With investments concentrated at the seed stage and exit activity tepid, YoY funding to legal tech startups dropped 16%.
Venture capital investors completed over 30 deals in the last year to legal tech startups ranging from data-driven LexisNexis alternatives to eDiscovery analytics platforms. But while the overall U.S. legal industry is estimated to be in excess of $300B, funding to legal tech startups barely topped $100M in the last year, with the uptick in Q1’13 funding largely coming from digital forensics company AccessData’s $45M funding round.
The $101M invested in the last year represented a decline of 16% in YoY funding despite a 41% increase in YoY deal activity. With LA-based LegalZoom which is backed by Polaris Partners, Institutional Venture Partners and Kleiner Perkins delaying its IPO last August and exit activity consisting primarily of M&A of companies that are not doing well, industry headwinds appear to be hindering funding growth within the legal tech ecosystem.
In the last two years, 61% of deal activity in the legal tech space took place at the Angel/Seed stage with Q1’13 seeing 10 Angel/Seed deals including EasyESI and eBrevia. But just over 10% of deal activity in the same period occurred at the Series C stage or later.
Silicon Valley captured more than 1 of every 4 legal tech deals in the past two years with companies including Lex Machina, Y-Combinator alum Lawdingo and Google Ventures-backed Rocket Lawyer. About 16% of deals go to the NY Metro area followed by SoCal, which took 14%. of all deals.
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