Transcript

Chad Main: In this episode of Technically Legal, we sit down with Zach Abramowitz, lawyer, entrepreneur, writer, and generally a guy very dialed into the legal tech world. We also sit down with Catherine Krow. She’s the founder of Digitory Legal, an app that helps lawyers put together realistic budgets. One of the best things about doing this podcast is that I get to meet so many of these smart and interesting people, and every time, I learn something about them totally cool and totally out of left field, like this great nugget I got from Zach.

Zach The Legal Intern at ESPN Radio

Zach Abramowitz: I worked at ESPN Radio when I was in law school. I used to go every day to Madison Square Garden, and I worked on the Max Kellerman Show. At the time, I really just wanted to get into sports. I went to law school wanting to become the next Billy Beane, the next GM. I looked for every opening in sports possible, and I emailed Max Kellerman, and I was like, “Listen, you need a legal intern.” He said, “Why do I need a legal intern?” I’m like, “Well, I’ve heard you a bunch of times on your show, and you’ll talk about some issues in law, and you’ll say, ‘Well, if I had a lawyer here, then we’d know the answer to this, but since I don’t, it’s not really worth talking about. Let’s move on.'” I was like, “I’m going to be that guy. Any time you have some legal issue in sports at all, anything you want researched, I’ll do that legwork, and I can put it together very quickly,” and again, I had no interest in researching legal issues for Max Kellerman, but I just wanted an in somehow, in something that made me stand out. I became Zach the legal intern for about two semesters.

Reply All

Chad Main: I asked Zach to come on the podcast for a bunch of reasons. One of them is that he’s a lawyer. He did M&A work for a New York law firm. Another reason I wanted him on the podcast is because he writes a lot about legal tech, and is in the know about it.

He writes for a bunch of websites, including Above the Law, but another big reason I wanted to get him on the podcast is because Zach is also an entrepreneur. He and a buddy created an app called ReplyAll. You can find it at ReplyAll.me. Using ReplyAll, you can have text-based conversations, and then embed those conversations on a website.

Zach Abramowitz: A good friend of mine and I just used to have these debates, and I said to him, “Wouldn’t it be great if you and I could take these conversations and publish them, and allow the rest of the world to follow along like a fly on the wall?”

He was like, “Wouldn’t it be better if actually interesting people could publish these conversations? We could follow them.”

We built a tool that websites use to host conversations with experts that they publish as dynamic content, so instead of going to the Wall Street Journal and reading an op-ed that’s written by one person, with ReplyAll, you’re reading a back and forth between multiple authors, multiple perspectives, multiple opinions, and you’re getting to see that interaction, and you get to see it unfold in real time as the conversation actually happens.

We’ve taken that tool and the first big site we worked with was Above the Law, but we’ve also worked with Sports Illustrated, and TechCrunch, and Bloomberg, and Huffington Post. That was the reason, our goal at the time. This was in the early Facebook and Twitter years. We felt that conversation online, when it involved everyone, was not as interesting.

A conversation that anyone can get into is not really a conversation. That’s a conference, and I wanted to be able to create these sort of intimate conversations, and the goal was that you’d get Warren Buffet and Bill Gates having an exchange about strategic charity or giving. That was the real impetus. The fact that we got into legal was totally an accident. I joke all the time. If you had told me that I was leaving law to start a legal tech company, I probably would have never left law in the first place.

I was working at Schulte for two years. I left because I thought I was never going to have any contact with attorneys again, which was part of my goal in starting ReplyAll. What we’ve found so far is there’s so much interesting going on inside of legal right now that we as a company have really honed in and focused on legal, and not just ways to make business in terms of advertising revenue and getting sponsors on our content, but also to help move the conversation forward, if you will, in legal. That’s a lot of the work that we’re doing right now, is helping and getting more involved, very specifically, in legal technology, because I think for the last year, year and a half, I’ve been looking around at all the interesting things going on inside of legal tech and thinking, “Listen. I’ve got the startup skills. I’ve got a really good network in legal.

I’ve been meeting more and more GCs, more and more startups. I know the scene very well. What more can we do here that’s not specifically advertising related? How else can we help companies in this space?” I think that’s what we’re focusing on right now, and I think in that respect, we’ve become very, very obsessed with legal, and other ways to sort of monetize an online asset, which is really what we’re doing.

We’re a publisher. We are just not completely dependent on advertising revenue for our business model. I think that ultimately, we are going to go back. We’ve been pitching deals to big Fortune 500 companies on being sponsors. We were very close to a deal with Sports Illustrated earlier this year, and then Sports Illustrated got acquired, so we’re having to wait out that acquisition, but we’re not specifically a legal tech company. We’ve very much accidentally become a company that is very involved in legal technology.

