On Legal Tech

I’m no lawyer, but if you’d asked a room of partners in 2010 what “legal technology” meant, you’d likely have gotten polite nods toward document management systems and the occasional e-discovery platform, nice-to-haves, but hardly transformative. Fast forward to today, and the conversation has an entirely different temperature. What began decades ago as simple document automation and electronic research has evolved into a sophisticated ecosystem of AI-enabled platforms across law firms, corporate legal departments, and even courts. Firms that once saw tech as a marginal efficiency play now see it as table stakes for client retention. Corporate legal departments that tolerated clunky legacy tools are demanding the same speed, usability, and analytics they get from their finance or sales software. And investors (as always) have taken notice: the legal tech sector matured significantly in the past few years (Exhibit 1).

Contract Automation

The humble contract is getting a high-tech upgrade. Contract automation, often delivered through Contract Lifecycle Management (CLM) software, has been one of the hottest areas in legal tech, and rightfully so. These platforms help legal and business teams draft, review, approve, and manage contracts with far less friction. Over 2020–2022, in-house legal departments and law firms accelerated adoption of digital contracting, spurred in part by the pandemic’s remote work reality. Routine agreements like NDAs, sales contracts, and vendor forms that once ate up hours of lawyer time can now be generated and negotiated with AI assistance. This not only cuts costs but also mitigates risk by catching problematic clauses automatically. The value proposition is straightforward: faster contracts mean faster business. Investors, or anyone really, appreciate that logic, especially given contracts are the lifeblood of commerce. From their standpoint, growth, combined with the recurring revenues of enterprise software, makes contract automation companies attractive long-term plays.

Venture capital has poured into contract automation startups, producing multiple unicorns in this space. In 2021, Ironclad (a San Francisco CLM startup) raised $150M at a $3.2 billion valuation, and it wasn’t alone. That same year saw big rounds for competitors like ContractPodAI ($115 M) and LinkSquares, as well as earlier-stage upstarts. Even into 2022, deals stayed strong: LinkSquares raised another $100 M at a $740 M valuation and Evisort secured $100 M at a $560 M valuation. This wave of funding reflects a belief that automating contract workflows is a durable trend, not a fad. Contracts touch every industry and enterprise, so the TAM (total addressable market) is enormous. Private equity has also taken notice: several CLM and legal workflow platforms (like Onit and Mitratech) have been rolled up with PE backing, aiming to build one-stop shops for corporate legal needs. Dozens of players are vying for law departments’ favor, and not all will win. But those that can embed themselves deeply (becoming the “Salesforce of legal” for contracts) stand to reap sticky revenues and potentially lucrative exits. In short, automating contracts has moved from boring back-office task to center stage, and investors see significant upside in taming the contract chaos for companies.

AI Enters the Courtroom and Boardroom

Investors are zeroing in on AI-driven legal tech. In the past few years, generative AI has leapt from research labs into law firms and even courtrooms. Lawyers have experimented with AI drafting tools for briefs and contracts with mixed results (as seen when one firm’s AI-written brief cited fake cases). Crucially, however, the legal industry’s attitude is shifting from skepticism to cautious enthusiasm (Exhibit 2).

Corporate legal departments and Big Law firms alike are exploring how tools like GPT-based assistants can streamline tasks from due diligence to legal research. This broadening embrace of AI underscores a belief that it can save time on drudgery – freeing attorneys for higher-value counsel. In boardrooms, that means general counsels are pitching tech investments as a strategic move. AI in law is no longer sci-fi or Instagram skits, it’s becoming a board-level discussion about competitiveness and efficiency.

According to Crunchbase, nearly 79% of legal tech venture funding since 2024 has flowed into companies building with AI. Investors are clearly betting that “AI lawyers’ aides” will redefine the sector. For example, Vancouver-based Clio (I always see their ads on LinkedIn) raised a massive $900M round in 2024 to infuse generative AI across its law practice management software. In early 2023, San Francisco startup Harvey landed $300M at a $3B valuation. Such staggering deals were virtually unheard of in legal tech before. Established players are racing in too, with Thomson Reuters’ $650 million acquisition of Casetext (an AI legal research startup) in mid-2023 showcased incumbents paying big for AI talent and tech. The thesis: by automating routine legal work (and even augmenting complex analysis), these tools unlock productivity and new services. Of course, questions remain around accuracy, bias, and regulation of AI in legal settings. But the flood of capital suggests investors broadly expect AI-powered legal assistants to become ubiquitous.

E-Discovery

For the non-lawyers like me, e-discovery is the process of sifting through troves of electronic data (emails, documents, chat logs) during litigation and investigations, a tedious job tailor-made for technology. It was among the first legal domains to embrace AI, using machine learning for “predictive coding” a decade ago to identify relevant documents. Today, with data volumes exploding, e-discovery tools are mission-critical for law firms and corporate legal teams. They use AI to quickly find the needles in the haystack, key evidence in millions of files, and to flag patterns humans might miss. Recent advances in natural language processing are turbocharging these tools’ abilities to summarize documents or classify content by topic. The result: what used to take an army of junior attorneys can now be done faster (and sometimes more accurately) by an AI-assisted platform. Both courts and clients demand this efficiency; no one wants to pay for endless manual document review. 

Investor interest in e-discovery has produced a mix of big winners and consolidation plays. The sector’s maturity is evident in a few dominant players: for instance, Relativity, a longtime e-discovery software leader now backed by private equity, was valued at $3.6B after a Silver Lake investment in 2021. Another rising star, Everlaw, raised $202M at a $1.9B valuation that same year, confirming unicorn status for e-discovery startups. We’ve also seen an IPO in this space (CS Disco went public in 2021) a rarity for legal tech and a sign that investors could realize liquidity in this domain. As the market matures, larger tech companies and PE firms have been actively rolling up smaller e-discovery and legal analytics outfits, seeking to offer end-to-end solutions. A notable example: in 2023, Reveal (backed by K1 Investment Management) continued its acquisition spree, integrating AI startups to broaden its platform. Likewise, OpenText and Microsoft have built or bought e-discovery capabilities to serve enterprise clients. The investor sentiment here is twofold: there’s confidence that e-discovery will remain a profitable backbone of legal tech, and an expectation that stand-alone niche players may merge or be acquired as part of a platform play. Even as generative AI grabs headlines, e-discovery’s steady growth and cash flows make it an essential piece of the legal tech puzzle – one that savvy investors haven’t forgotten.

The Big Picture

Legal tech startups have proliferated, especially around 2018–2020. Stepping back, it’s clear that legal tech is a burgeoning industry in its own right. The numbers tell the story themselves: Globally, there are now on the order of 10,000 legal tech companies in existence, with the United States leading at over 3,600 startups, by far the largest share of any country (as usual). This explosion of companies (many born in the late 2010s) is evident in the spike of new startups founded around 2018–2020. While the pace of new entrants slowed in 2021 and 2022, recent data suggests it picked up again in 2023 – likely fueled by entrepreneurs building AI-centric legal tools. From practice management software to online dispute resolution platforms, innovation is coming from all corners of the legal ecosystem. Not every one of these thousands of startups will survive – in fact, only 1,728 or so have secured any funding to date, and a mere few hundred have scaled past Series A. This fragmentation means investors have to choose bets wisely. Yet it also indicates vast opportunity: the legal industry (approximately a $950 billion global market in 2023) has so many subdomains and inefficiencies that no single solution can cover it all. For venture and private equity, the landscape resembles a gold rush, lots of prospectors and the potential for big strikes, especially as technology budgets in law catch up with other sectors.

— Josiah Hoang