Home   >   News   >   Where the Smart Money Is: The Rise and Rise of LegalTech

Where the Smart Money Is: The Rise and Rise of LegalTech

There was a time in the not too distant past when the legal profession was very much a closed shop, an industry run exclusively by qualified lawyers. There was also a time when most of these lawyers would baulk at the very idea of trusting anything more technological than a favourite pen to aid their erudite work.

And yet now, as we approach the end of the second decade of the 21st century, technology is transforming the legal profession. Proving that even the most conservative of industries are far from immune from digital wiles, legaltech – broadly speaking, any technology used to aid or carry out the practice of law – is now the growth trend in the legal sector.

Legaltech comes in a variety of guises. Most commonly encountered as software applications and cloud-based platforms that either set out to help lawyers or provide online services directly to clients, there are examples of legaltech that do everything from automate contract drafting to centralise legal administration. Legaltech can also speed up case review with sophisticated document search algorithms to manage compliance in areas like data handling.

LegalTech is also big business. Since 2010, there have been 2,732 legaltech start-ups worldwide out of a total of 3,433 new businesses across law as a whole. Not surprisingly, tech firms have dominated start-up funding in the legal sector over the same period, while venture capital investment in established legaltech companies is growing rapidly. People who know a thing or two about backing the right horse are jumping on the Legaltech bandwagon.

And it isn’t just disruptive upstarts looking to muscle in on the legal scene with their fancy new gadgets. Longstanding major firms are getting in on the act too. We’ve seen Allen & Overy LLP launch its temporary Fuse legaltech start-up ‘incubator’ in Shoreditch, the beating heart of London’s Tech City, trying to attract the brightest talents in one of the world’s major tech hubs into law.

In a sign of the changing face of recruitment in the legal profession, we have also seen Clifford Chance advertise for the UK’s first legaltech graduate and lead delivery advisor positions. Firms may well be thinking in terms of reaping some of the benefits, financial and otherwise, they see third party legaltech firms enjoying. But as an industry, this kind of strategy would also help stem the steady stream of associates who are now abandoning the traditionally narrow career paths offered by law for the entrepreneurial buzz of the tech world.

Drivers of growth

So what has changed? What has driven the rise of legaltech? For one, in the UK context at least, liberalisation of the legal sector has allowed new entrants to come in with new ideas about how to deliver legal services. The Legal Services Act 2007, with the introduction of Alternative Business Structures (ABS), allowed entities not owned by lawyers to apply for legal practice licenses.

But regardless of a permissive regulatory environment, legaltech would not have thrived the way it has done over the past decade without demand. And demands  for technological solutions to legal dilemmas have been manifold.

On the one hand, faced with the massive growth in digital documentation that has accompanied the multiplication of communication and online channels, lawyers have increasingly found the old methods unsuited to modern realities. When case work involves scouring emails, IMs, social media and more to build a narrative of culpability, or interrogating transaction pathways across numerous online databases to establish contractual compliance, legal professionals need tools capable of working with mountains of digital data fast and efficiently.

On the other, in this new world of mass data, legal compliance has become increasingly complex for all businesses. With the likes of the GDPR, every type of organisation now has a stake in data security and privacy, driving huge demand for so-called regtech – solutions which automate and monitor data management processes to ensure regulatory compliance, mitigating and controlling legal risks.

Legaltech has also increased competition in a way which further stimulates demand for tech solutions. Platforms like Lexoo, the legal services marketplace where firms compete for clients with competitive bids, has dragged law into the eBay era. Traditionalists might bemoan such overt commercialisation of legal practice, but one thing it has done is focus attention on customer service and value for money.

It is unlikely a coincidence that the decade in which we have seen legaltech take off has also seen rapid growth in fixed fee structures. As clients demand transparency with upfront costings, law firms are driven to seek efficiency gains so they can make those competitive prices work. That in turn again stimulates demand for tech solutions.

Finally, perhaps the simplest explanation for the rise of legaltech is that technology has evolved significantly over the past 10 years. Whereas the idea of automating certain rules-based tasks in legal administration goes back two or three decades, now we have AI and machine learning which can adapt to patterns of use and behaviour over time, rather than having to be reprogrammed every time there is a statutory change or a new relevant ruling.

Whereas algorithms have long been used for data interpretation and search, today’s powerful Big Data solutions mean enormous quantities of digital documentation can be processed and interrogated virtually in real time. And out of the emergence of cryptocurrencies, we also have the Blockchain, the distributed ledger system which underpins self-verifying, self-executing smart contracts.

Like so much of the world around us, technology has already transformed law. Whatever your views on it, we cannot, as they say, uninvent the wheel.