BIG MONEY IS BETTING ON LEGAL INDUSTRY

TRANSFORMATION
Mark A. Cohen

If “Money makes the world go ‘round,” then the legal world is spinning as never before. Law has
been big business for decades, but only recently has significant venture capital, private equity, and
entrepreneur money been pumped into the legal sector. Last year saw an eye-popping 718%
increase in legal industry investment, and this year’s capital infusion through the third-quarter has
already surpassed last year’s $1 billion total and could well double it. Capital is turbocharging
customer-centric providers that are leveraging technology, process, new skillsets, and data to
transform the legal function and the delivery of legal services.

Why the sudden legal investment boom; what’s changed; and what does it portend? Short answers:
legal delivery is ripe for scaled transformation; legal buyers are driving change and have
disaggregated legal practice from the delivery of legal services; and the lawyer-centric, labor-
intensive, fragmented legal industry is ripe for tech and process-driven consolidation. Technology,
process, labor arbitrage, an agile workforce, the proliferation of cross and multi-border business,
automation, products replacing services, platforms, automation, data, and incipient regulatory
reform are transforming the legal sector—just as they have others. Capital is accelerating, scaling,
and consolidating the industry.

Legal Delivery Is Not Unique—It’s Tech And Business Driven

Legal practice may have its own practice rules, but legal delivery is now operating by business
standards. The practice of law has not changed much, although what is now deemed practice is a
shrinking subset of what it was even a decade ago. The delivery of legal services, however, has
undergone a dramatic transformation during this same period. Law firms have lost their hegemony
over legal delivery. Their market share is eroding. A growing number of corporate legal departments
and customer-centric providers with corporate structures, economic models that reward output
(results) rather than input (hours billed) are reshaping legal delivery. They deploy business process,
project management, and fiscal responsibility, new tools, new skills, data-driven, multi-disciplinary
workforces, and a customer service mindset necessary in the digital era.

PROMOTED

Law is a Trillion-dollar global industry with no Goliaths. The legal industry is fragmented, growing,
has a huge untapped market for its services, and is ripe for digital transformation. Lawyers long
peddled the now debunked myth that legal practice is bespoke and unique. No such claims can
been made for legal delivery that has the same core ingredients as a slew of upstarts that have
disrupted other industries. That list includes customer-aligned, tech and process-enabled,
differentiated models; technology platforms that integrate internal resources, align with others in
the supply chain, and provide easy access to clients; upskilled workforces; cultures of constant
improvement; a re-imagination of the customer experience; and capital to scale. These are among
the reasons why capital is pouring into the legal delivery (a/k/a legal tech).

Law’s Shifting Focus: From Lawyers To Customers

Law has long been inward-facing. Its focus has been on input--hours and billing-- not output--results
and customer satisfaction. So too has profit-per-partner, not net promoter score been law's Holy
Grail. Lawyers, not clients, long called the shots. They defined what a legal matter was; used self-
regulation to parry competition from other professionals; carved out territorial practice boundaries
to discourage competition from “outside” lawyers; and retained near-exclusive access to legal
source materials. Law firms sold one thing: legal expertise, and they cornered the market. Firms
dictated the terms of engagement to clients—what they determined was best; the value they
ascribed to a matter; what was necessary to achieve what they deemed the best possible legal
work; who performed it and how much time was required; how and when work was delivered; and
at what cost. Clients were generally compliant because law firms had a uniform modus operandi.
Law was a guild.

All that has changed. Now firms face competition. The cognitive bias among legal buyers to engage
traditional partnership model law firms has eroded. The global financial crisis and its reboot of the
buy-sell dynamic of goods and services; globalization; astonishing advances in technology; and
digital transformation have convinced legal buyers that legal practice is no longer synonymous with
the delivery of legal services. These factors, coupled with unmet market need, are the fertile soil
that new providers have cultivated. Capital is now scaling their harvest.

Clients—not lawyers—are now calling the shots and driving the transformation of the legal
industry. Lawyers long controlled the delivery of legal services because legal expertise was its sole
ingredient. Those days are gone—both for lawyers as well as allied legal professionals who, with
machines, are now integral components of the legal workforce and supply chain. Legal delivery has
morphed into a three-legged stool supported by legal, technological, and business expertise. Legal
expertise is no longer, to borrow from Reggie Jackson, “the straw that stirs the drink.”

It’s The Model That Matters

Smart money is betting that lawyers can function far more efficiently outside the traditional
partnership model. It’s also betting that elite legal talent can, as necessary, be dislodged from
traditional firms. There’s good reason for them to think so-- peripatetic partners (“laterals”) have
swapped firms for decades. That means that money--not the firm--is the glue that binds.

