Lockdown or pitstop?

Nobody could have predicted the Covid-19 lockdown, which in just a few weeks has reframed legal services. Technology has become a lifeline, not a promise of an automated or ‘augmented’ future – or a threat to jobs or earnings. Serious progress is being made towards court digitisation. Online access to services, systems and resources has become a core business essential. Discussions about the legal sector being slow to adopt technology have been stopped in their tracks as firms have adapted with impressive speed to what will hopefully be a temporary ‘new normal’.

It is clear that there will be no going back from many of the changes that are being made now, albeit through necessity. For example, it having been proved that many legal process can be handled online by people working from home, there will be no excuse for maintaining a culture of presenteeism – or paper. While acceptance of remote working will hopefully increase access to legal services, and improve diversity, many firms will require fewer offices and staff. And with deal volume plummeting, fewer disputes and cashflow uncertainty affecting partner remuneration, law firm leaders are likely to look more closely at their real estate and replace non-essential business travel with (secure) video conferencing.

Lockdown is having a significant impact on legal tech. IT teams are busy ensuring that firms’ essential systems and resources can be accessed remotely and securely. Lawyers and business support professionals working remotely can communicate effectively with each other and with clients. There is a strong focus on cloud and systems, and moving key processes online. There is likely to be a temporary boom in demand for video conferencing and contract analysis tools, and there has been a sharp uptake of e-signature software. Nevertheless, professional services technology investments are forecast to decline.

Where does that leave the start-ups which until now have experienced a massive boom in interest and investment? Entrepreneurs are renowned for agility, but this unique situation brings businesses operational and financial challenges. These include responding to their clients’ changing situations and demands. Has access to funding changed? How are they getting in front of investors and potential clients?

Start-up grid

I asked legal tech companies operating in different markets for their insights. Fraser Matcham is CEO of Legal Utopia, which uses machine learning and natural language processing to facilitate consumer access to legal guidance and support via an app. Merlie Calvert is CEO of Farillio, which provides legal support to small businesses and entrepreneurs. Dana Denis-Smith is CEO of Obelisk Support, which provides interim lawyers to law firms and corporate legal departments. Daniel Porus is chief commercial officer at Legatics, an interactive online deal platform used by magic circle law firms and large corporates. And entrepreneur David Chen has just left on-demand legal talent business Axiom to launch healthcare start-up Kapsule.

Legal/legal tech start-ups with online subscription offerings are finding the transition to working from home relatively painless. Incubators and accelerators have switched to virtual meetups and pitching sessions. Legal Utopia is part of the Wayra UK accelerator programme which has continued its scale-up Wednesdays online. ‘Remote meetings and calls have become more personable,’ observes Matcham.

Legatics has worked out of Allen & Overy’s Fuse incubator (A&O is still a client) and Barclays Eagle Labs. ‘Both were quick to acknowledge the challenges of staying connected with all the companies, and have moved their hosted events and advice sessions online,’ says Porus.

Community spirit

There have been changes in demand due to the Covid-19 emergency. While some businesses have announced layoffs, others are seeing their workload increase and are finding new ways to support their customers.

Consumer-facing Legal Utopia has seen increased use of its app, with more queries on commercial and employment contracts, restructuring and insolvency. Matcham’s response has been to launch a temporary Coronavirus Support domain (for subscribers) covering employee queries, contract management and available financial support.

Farillio’s clients are the small businesses that have been hit hard by the lockdown. Calvert and her team have been working hard producing additional guidance and supporting Farillio’s overworked live chat team. Three weeks ago, they launched a nationwide Twitter campaign – under the hashtag #3hrpledge – asking experts to pledge three hours of their time (for free) to help a small business.

'We have introduced webinars and podcasts to stay connected and daily video huddles for the central team'

Dana Denis-Smith, Obelisk Support

Farillio is offering its own resources for three months to all who support the campaign. When it comes to getting in front of potential clients, Calvert says, ‘this is a time for getting maximum support to the small businesses that we do not want to struggle or fail. It is not a time for pitching or selling’.

Denis-Smith explains that although Obelisk Support is a pioneer of flexible and remote working, it is important to support its community of self-employed professionals. ‘Apart from continuing to get work to them, we have introduced webinars and podcasts to stay connected and daily video huddles for the central team,’ she says. Although Obelisk is fielding more urgent requests than usual, it is allocating 1,000 lawyer hours a week to support government departments with emergency relief in areas such as procuring medical supplies.

Legatics is offering its remote deal management platform free to new customers for six months. Legatics was originally designed as a management platform for global deals involving local counsel in different jurisdictions, so its key functionality is facilitating collaboration between remote teams. Porus acknowledges that this is a way of getting the product into law firms, but there is also an altruistic motive. ‘In a crisis, when everyone is adjusting to remote working, firms are less likely to find the money for a new system. But we can see how it benefits our customers’ remote teams, so we have made it freely available to help firms get through this turbulent time,’ he says.

Bottom line

This is a difficult time for start-up funding. Start-up investment was down at the start of the year and this trend has been exacerbated by the lockdown. Today’s new funding announcements are the culmination of months of negotiations. Chen had decided to pivot to Kapsule at the start of the year.

‘Securing investment is always a challenge,’ he says. ‘While we can’t speak for all investors, the sentiment from angel investors and VCs seems to be prioritising their existing portfolio companies and waiting out the uncertainty of the current situation. That said, certain businesses find the problem they are solving becoming glaringly apparent.’ Chen adds that the nature of Kapsule’s business – access to authentic, affordable medicine – is an advantage.

‘Recent events have speeded up the inevitable,’ observes Matcham. ‘The focus has shifted: no one cares about the number of users you have, only how profitable you are. Bargaining power will shift… and CEO and board leadership and strength will be tested.’

Dom Hallas, executive director for The Coalition for a Digital Economy (Coadec), highlights current challenges for investors. ‘VC and private equity backers find it hard to assess companies based on pandemic-influenced metrics which do not reflect their true performance or potential. And the high-net-worth individuals who are early-stage angel investors are sitting on their hands. Another factor is that companies tend to raise money for 18 months and we don’t know when the crisis will be over.’

The most resilient businesses are not necessarily the best, adds Hallas. They are simply the lucky ones which happened to raise funding two months ago. It will be harder for deals that were being negotiated before lockdown, as investors are likely to take advantage of the situation and seek a better deal. Hallas advises start-ups to raise the money they need to survive the crisis and scenario-plan for a new normal when lockdown is lifted, hopefully with the government support for start-up investment Coadec is campaigning for.