advice on where to focus our initial market research. He suggested that we build an AI tool that can highlight whether a contract has consideration, but that kind of academic thinking, although helpful for law students in the academic environment, doesn’t help understanding how legal tech works. After all, a contract without consideration isn’t a contract. Law students should reach out to alumni who are practicing either in law firms or in-house, or who have transitioned to the business, to try to understand what these professionals do on a day-to-day basis instead of what they do in theory.
Ari Kaplan: How should hopeful entrepreneurs carve out their niche?
Jerry Ting: Contract analytics is actually a new field compared to e-discovery, but it’s become quite interesting over the last couple of years, and I think there’s still some green grass left. My advice to entrepreneurs looking at the industry is that when you build a technology that requires someone to change their behavior, learn something new or adjust how they’ve been working for years, it is harder to create, sell and adopt. Instead, focus on building tools that can add value without changing how people perform their work. Also, some companies like us focus in-house, and others work with law firms. That is a big difference, and it is important to understand how your target audience operates. Within a corporation, there are things you do before you sign a contract and others you do afterward. A new entrepreneur should begin the development process by learning how a given industry or entity approaches a challenge.
Ari Kaplan: How do you know when it’s time to expand and where it makes the most sense to move?
Jerry Ting: We’ve doubled our head count every quarter for the last four quarters. For us, the question becomes whether to hire more people at our headquarters in the Bay Area or employing individuals directly in the field to be close to the customers. We are opening a new office in Montreal, which has been called the Boston of Canada, because it is close to so many top research universities and is becoming an AI research center, where we can recruit in a cost-effective manner. Montreal has also attracted Google, Facebook and Airbnb to open offices, and we want to be a part of the conversation as one of the world’s top tech companies.
Ari Kaplan: How do you see legal tech evolving this year?
Jerry Ting: Legal tech has traditionally been reserved for lawyers, but I expect that to change dramatically in the next year. In fact, Microsoft co-led our last funding round, and a representative of the company is joining our board as an observer focused not on adding any particular enterprise as a customer, because most already are, but encouraging them to go deeper with Microsoft throughout the Fortune 500. In addition to lawyers, procurement, finance, accounting, customer success and sales operation teams work with Evisort because everyone in a company that touches an agreement could benefit from contract analytics. Still, that change is usually driven by an enterprising lawyer who is willing to look at new tools and bring that technology to their colleagues.
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.