The Next Big Thing In Legal Tech

Chad Main: Because Zach has his finger on the pulse of legal tech, and talks to a lot of people in the industry, I asked him what seems to be the next type of legal tech that’s gaining some traction and notoriety. He mentioned two companies, Kira and Doxly, two companies that have developed software to analyze and automate contractual workflows. As a side note, I was lucky enough to talk to Haley Altman, the founder of Doxly, in episode six.

Zach Abramowitz: First of all, the idea of legal tech … Legal tech’s been around for a long time. No law firm could exist without SAP, Oracle, IBM, one of these huge companies coming in and building systems for them that could allow them to be a 1,500 attorney firm with offices all around the world. That does not exist without technology.

What’s changed in the last four years, since you and I have gotten into the space, I think what’s changed more than anything is that the technology that’s being built now doesn’t, let’s say prima facie, support the growth and scalability of a law firm. What it seems to say is, “Hey, listen. You don’t need lawyers for that anymore. Now we have an automated solution.” I think that’s been very threatening to attorneys over the last few years, since I’ve started writing about it anyway.

The whole question of, “Are robots here to take our jobs?” I don’t think robots are here to take our jobs, but any time there’s change, there’s uncertainty, and just because industrialization in the past has led to more business and more jobs doesn’t mean it’ll do that in the future. I think that’s my starting place for legal technology right now. The example that I give, I love two companies. Kira Systems was the first technology company I ever wrote about, and the reason I wrote about them was this is exactly what I did in the law firm. I remember talking with other lawyers and saying, “Why do we have people on this? Why can’t this be done by a monkey?” But if I had been as smart as Noah, I would have said, “Why can’t this be done by software?” Noah, that was his concept.

What Kira was doing in those days, when it was Due Diligence Engine, was reviewing an agreement, pulling out a clause, and populating a diligence memo, the templates in a diligence memo.

This was the work that I did at law firms, and I was like, “Holy cow. This is being totally automated right now. Isn’t that something?”

The other company I like to use as an example is Doxly. If you think about what Doxly does, it’s like every deal, I used to say, has two junior attorneys, a monkey and an associate. Monkey reviews documents, just reviews, reviews, reviews, reviews, but there was also an associate in every deal who was the deal babysitter.

They were the ones making sure that, “Okay, what agreements, what papers do we need as a result of our diligence? What do we need to paper this agreement so that we’re covered on all bases?”

There’s a lot of paper that comes in. There’s a lot of signatures that comes in. Consent agreements, all kinds of stuff. Who knows? Every single corporate transaction has to be papered to death, and making sure that all those agreements come in, what we used to do is, we would create a Microsoft Word checklist, which we would continue to version up and send around as new things came up, and it updated. We would check it off automatically, and every once in a while, the partner would say, “Send around the updated checklist.” This is how we really did these deals, and the agreements came in manually, and we populated them, we printed them out, we put them in folders in the closing room. This was a substantial amount of work.

This required a junior associate on every deal who was solely responsible for this. You might have an associate who was doing that who wasn’t actually doing any of the review work. All they were doing was let’s say drafting and deal babysitting. Doxly does that. Doxly’s a smart checklist, and instead of having this archaic process that’s fragmented, it’s streamlined in one place. It’s very simple. It’s very easy to use. It really negates the need to have a full-time junior associate on these deals.

The reason I mention Doxly, I mention Kira going to the trends conversation is both of those are jobs that I did manually that are now being done better with the help of software, and you might even say makes the 2012 version of me totally irrelevant on a law firm deal.

Silicon Valley is Noticing Legal Tech

Chad Main: Contract analysis and automation might be the next type of legal tech software gaining traction, but there are some other great apps bubbling up out there in Silicon Valley, as Zach points out, is starting to notice.

Zach Abramowitz: I like just about any company that comes out of Y Combinator. Two of the most important people who you’ll never hear mentioned are Jon and Carolynn Levy, a husband-wife tandem that are partners at Y Combinator. They were Wilson Sonsini attorneys who have basically hand-picked all the legal tech companies that you know about. ROSS Intel, YC. Casetext, YC. Ironclad, SimpleLegal. Lawyaw just came out of them. They’re a new company. Cognition IP, Atrium, Justin Kan, the founder of Twitch’s company. I’m leaving out some. They have funded a lot of really good companies.

Legal Tech Founder Segment: Catherine Krow of Digitory Legal

Chad Main: We’re going to step away from our talk with Zach for a few minutes, because now it’s time in the podcast for our legal tech founders segment. This is a time where we sit down and talk to a legal tech founder about the apps they’re developing.

