The Law.com article, “Open and Shut Case: Key Trends Driving Growth in the Legal Technology Sector,” explores RF’s latest legal tech insights in the software space through the lens of numerous software transactions and an extensive portfolio of leading tech experts.
In the article, Director Jacob Gordon discusses the ongoing trends in the legal technology space and how they have acted as a catalyst for growth, driving the firm’s interest in the legal tech industry. The firm’s 12th investment in the software sector, Nextpoint, underpins its continued focus in the software space — especially the litigation support and e-Discovery markets.
The full Law.com article can be found below:
The legal industry has long been slow to adopt technology due to a myriad of issues, including misalignment created by the billable hour, concerns around security and data privacy, a focus on cost versus value, a lack of technology training, and a fear of job loss. According to the 2022 American Bar Association Legal Technology Survey Report, only 63% of all law firms have practice management software, with usage among small law firms dropping from 61% of respondents to 46% since 2019.
However, COVID-era pressures to automate and optimize, along with a looming threat of AI, accelerated technology adoption in a sector long resistant to the idea. To add fuel to the fire, momentum has been building over the last three to five years behind a select handful of key trends in the legal landscape. With the proportion of corporate legal budgets spent on technology set to increase from 3.9% in 2020 to 12.0% by 2025, along with law firms increasing tech spending by 7.1% in 2021 and 3.7% in 2022, it’s no secret that the following trends are causing a revolutionary catalyst for growth in the legal tech sector.
Adoption of Cloud-Based Solutions
The legal industry has long hesitated to adopt cloud-based solutions due to security and data privacy concerns — i.e., that the cloud was less secure. However, it is now more commonly accepted that the cloud is as secure as on-premise applications. Cloud-based applications have a higher level of security than what most small and mid-sized firms could afford due to the high costs of server maintenance and the need for physical security. In addition, the importance of being able to work from anywhere using reliable and modern technology has driven users to cloud-based software.
While the legal industry has made significant strides in cloud adoption (up to 40% in 2022 from 3% in 2020), there are still mission-critical applications like case management (16%), practice management (12%), and docket management (25%) that are still largely on-premise.
Growing Emphasis on Managing Legal Costs
Corporations have pressured their outsourced legal providers to reduce costs by adopting legal spend management software and hiring legal operations resources to monitor and measure their outsourced providers. In turn, law firms needing to improve performance and efficiency have begun to turn to technology as a solution — embracing automation.
At the same time, law firms are under financial pressure to make changes driven by a drop in demand for legal work, down 0.1% in 2023, along with an increase in direct and overhead costs by over 10%. Furthermore, the continued decline in billing hours — to 119 hours per month, the lowest level since Thomson Reuters began tracking the metric — sets up a dynamic where law firms will likely lean on reducing headcount while doubling down on automation to increase productivity.
The Slow-but-Sure Adoption of Analytics
Legal firms are just starting to implement analytics, and in a knowledge-based, outcome-driven environment, analytics and data can be crucial catalysts in increasing performance and productivity.
Legal analytics tools can support and optimize almost every step of the legal workflow — researching relevant cases across all areas of practice, simplifying legal research, identifying patterns in the verdicts of specific courts and judges, garnering information about the opposing counsel’s experience and success rates, and more. Data analysis can also assist on the back end and support administration efforts, helping law firms better understand their own operations and decide on the deployment of resources and cost control.
In short, despite the slow-but-sure adoption of analytics tools to date, the benefits seem to speak for themselves, and attorneys agree — 92% of participants in a LexisNexis study stated they plan to increase their legal analytics usage within the next 12 months.
The Future of Investing in Legal Tech and RF’s Partnership with Nextpoint
In recent years, the above trends have acted as a catalyst for growth in the legal technology sector — and investors are taking notice with significant presence in the space. RF Investment Partners is proud to provide insights built upon numerous software transactions and an extensive portfolio of leading software thought leaders to help foster innovative growth.
RF recently invested in Nextpoint — RF’s 12th investment in the software sector — underpinning the firm’s continued focus in the industry. Nextpoint is a provider of cloud-based e-Discovery, armed with the mission to simplify and bring efficiency to the litigation process by providing technology solutions for law firms and legal departments of all sizes.
RF is excited by the potential for growth in the litigation support and e-Discovery markets as highlighted by the American Bar Association’s Legal Technology Report Survey — only 47.3% of respondents use litigation support/e-Discovery software, and between 32% and 34% of respondents use deposition/transcript management software, evidence preparation, management, or presentation software and trial presentation software. This positions Nextpoint for significant growth as potentially over half of their market is greenfield. To further highlight the growth opportunity, 20.7% of litigation support/e-Discovery software users were on platforms that are no longer supported or are on-premise solutions from over two decades ago.
RF’s investment in Nextpoint is just the beginning of the firm’s software thesis. RF is actively looking for new investments in the legal tech market. The team at RF would be happy to discuss any of these trends further and how they may affect your business or any opportunities you think would be a great fit for the expansion of the Nextpoint platform.