In a short span of approximately three weeks, several legal tech companies including DISCO Inc. and LegalZoom have made the decision to go public on the stock market exchange.
DISCO just made its initial public offering (IPO) on July 20th, 2021 and began trading the following day. An IPO process can be best summarized as a private company offering shares to the public through a new stock distribution.
The desired end goal of an IPO is for the offer to be accepted (or even better, raised) and to become a publicly owned entity. If successful, IPOs clear the pathway for private corporations to maximize their profit potential and bolster capital on an international level.
While this concept for legal tech companies has only recently become a loud buzz, it is not a new idea to cross their CEO’s minds. LegalZoom attempted to go public in 2012 but ended up withdrawing its IPO two years later.
The reason that legal tech companies have finally been able to reach their previously attempted goals can be accredited to the COVID-19 pandemic forcing the general population to take full advantage of the benefits of technology.
In a recent Los Angeles Times interview, Dan Wernikoff, CEO of LegalZoom, emphasized how the stay-at-home lifestyle allowed room for small businesses to thrive and encouraged the exploration of online tools. In our pre-COVID world, a majority of business exchanges were done in person and it was difficult for companies with remote services to expand their market.
However, in our post-COVID world, online software has become more and more popular and in many cases, has replaced in-person services. Legal tech companies such as DISCO and LegalZoom have greatly benefited from this spike in technological usage, thus supplying them with the resources and means necessary to successfully go public.
In addition, there has been an upward trend of acceptance of the legal tech industry, which can also be attributed to the remote world we lived in (and continue to live in) during the pandemic.
In the past, the legal tech industry leaned on private investments to fund their companies. Until recently, the world did not see this sector as a possible public entity or pay much attention to the legal tech field in general.
Luckily, the hesitation of investors to buy into the legal tech field has been disappearing in recent times, due to successful funding efforts by companies such as Clio and Reynen. Intapp is among the ones that have proudly gone public and as a result, has sparked major attraction for the legal tech field, which cannot be said in previous years. These success stories have acted as a sort of PSA to the world to let them know that legal tech companies can be a stable partner in the long-term, especially in a post-COVID era.
“If you allow a corporation to own [a law firm], they’ll be able to hire really strong talent that can actually build out the technology platform itself. And if you enable revenue sharing, then you actually are incenting people to reduce price as much as possible” – CEO of LegalZoom
Many existing IPOs today are ones that have a strong technology-based platform and investors are now more inclined and willing to put their time and efforts into such companies because of the recent attention brought to the legal tech field.
The legal tech industry going public will encourage people to step away from the expensive and outdated model that traditional firms use, and instead draw them to the quality and cost-effectiveness of the NewLaw model.
The legal sector is one of the few with a majority of work still done in-person, and there is an opportunity here for the industry to catch up to others, such as accounting, in terms of the portion of services offered online.
The spark of legal tech companies going public is a step in the right direction, one that transforms e-discovery and document review from in-person to online-based. As the number of legal tech companies that go public increases, the more others are likely to follow and in turn, the legal industry will be able to further thrive.
Legal tech companies have been long searching for the capital to expand internationally and a way to defeat statues keeping them from revolutionizing, and going public is a great way to do so. Not only will they have access to the resources necessary to reach their long-term growth potential, but they will also be able to further level the playing field with traditional law firms.