Priorities for lawtech sector and market development - Westminster Policy Forum keynote
On Tuesday 10 December 2024 I gave a keynote presentation on priorities for the lawtech sector and market development, at the Westminster Policy Forum ‘what’s next for legal technology and innovation’ event. The focus was on context and interventions for cross-party policymakers. As politicians speak of the imperative of growth and civil servants are in the final spin cycle of Spending Review, I share top-line my remarks below. You can see the full piece behind a paywall here.
Remarks
There is a lot we could cover about the development of the lawtech landscape. Briefly to frame the future and share two priority areas in context of the UK Industrial Strategy and the policy agenda currently being shaped.
We are at a super pertinent moment in law and the world. There are huge shifts happening geopolitically. A lot is accelerating.
Tech companies are reaching valuations that dwarf the entire stock markets of countries and doing so in a year or 2 not a decade. Yet still so many in society cannot get their legal needs met.
The complexity and volume of regulatory compliance for business is at an all time high. Yet there is a huge imperative for economic growth.
Add to that the increasing call for responsible leadership across society. Ethics and duty of care are at the fore. Long held models of behaviour and governance are in question.
In law, the sector consistently appears in lists of the most ripe for disruption by new technologies - something on which all the consultants agree.
We finally have concerted innovation activity happening across the sector from law firms to corporate legal departments to lawtechs. Demand is pushing supply - mainly prompted by genAI and all the activities we will have heard about earlier in the event.
The market is frothy and morphing, where lawtech is not only a broad category in itself, but it is also blending with other categories like fintech, regtech, prop tech, climatetech. Customer outcomes don’t fit into neat segments. There is a huge opportunity for adjacency.
We are also seeing a range of early collaboration where law firms, inhouse leegal teams and lawtech businesses are co-creating. Big tech companies are starting to engage with lawtechs, e.g. Microsoft working with US lawtech unicorn LegalZoom.
Understandably, there remains a lot of concern about how technology is deployed and the harms it can cause or enable. Take the weaponisation of AI or the Post Office misuse of lawtech and reliance on a system that failed, as cases in point.
We can expect to see the recent concentration of R&D coming to fruition in 2025 and beyond as businesses and firms settle on what works well or better and take that into normal practice.
And we can expect a lot of unknowns too. AI development is significant, but it is not all about AI. Blended tech e.g. AI and distributed ledger technology (blockchain) offer valuable functionality used together. We also just saw Google yesterday release its Willow quantum chip. Quantum presents another precipice moment in itself, where computing performance will increase by an order of beyond magnitude, and capabilities will blow our minds as well as our firewalls. That is coming and I anticipate somewhat soon.
How do we take this context and maximise the opportunities of lawtech in the UK? With the right moves, within a decade, the UK can be the top global hub for lawtech, as it is for fintech. The knock on effect for national wellbeing, the economy and the UK’s reputation is marked - did you know the UK is down 9 places in 2 years in Transparency International’s corruption perceptions index, now languishing at number 20?
The highest impact, fastest innovation happens in start ups and scale ups with the innovation hothouse they foster and thinking that is way beyond the mindset of traditional law. This is where I would place concerted policy attention over this term of government.
There are a bunch of things in the wider legal system that require state investment, but in respect of lawtech, the biggest impact area of focus should be backing the founders that will bring the future. Tech entrepreneurs can’t re-engineer the legal system itself, but they can drive access to the system and its efficacy and evolution.
There are 2 major things lawtechs need, mindful of success factors in other industries and markets. These 2 things are capital and data.
First on capital, i.e. money
Funding is runway. Runway is life blood. Without money, innovators are dead in the water. Their ideas stay ideas, or die part way through.
It is way way too hard for UK start ups to access capital. Far too hard.
Innovating in law is hard. It takes time. Answers in law can’t be half right. Procurement cycles are often very long. The culture of legal services is locked in specific / righteous ways of doing things. There is SO much education to do.
Add to that the war for talent. Law is not seen as a sexy area for technologists to flock to. Especially when they are being offered millions by consumer tech giants.
Plus how fast things are moving - if you can’t move fast because you aren’t property resourced, you miss the boat.
At the growth stage for companies scaling up, UK funding is way below the rest of the world.
Lawtech founders are spending so much time and energy looking for money and not enough time building, iterating and selling. Layer on to that the woeful stats around female founders getting funded (WEF: 2-5% of venture money goes to female founders) - particularly relevant when we have so many brilliant female innovators in UK lawtech. Add on the now prolific tax disincentives. We should not falsely prop up poor businesses, but we need to find a way to remove this massive jurisdictional and growth disadvantage.