If lawyers can jump firms, so too can they jump delivery models—for a price. The Big Four and
other legal providers have already cherrypicked elite legal talent from top-rank firms. This means
that practice expertise—even at the elite level—is available. Powerful, scaled legal delivery
providers like the Big Four, UnitedLex, and others with global reach, multidisciplinary workforces,
models aligned with business, deep war chests, and digital transformation expertise can readily
meld legal expertise with delivery capability to provide end-to-end enterprise legal services. Law
firms continue to provide single-point, practice-centric solutions. Law firms were once sole-source
suppliers. Now, they are a diminishing segment of a legal supply chain where differentiated legal
expertise is part of a larger whole.

Capital And Scale

Legal providers must deliver at scale to be competitive in today’s emerging global marketplace,
and that requires capital. LegalZoom recently received a $500M round of secondary funding at a
$2Billion valuation—almost 500% more than what it was in 2014. That brings the company’s total
capital haul to approximately $800Million. UnitedLex, a leading enterprise legal services company
took in $500M from private equity powerhouse CVC Capital Partners to capitalize on a “multi-billion
dollar opportunity.” Axiom, the leading agile legal talent management provider, recently received a
“very substantial” investment from Permira, another private equity heavyweight. This was not
Permira’s first foray into the legal vertical; it had previously made substantial investments in
LegalZoom and Duff and Phelps. Bob Ambrogi, a legal industry stalwart, provides a fuller 2019
investment scorecard here. The list includes investment in artificial intelligence (AI) and other tech
plays that are rapidly transforming the legal function and its delivery.

Then there’s the Big Four whose presence and imprint in the legal sector is receiving heightened
attention. The Big Four are formidable players. They have deep C-Suite ties; multidisciplinary
expertise and cross/multi-border transactions; global footprints; digital transformation prowess;
commitment to constant improvement; significant investment in technology; and are doubling-down
on enterprise legal services. Their annual revenue is approximately twelve times that of the largest
grossing law firms. All this positions them to be major players in the current global legal landscape.

Teaser alert: what’s to prevent Amazon, Google, or some other tech giant from entering the legal
space, creating a global platform, injecting billions into infrastructure and talent, creating a global
legal services hub that connects consumers with global legal delivery sources as never before
imagined? Short answer: the inclination to do so.

Big Money Has Been Watching From The Sidelines—Until Now.

Big money has closely monitored the migration of work from firms, changing consumer attitudes,
an evolving regulatory climate, and the deployment of technological advances to legal delivery.
They recognize the lawyer-created barriers that balkanized legal practice do not apply to legal
delivery. Technology, process, data, and other essential legal delivery components transcend
geographical boundaries and can be scaled around the globe. The commonality of delivery
challenges—contract management, knowledge management, data collection and mining, morphing
services into products, automation, and other delivery elements-- far outweigh the differences.
There is enormous opportunity for consumers to benefit from a mature global legal marketplace
where a myriad of local solutions are replaced by scaled, global ones.

Capital is required to scale legal services; to keep pace with the warp-speed of business, to attract
and retain top talent, to invest in upskilling , and to promote a customer-centric, diverse culture of
constant improvement. Capital can, of course, come from a variety of sources—going public
(permitted in the UK, Australia, and a handful of other jurisdictions), institutional capital, self-
funding, and collaborative ventures. The common thread is that legal industry investment is focused
on providers offering new delivery models that are aligned with the needs of consumers, not the
maximization of short-term lawyer profit.

Conclusion

The recent infusion of capital into the legal industry is the best evidence that a tipping point has
been reached. The hegemony of the traditional law firms is over, and the partnership model will
experience further consolidation and a thinning of the herd. This process is well underway and will
accelerate.

It’s not simply how and by whom legal services are delivered that’s changing. The legal function is
being recast. The legal industry would be wise to note what’s different about the models, skillsets,
workforces, diversity, cultures, technology, processes, and customer service of well-capitalized
providers. That’s what the smart money is doing.
 LOS NUEVOS PROVEEDORES DE SERVICIOS
LEGALES
Históricamente, los abogados tuvieron un monopolio de la industria legal. Hoy, sufren la
competencia de nuevos proveedores con foco tecnológico y en el negocio…

Esta es una versión adaptada y traducida del artículo “Big Money Is Betting On Legal Industry
Transformation” publicado por Mark A. Cohen en Forbes.

Por años, los abogados difundieron la idea de que la práctica del derecho es una tarea artesanal.