This week we talked to a person so nice, she did this interview twice because we ran into some technical difficulties. We talked to Catherine Krow, the founder of Digitory Legal, another one of these apps that I wish would have been around when I was still practicing.

Digitory Legal permits lawyers to put together realistic budgets for their clients and pulls from real world data. It also permits clients to put together real world budgets for their lawyers. All right, Catherine. Thanks for being here today. Tell us a little bit about Digitory.

Catherine Krow: Digitory Legal is a cost management and analytics platform for law firms and clients that was built to help them succeed in the modern legal market. What I mean by that is a market that is moving more and more to alternative fee arrangements and budget based pricing, even for the most complex matters.

Chad Main: Tell me specifically, what does it do?

Catherine Krow: What Digitory Legal does is deliver a deep understanding of cost, how customers focus on resource management, and provides really clear communications, both internally and externally, around expectations. Internally, it can be used to understand costs at a task and time keeper level, set price benchmarks, create accurate budgets and well scoped alternative fee arrangements, and manage to those numbers, and it can also be used collaboratively, with law firms providing budgets, bids, and forecasts to clients through the platform.

Chad Main: You were formerly in legal practice, correct?

Catherine Krow: I practiced law for 17 years, and was a partner at Orrick Herrington for many of those.

Chad Main: What was the inspiration to create Digitory Legal and leave the practice?

Catherine Krow: A few years ago, while I was practicing law, I came to the realization that the legal profession really needed to evolve, and what was happening was law departments were and still are under enormous pressure to do more with less, and you could see that pressure in the meteoric rise of legal operations and legal procurement.

These are job descriptions that barely existed a few years ago, and now are some of the most powerful forces for change in the legal industry. What was happening is an unprecedented level of business discipline has started to be applied to the legal industry, and if you’re going to succeed in this market, I realized that law firms were going to need to examine their processes, adopt new technology, and make some significant changes to really better meet the business needs of their clients.

That was the inspiration, and it was a moment for me, a decision point where I could try something new and try to solve these business challenges in ways that would bring lawyers and clients together, or continue doing the same thing. I decided to take the leap and focus on the business of law instead of the practice of law.

Chad Main: That’s great. Who’s Digitory best suited for?

Catherine Krow: Our target market is the Global 2000 and the law firms that work with them. We focus on the Global 2000 because I feel like the movement to alternative fees for complex matters is being driven by some of these companies, and the need to respond by the law firms that work with them is very, very powerful. It can be used by anyone doing complex legal work, but we are focused on that target market.

Chad Main: Where can people find you and learn more about the product if they want to?

Catherine Krow: You’re welcome to visit us on the web at DigitoryLegal.com, and on Twitter at @digitorylegal, or follow me personally @cmkrow, and you can also reach out to us at support@digitorylegal.com.

E-Discovery Companies Paved the Way for  Legal Technology Companies

Chad Main: Let’s get back to our talk with Zach Abramowitz. Before we left, Zach was talking about trends in legal tech, and how players in Silicon Valley like Y Combinator are starting to take notice of legal technology companies. But Zach also points out something interesting, that newer legal tech companies might have e-discovery companies to thank for paving the way.

Zach Abramowitz: E-discovery, it’s true, it’s becoming a more mature space, but a lot of the people that you see now at legal tech companies, or at some of the alternative legal service providers are veterans of e-discovery.

Relativity Ventures is investing in startups. I think a lot of the players that you’ve seen come from e-discovery, they learned how to build technology and market it to law firms, and sell it to law firms, and work with law firms, and their model is not necessarily the same model that companies in the finance world use. It’s specific.

They learned how to sell into the legal industry. They learned how to design software for the legal industry, and I think they’ve now paved the way for other technology to come in. Again, e-discovery wasn’t necessarily the place you would have thought legal tech got started, but I think if you look hard, you see that a lot of the roots for legal technology are in e-discovery, even if the company is not doing anything related in e-discovery.

Is Legal Tech a Tough Sell to Venture Capital?

Chad Main: Despite all the advancement in legal tech, and all the new great tools that are being developed, and despite the fact that Silicon Valley players like Y Combinator are now starting to take notice, to many VCs, legal tech still may be a hard sell because, as Zach aptly points out, legal tech companies are not rocket ships like a Google, like a Facebook, like an Uber.

Zach Abramowitz: In order to get the investment that it takes to build a technology company, you’ve got to go to VCs. You’ve got to essentially go to Wall Street and tell Wall Street, because again, VCs in Silicon Valley, their boss is Wall Street. Their boss is the Illinois Pension Fund, or T. Rowe Price. That’s who’s investing in VCs, so you’ve got to go and make the case to Wall Street that you’re a billion dollar company, because the VCs, in order to give the 30% return on risky assets to their investors, they’ve got to invest in billion dollar companies.

