Legaltech Startups: An Up And Coming Business Model In Town Many startups are today reshaping the traditional legal industry by embracing advanced technologies, including blockchain, to solve some of the core problems

Technological adoption and innovations have changed the way most industries operate across countries. Many sectors that were hesitant to change have also been forced to leapfrog to advanced technologies because of the pandemic. One such industry is India's legal sector. Facilitating this change are some of the legal tech startups.

There are around 30 - 50 startups in the country today that are operating in the space, with offerings ranging from information for users, legal consultancy, e-registration, introduction to lawyers, case tracking, and software for legal firms, among many others. While tech intervention was forced into the industry, what is making tech stay?

Legaltech in the new normal

Legaltech continues to find more takers for several reasons. The primary reason is that the clients have understood that it reduces cost and firms have understood that it reduces time and effort.

Technology has democratized access to many things, including access to justice, by bringing down the cost. "Legaltech can help increase access to justice by making legal services more affordable and accessible to individuals and businesses that may not have been able to afford them previously," said Roma Priya, founder, Burgeon Law.

Legaltech is also saving time and money for law firms. For instance, it can automate time-consuming tasks, such as document review and contract management. Also, legaltech helps the industry stay updated with client expectations. "Clients are increasingly demanding more efficient and transparent legal services, and legaltech can help meet these expectations," she added.

These factors have led to an increased interest in legaltech, not only among clients, entrepreneurs and investors. "Firstly, the legal industry is highly traditional and often faces inefficiencies in terms of time, cost and access to legal services. Legaltech solutions can streamline these processes and make legal services more accessible, affordable and efficient. Additionally, the Indian government's focus on digitalization and technology adoption has opened up opportunities for legaltech startups to innovate and disrupt the industry," said Sumit Agrawal, founder, Regstreet Law Advisors and former SEBI Officer. Regstreet is a boutique law firm advising in the financial regulatory sector. The company has advised many legaltech startups in India who offer services such as online legal advice, compliance and internal audit softwares with disclosures on stock exchanges for insider trading and takeover laws, surveillance alert systems, document automation, contract management, e-discovery, legal research, and dispute resolution.

Experts say that the demand for legal services continues to grow, particularly in areas such as intellectual property, privacy, and cybersecurity. "The legal industry has traditionally been slow to adopt technology, but the pandemic has accelerated the digital transformation of the legal sector. Legaltech today offers the potential to mine data to make better legal decisions, identify trends, and anticipate legal outcomes. This can lead to more informed decisions, better risk management, and improved legal outcomes," said Kundan Shahi, Founder, LegalPay. The company offers a litigation funding platform and provides embedded financing in the legal and insolvency market. It has also launched an equity fund, called the Justice and Inclusion (JAI) Fund, that would invest in emerging legaltech companies and startups working towards financial inclusion.

Further, regulatory changes, such as GDPR and CCPA, have also increased the need for legal compliance and data privacy, which can be addressed through legaltech solutions.

New trends

There are several trends and unique services emerging in the legaltech space in recent years. Contract management is one such trend that is seeing a huge uptick. "Contract management platforms that use artificial intelligence (AI) and natural language processing (NLP) to automate contract review, analysis, and drafting are becoming increasingly popular. These platforms can save time and reduce errors in the contract review process," said Priya.

Online dispute resolution (ODR) platforms that enable parties to resolve legal disputes online are becoming more prevalent. "This technology has the potential to make dispute resolution cheaper, more efficient, and more accessible," said Shahi, while adding that e-discovery, a process that involves the identification, preservation, and collection of electronically stored information (ESI) in response to a legal request, is also an popular offering among startups.

Blockchain technology is also being used extensively to create smart contracts, verify legal documents, and provide secure document storage and sharing. Experts believe that this technology could potentially automate legal processes and reduce the need for intermediaries.

Practice management software tool businesses, legal analytics platforms, and legal marketplaces are some of the other business models that are finding more takers in terms of consumers and investors. We are also seeing a rise in virtual law firms, that is, fully-online law firms that provide legal services to clients remotely. There is also an uptick in the usage of virtual legal assistants that leverage AI to answer legal questions and provide legal guidance.

As the industry continues to evolve, experts say, we will see many more innovations and disruptions in the coming years.

The challenge of scale

The space is not devoid of challenges, scalability being the most prominent one. "Firstly, the legal industry is ambiguously regulated, and legaltech solutions may face regulatory hurdles. Additionally, legaltech startups require a deep understanding of the legal landscape, which may limit the pool of potential investors," said Agrawal.

Moreover, the high level of competition for funding from other sectors is an issue. In addition to this, the lack of awareness among traditional investors about the potential of legaltech solutions is still a dampener.

There is also resistance to change among lawyers, which makes investors hesitate further. "The legal industry has been slow to adopt new technology, and many lawyers and law firms are resistant to change. Legaltech startups must convince potential customers that their solutions can provide real value and help them work more efficiently. Also, legaltech startups must navigate a complex regulatory environment that varies by jurisdiction. They need to comply with ethical and professional standards," said Shahi.

Other challenges include a lack of awareness about new-age digital products and services, intellectual property challenge, limited access to data, high entry barriers, data privacy and security concerns. These require legaltech startups to be innovative, resilient, and adaptable. "They must be able to demonstrate the value and impact of their solutions, build strong relationships with clients, and establish a strong reputation for quality and reliability," said Priya.