Justin Kan, Atrium. (Photo: Josh Hallett/Wikimedia)

 

In spite of the ample wealth and glaring need for updated technology infrastructure in the legal vertical, venture capitalists have been slow to invest in legal technology startups. But because traditional lines to venture capital have been complicated by investor hesitancy about the market, legal technology startups looking to raise funds have begun experimenting with new ways of generating capital.

Though there’ve been an increasing number of small deals, which may highlight renewed interest in the market, the total amount of funding moving into the legal technology space has slowed since 2015 according to CB Insights reports. Startup founders have begun to look for new approaches to court or skirt venture capital. Alma Asay, founder of litigation technology company Allegory Law, recently closed a $500,000 convertible debt funding round by looking to the network of attorneys and technologists she’d grown since starting her company.

Two newer startups, Separate.us and Atrium, are looking to try different approaches as well:

Tapping the Crowd: Separate.Us

When Sandro Tuzzo started seeking funding for his divorce process platform Separate.Us , he found himself “going to venture capital firms and acting like I’m the world’s next Uber,” something that didn’t at all resonate with his product or his market. With a niche product in an already limited legal market, Tuzzo struggled to make investors see the potential billion dollar buyout they are accustomed to looking for.

Instead, Tuzzo has opted to raise a $500,000 round on SeedInvest, a crowdfunding investment platform, which he believes is a first among legal technology startups.

Equity crowdfunding differs from crowdfunding platforms like Kickstarter and GoFundMe, which give users the ability to donate money to a project. SeedInvest, the platform Tuzzo chose for his investment round, takes minimum contributions of $1,000 from users, even those who are not accredited investors, in exchange for a small piece of company equity.

Though the funding round is not yet live, SeedInvest allows users to reserve investments in the round. Tuzzo said that the company has received about $100,000 in reservations from investors to date, at least a few of which he recognized to be lawyers.

Though attorneys aren’t exactly overrepresented in the investor class, Tuzzo finds that attorneys have expressed a strong interest in his product, even with its potential to claim some of their client base. And unlike professional investors, potential investors from the attorney set tend to be more interested in the startup’s approach than its potential to explode into millions.

“They know the problem, and they know the market,” Tuzzo said.

Especially for Bay Area attorneys, who watch and often deal with startup investments and watch small bits of equity bloom into cash cows, Tuzzo believes equity crowdfunding, with its easily managed online platform and low investment threshold, could offer a much easier opportunity for attorneys to get into the investment game. “It does make investing a little more streamlined in an age where everyone wants to do everything on their phone,” he said.

The investment process from the company side, even with willing investors, didn’t particularly impress Tuzzo. The pre-seed funding round he put together under advisement from attorneys “seemed very unofficial and clunky,” and largely consisted of sending PDF files of Word documents back and forth. Because SeedInvest is web-based, they’ve built all the paperwork required to formalize investments directly into their platform, making for a much more modern investing process.

The Household Name: Atrium LTS

Justin Kan, Twitch founder and Y-Combinator mentor, announced this month that he planned to jump into the legal technology space. The company he’ll launch, Atrium LTS, is seeking a $10 million initial funding round led by General Catalyst.

The $10 million Atrium is looking for is unusually high in the legal tech market, let alone for an initial funding round. Legal research platform Casetext recently completed a $12 million funding round, one of the biggest investments in the legal vertical to date, but the investment was a Series B round; its seed round in 2013 closed at just $1.3 million.

It’s likely that Kan’s success in the tech community overall is buoying his investment goals. He’s been a part of two $1 billion exits to date and has attached his name to a number of strong Bay Area startups . Kan’s track record has made him something of a household name in Silicon Valley, which may be the ultimate currency in the tech market.

Kan is not a lawyer himself, but given his relative Silicon Valley success, he’s likely been party to a pretty sizable number of legal matters. TechCrunch reports that he’s also teamed up with Orrick, Herrington & Sutcliffe attorney Augie Rakow and AttorneyFee founder BeBe Chueh for legal guidance.

The team behind Atrium has been fairly tight-lipped about the exact approach the company will take, and no one I reached out to on the Atrium team responded to my request for comment. Kan’s blog, however, put out a call for engineers who are “passionate about creating highly-usable web applications that are crucial to the operations of a law firm,” including “building workflow efficiency tools for lawyers, client-facing dashboards, and public-facing tools.”

This description alone makes Atrium LTS sound like a fairly typical legal tech company. Dashboards aren’t exactly making news these days, but we have yet to see whether the product the company eventually releases merits the large investment it’s seeking.