Why the economics of venture capital make it difficult for legal tech startups to address access to justice issues.

Introduction

Many legal tech startups begin with ambitious to make the law more accessible.  These companies initially focus on legal consumers, developing products that make the law easier to find and understand for non-lawyers.  But over time, the startups typically (1) pivot to focus on legal professionals or (2) fail to receive sufficient funding to continue.  The trend is undeniable.  The question is why this occurs.

Examples

Google Scholar is a prime example, even though it’s not technically a startup.  Google Scholar started as an effort to make case law free and accessible.  It developed a platform that pulls cases from court systems across the nation, publishes them, and makes them searchable.  The effort made case law more accessible than it has ever been.

Google Scholar, however, has not changed in over five years.  Last year, I contacted a friend at Google to see if he could connect me with the person who runs Google Scholar.  When he searched the system, however, he could not find anyone associated with the project.  I later heard that Google executives are not even aware Google Scholar exists.  It appears Google abandoned Google Scholar, all the while keeping the original platform on the internet.

CaseText is another example.  The company began with access to justice ambitions, touting its free case search–similar to Google Scholar.  But while its free case search remains, the company pivoted, focusing now on enterprise software for legal professionals.  CaseText’s CARA software (which is incredible) caters to lawyers, not lay people.  CaseText’s landing page proclaims: “Litigators go to battle every day.  With CARA, you’ll have the best weapons.”  No mention of lay people or access to justice.  Not long after CARA was released, CaseText received a new large round of funding. Not a coincidence.

It should be noted that CARA and other such tools have an indirect effect on access to justice.  Lawyers can work more efficiently, driving down the cost of litigation.  But the direct focus on non-lawyers has been lost.

CO/COUNSEL is yet another example.  The company developed a platform that organized the law visually.  The video introducing the site states that the goal is to make the law accessible to the nation’s non-lawyers.  Despite gaining traction in law schools and the legal community (over 11,000 crowdsourced contributions), the company failed to obtain sufficient funding to continue.  Like Google Scholar, the original platform for CO/COUNSEL remains, but there is no effort behind the scenes.

The list goes on and on.

Venture Capital

Why are startups that focus on access to justice driven out of the market? The answer lies with those who fund such projects.  Venture capital firms (and other investors) look for companies that produce multiples (10x) of return on investment.  And there are several reasons why catering to non-lawyers is unlikely to produce such profits.

First, people who can’t afford a lawyer do not impart with money easily.  A survey conducted by Margaret Hagan (the Director of the Legal Design Lab at Stanford) found that non-lawyers are not willing to pay for online legal services.  See The User Experience of the Internet as a Self-Help Service.  This is not surprising.  The fact that they can’t afford a lawyer means they are unlikely to pay for any service.  These consumers want legal help for free.  And free is not conducive to profits.

Law firms, on the other hand, pay for legal tech services–often millions of dollars a year.  Pivoting to buyers with deep pockets makes sense.

Second, non-lawyers only need legal help intermittently, not every day.  One legal tech founder I spoke with stated that he pivoted away from a consumer tool because his target demographic–non-lawyers–would only need his tool once or twice in a lifetime.  This is not a formula for significant profits.  A company would need broad adoption to make that work, which is the exception (LegalZoom, Avvo), not the rule.

Law firms, on the other hand, use legal services every day.  Pivoting to more frequent users makes sense.

Many people think advertising could generate sufficient profits to fund an access to justice startup.  They are wrong.  A website needs an incredible volume of visitors to generate enough advertising revenue to appeal to an investor.  Because non-lawyers are unlikely to visit a legal website every day, or even every month, it is nearly impossible to direct sufficient traffic to the site to make advertising workable.

Result

The result is that there are a bevy of low-hanging access to justice issues that are left unaddressed.  They are not profitable enough for a company to pursue them.  And legal aid organizations are typically focused on representing those without lawyers, not on tech solutions to the underlying problems.  Automating the answer to a complaint is a perfect example.  The software is not complicated.  But the incentives aren’t there.

This is where LawX hopes to make an impact.  We are associated with a university, so we don’t have the pressure to monetize our products or produce significant revenue.  We can develop legal tech products that create the most value for non-lawyers without the need to make investors happy.  The Legal Information Institute at Cornell and the Legal Design Lab at Stanford have proven this model can work.  It’s a niche market that needs the support of a university.  And we have a very innovative one (to be revealed later).

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