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The here and now of legal innovation

Unbelievably, we’re now months rather than weeks into 2016. While it’s late to make new predictions, we’re new here, so please allow us to begin what will be a regular column with a landscape scan of where we are with legal innovation and technology and where we’re heading. Think of this less as a prediction and more of a state of the union.

Legal innovators saddle up

More people from within the profession will try legal entrepreneurship. Some will, as all entrepreneurs do, begin side projects, the vast majority of which never see the light of day. Some will dive deeper and become a startup founder. Those who do so will find that being in the legal tech vertical is neither a hindrance nor a help in getting a product to market, as legal tech entrepreneurs face the same hurdles as others do. Yes, some are in fact unique to the legal vertical, but the same holds true when a doctor leaves medicine to build a digital health or medical device startup.

A great starting place to learn about legal innovation is the event we at LegalX in Toronto are running in April with McCarthy Tétrault LLP. Also, MaRS, home of LegalX, has an amazing program called Entrepreneurship 101 for new and emerging entrepreneurs. It’s a free program and there’s a massive library of entrepreneurial materials on the MaRS web site.

Money leads, innovation follows

As legal tech expands, risk capital needs to follow. This won’t happen much in 2016, as we have been in the industry for a couple of years, though the foundation is being laid for what we feel will be a breakout year in 2017, where risk capital will be more receptive to legal innovation and startup founders.

It’s really important to understand that, in 2016, we’re living in a new funding landscape for startups.

Gone is the day of relatively quick and early seed rounds of capital followed by a quick series A raise.

Where we are today is a new paradigm with this central continuum: bootstrap — friends and family — pre-seed — seed — seed 2 — series A.

This is important to know because more of the funding burden than ever will fall to the entrepreneur, who is functionally responsible for getting to, or awfully close to, generating revenue before raising risk capital. Long gone are the days when venture finance just bet on teams and ideas in which they believed.

The landscape in Canada is significantly worse than the United States for this, as very few investors are open to early-stage investments in legal technology and innovation startups. We’ve done a lot to change that since launching LegalX in late June of 2015, and we have a very long way to go.

Send in the clowns

More mercenaries will emerge in the legal innovation space, just as they did close to a decade ago in the education technology space. For our purposes, a mercenary is someone who is drawn to be a startup founder in the vertical who really has no business being there. To continue the analogy, once people realized the money could actually be made in education technology, startup teams were formed with absolutely no people with an education background. No teacher, no administrator, not even a technologist who knew the space.

When this happens, the results are mixed at best. This will be bad for the legal innovation industry in the short to medium term but actually great in the long term, as we predict a bloodletting similar to what happened more than once in education technology.

That vertical only boomed as it did in the past three years because of all the people who came thinking they’d make a fast and easy buck, then left with their tails between their legs or, worse, cropped. That said, these ill-intended pioneers were able to forge some of the early trails, and while they were often eaten by bears or walked off some pretty obvious cliffs, they very unintentionally helped. Look for the same in the legal tech space, and thank early large capital raises such as Everlaw for helping make this possible.

Small country, lots of land

More Canadian legal tech startups and established companies will go into international markets in 2016. Both Beagle and Clausehound were in the China Angels Mentorship Program (CAMP) Beijing accelerator tour in November that is funded by a large Chinese venture capital fund and that Aron helps run. This is very important not only because of market access but also because of the quality of mentorship. Canada is a great but small country, where our entrepreneurs are well served by developing strong and lasting domestic and global relationships. Founders who choose to build only for the Canadian legal market will find capital scarce, world-class mentorship based on the right kind and scope of experience equally so.

Finally, we think that late 2016 will see more international legal technology products in the North American market, for example, a greater presence by Hong Kong’s Dragon Law.

Instead of leaving, you could stay

This year will begin to signal the rise of the legal intrapreneur. For every 100 times we hear about entrepreneurship, we hear about intrapreneurship only five times. But there is a great opportunity for lawyers and legal professionals of all vintages to take their careers on potentially far more interesting and rewarding paths by being open to innovating within their firm, within their bank, and so on.

Which brings us to our final point . . .

Bring the X

This year will see the continued emergence of a very compelling space, that where legal and financial innovation intersect. Again, LegalX works very closely with Adam Nanjee and the financial technology and innovation practice he built more than a year ago at MaRS. We’ve done events together in places such as Hong Kong and are opening new markets for our entrepreneurs. It’s a fairly large point of intersection between the two and this year will see it be more dynamic than ever. Law firms realize this, as do banks and the new players in the financial space.

Aron Solomon is the head of LegalX and a senior adviser at MaRS Discovery District in Toronto. Jason Moyse is industry lead of LegalX and manager, legal business services, at Elevate Services serving global law firms and corporate legal departments.