La forma de practicar la ley no cambió mucho a lo largo de las últimas décadas.

Sin embargo, la forma de producir y comercializar servicios legales está atravesando una
transformación dramática. Nuevos jugadores están utilizando procesos de negocios, herramientas
de gestión de proyectos y equipos multidisciplinarios con una mentalidad centrada en el cliente y
una visión digital.

Estas empresas están introduciendo, dentro del mercado legal, los mismos ingredientes que
llevaron a la transformación digital en otras industrias.

El Cambio de Foco de la Ley: de los Abogados a los Clientes

Históricamente, la ley estuvo orientada hacia los abogados. Quienes tenían el poder eran los
abogados, no los clientes.

Eran los abogados los que definían qué era un asunto legal. La regulación creada por ellos
restringía la competencia de otras profesionales y les garantizaba un monopolio de la industria.

Las firmas de abogados dictaban sus términos a los clientes: determinaban el trabajo que debía
ser realizado, las horas a dedicar a cada caso y su costo.
Su foco estaba en el input, en las horas trabajadas y facturadas, no en el output, los resultados y
la satisfacción del cliente.

Los clientes no tenían más alternativa que aceptar las condiciones. Todas las firmas tenían el
mismo modus operandi. La ley estaba controlada por un gremio.

Pero la globalización y la tecnología comenzaron a erosionar ese modelo. El punto de inflexión

ocurrió en la crisis financiera de 2008.

Cada vez más, las áreas legales de las empresas empezaron a exigir resultados, no horas
trabajadas. Los cambios de mercado hicieron que, por primera vez, las firmas de abogados
tuvieran que enfrentar la competencia de nuevos proveedores de servicios legales.

Por todo esto, hoy son los clientes, y no los abogados, los que tienen el poder en el mercado. Y
están creando una feroz transformación en una industria históricamente manejada por abogados.

Más Allá de la Firma: Nuevos Modelos de Entrega de Servicios Legales

Tradicionalmente, los abogados trabajaban en firmas de abogados. Pero esto ya no es así.

En los últimos años, las Big Four de la consultoría (Deloitte, KPMG, PwC, Ernst&Young), así como
empresas como UnitedLex, empezaron a ofrecer servicios legales. Para esto, comenzaron a
reclutar a los abogados más talentosos.

Estas empresas tienen alcance global, equipos multidisciplinarias, y experiencia de negocio y en

procesos de transformación digital. Además, tienen conexiones en la alta dirección de muchas
corporaciones.

Las Big Four pueden combinar expertise legal (que reclutan en el mercado) con capacidades de
negocio para ofrecer servicios legales. Ahora están apostando fuerte a ser proveedores clave en
servicios legales corporativos.

Los Inversores se Interesan por el Mercado Legal

Tradicionalmente, los inversores no estuvieron interesados en el mercado legal. Era una industria
fragmentada, sin posibilidades de que un jugador pudiese lograr escala global como la que
requieren los inversores.

Pero los nuevos jugadores de la industria sí tienen estas ambiciones.

Algunos aspectos de la entrega de servicios legales (gestión de contratos, gestión del

conocimiento, recolección y análisis de datos, transformación de servicios en productos,
automatización) tienen más similitudes que diferencias entre países.

Por eso, se está formando un mercado legal global donde las pequeñas soluciones locales serán
reemplazadas por unas pocas soluciones globales con operaciones a escala y mucho más
eficientes.

Y esto despertó el interés de los inversores.

En julio de 2018, LegalZoom anunció que recibió una inversión de 500 millones de dólares a una
valuación de 2000 millones.

El proveedor de servicios legales corporativos UnitedLex recibió otros 500 millones de inversión.

Este capital se utiliza para atraer los mejores talentos, para invertir en capacitación, tecnología y
marketing.

Hacia la Transformación Digital de la Industria Legal

El proceso de transformación digital de la industria legal está alcanzando un punto crítico.

La hegemonía de las firmas de abogados tradicionales terminó. Está cambiando el cómo y el por
quién serán entregados los servicios legales en el futuro.

Las firmas de abogados deberían tratar de entender cómo funcionan los modelos de estos nuevos
proveedores. Deberían entender qué es diferente en sus habilidades, su trabajadores, su cultura,
su tecnología, sus procesos y el servicio que ofrecen al cliente.

Eso es lo que están haciendo los inversores.

Antes, la entrega de servicios legales estaba completamente dominada por abogados. Pero cada
vez más se empieza a parecer a una silla de tres patas compuesta por expertise legal, tecnológica
y de negocio.