The fintech business Revolut just past 10m customers in the UK, but it’s had over $2bn in funding, $1.7bn of which before it became profitable. TransferWise (now Wise plc) and Monzo burnt through $0.5 and $1bn each before they became profitable. The UK lawtech unicorn ContractPodAI became a unicorn business at $115m of funding. Harry presenting earlier from Luminance: they have had $60m - their seed round was I think £3m, and the had taken £10m before they became profitable - it’s market value is somewhere up near £200m. The US lawtech unicorn of the moment HarveyAI has raised $206m total (at time of presentation) and is not yet profitable, their seed round was £5m - these folks are ex Google DeepMind.
This is not about hand outs or irresponsibility with money, but being realistic about what it takes today. And about the massive numbers of potential users - citizens and businesses - of these systems - potentially with small payments and low unit pricing, like in the payments industry.
How do we democratise access to investment? Specific suggestions:
Get the British Business Bank focused on helping lawtechs access finance. Give it a concentrated push.
Remove or vastly reduce the requirement for InnovateUK grants to be co-funded by founders to the extent today - at your kitchen table in Bradford, where are you getting that money from?
Find a way to take equity stakes and invest profits back into the ecosystem or put it in a fund to share profit with the taxpayers who invested, aka all of us. Alaska does this with its oil revenue. The obvious filter is for tech of national importance, where access to legal services cannot but meet that definition.
Increase the Investor Partnerships funding model, where government matches investor funding. Alongside this is convening and supporting interest and relationships between entrepreneurs and investors: the high net worths, angel syndicates, family offices, private equity, social impact investors, law firms as investors (like Slaughter & May did with Luminance), sovereign wealth, venture money. Our local authorities and universities have a role to play here. It should not be about who you know, how good you financial lingo is, or who you went drinking or cycling in the Valley with at the weekend.
Out of InnovateUK funding allocations, write way more cheques and double grant limits - can we invest in 1000 lawtechs over 10 years with a success rate of 10%?
The most successful companies globally today have had government investment or partnership of some kind. Tesla had a $465m loan from the dept of energy. Google, Intel, Facebook, Nividia and Apple had large research grants. Space X and Amazon got massive government contracts. Samsung and Alibaba in APAC the same. The govt as a client, collaborator and investor has a big impact.
Access to capital generates growth, and the opposite is also true.
The second lever: data
This is something else that should not be as hard for founders as it is. For many businesses building in law, data is key - private, commercial data to train models and develop tools like loads of contract terms to train a drafting assistant or financial information for what’s market, but also state held data.
Many lawtechs need access to case law, legislation, regulatory data, court listings, court or government department forms that people need to fill in, housing data, property information locked up in planning offices and local authorities. Without this data machine learning doesn’t happen and the time to build or to deliver something genuinely useful is vastly delayed.
Access to state data requires state cooperation. Today, lawtech founders are spending precious seed funding fighting for what should already public.
Some of this data access and organisation is already underway for example in the work of the National Archives. But much of it is not - it sits in paper formats, web pages that are hard to access, inconsistent formats or pdfs. Perhaps worse, some of it is locked up in bilateral licensing arrangements that offer advantage to individual organisations on undisclosed and inequitable criteria.
Looking again at what fuelled the growth of UK fintech, and what is fuelling other sectors including healthtech, data is key. In fintech Open Banking and related regulatory sandboxes were pivotal to unlocking private data through APIs. Regulatory sandboxes are less relevant in UK lawtech because of the liberalised regulatory regime where a whole range of activity is unregulated (about which more could be said). But the parallel is crucial.
3 million users adopted OpenBanking services in the 3 years post launch
The fintech market grew 40% after OB and increased consumer trust and competition, as well as delivering on financial inclusion goals.
The OB model has been replicated around the world in other jurisdictions.
A similar level of vision is needed for law, even if the level of investment is lower.
So, the key priorities for the growth of lawtech are funding + data.
A note also on purpose.
We have not yet agreed as a jurisdiction, together with the public, what we actually want and need in respect of the law, our legal system and services. We need to start there and work back, rather that starting at how much money do we have. So what does the law and legal services mean to society and the economy? Do they matter? How much? How big is the why and what are the moves and markets that shape and support us to realise it?
If we approach this token and small, we will get small, if we do it off the sides of desks, it will be ineffective. It needs commitment proportionate to the opportunity and timely with the window that is open now as things surge on.
For this we also need a high profile sponsor to focus it forward inside government, and an army of advocates to understand and prioritise the work and opportunity - that’s all of you (cross-bencher attendees).
For which a quote on which to end, from the economist Mariana Mazzucato:
“The wrong question is: how much money is there and what can we do with it. The right question is: what needs doing and how can we structure budgets to meet those goals?”