You can do the numbers anyway you want.It doesn’t work unless a VC builds and hits on a rocket ship. If you think about the original venture capitalists, go back in time, Ferdinand and Isabella funding Columbus, or if you’ve seen The Greatest Showman recently, funding P.T. Barnum. You had to go into huge rocket ship-like ventures in order to make the returns pan out, and most solutions for legal are not billion dollar solutions. Relativity is the outlier. Most great solutions for legal are not going to be billion dollar exits, and because they’re not going to be rocket ships, VCs won’t typically invest in them.

Chad Main: If legal tech is not always an easy sell to venture capital firms, where should people with good ideas look for resources in investment?

Zach Abramowitz: I’ve got a piece up on Bloomberg now, you can go check it out, where I’m going to explain why I think that law firms have the best position, or why they have a very strong position. Before I do that, let’s just acknowledge that this is happening right now. Go downstairs right now. GravityStack, and that’s the company that we’ve worked with, GravityStack is a wholly owned subsidiary of Reed Smith, which is building and licensing technology, and they’ve got products out.

We helped them rebuild … Periscope was the technology they built in-house four years ago, but they’re down there. Orrick is showing off products. Before we get into why this makes sense, let’s just first point out that it’s happening. Luminance is an example. 5% stake of Luminance is held by Slaughter and May, the British law firm, because it was developed out of the firm, so they have a stake in it.

More and more law firms are investing in legal technology, not just in other companies, but in building their own solutions. First point is, it’s happening. Whether or not it’s the best solution, we can now debate, but I think it’s really critical to understand right now that this isn’t some pie in the sky, “Hey, what if law firms developed their own technology?”

No, it’s happening, and I can tell you, I’m talking to law departments that are talking about it too. What makes sense about it? If you’re the law firm, I feel like in some ways you can relate to this, especially from Percipient’s perspective as well, because in some ways, you were sort of like a law firm. You’re not a law firm, but sort of. And by the way, let’s add to that list, Atrium, Justin Kan’s company, Cognition IP was another one, these are essentially tech companies that are masquerading as law firms in order to build the next generation of legal technology. Again, it’s happening now.

Why is the law firm in the best position? The law firm has the best access to the pain points. They know what’s wrong. They know what doesn’t make sense. All they need to do is get in the habit of, “If you see something, say something.” “Hey, we’re doing this in a totally bogus way that’s inefficient to our client and is a terrible process internally. We need to fix this.” They’ve got the access to the pain points.

Second of all, they’ve got the trust of their clients already. You know how hard it was for some of the companies that we’ve mentioned to build a brand and gain trust with law firms and law departments? Axiom has spent 10 years getting into this space and building a brand with clients. It’s not like building trust in other verticals. Building trust with legal, where you’re talking about risk and bet the farm, and screw-ups that could cost the company even more money, building trust is a huge issue in legal, but the law firms already have the trust of their clients.

Third, what law firms have more than anything else is resources. They’ve got money. Maybe it’s tough to get the partners to part with some of that money. That’s definitely an issue, but at a very basic level, they do have resources. If a law firm builds a technology solution, right now I think GravityStack, which is again, Reed Smith’s wholly owned entity, has built a product called Periscope that I believe could easily amount to five to 10 million in annual revenue for them a year. I don’t know about more than that.

We’ll see, but the point is, if I go to a venture capitalist and I say, “We’re five to $10 million in revenue. We can build a company that has five to 10 million in annual revenue,” they’re like, “Good luck with all that. Sounds like a nice lifestyle business,” but the point is, for a VC, five to 10 million in annual revenue is really not anything that gets them excited. But if you’re a law firm, and I’ve come up with a way for you to have five to 10 million more in annual revenue, that’s like hiring three rainmakers who don’t need a corner office, and who won’t lateral.

Chad Main: And if it is truly tech driven, you don’t need the associates and the support staff.

Zach Abramowitz: And you don’t need the associates and the support staff. I think that what you’re seeing, and I’ll give the example before we wrap, I’ll give the example of Periscope and the reason that I think law firms, and again, this goes to the pain point more than the trust and the resources, it was Periscope, this product that Reed Smith and now GravityStack is releasing, was born out of an actual business use case. They were doing their own review, because they’ve got their own internal review team, the Red Team. It’s a $40 million annual business for them, but they were having an issue that reporting on data to their clients took an extraordinary amount of time in terms of inputting into spreadsheets and handling it manually.

It was taking like five days of overtime per month, and they were only able to report on it like once or twice a month, not any way that could be actionable. They would get to the end of the month, and the bill that should have been 40,000 was now 60,000, which they hadn’t caught earlier because they were not reporting on data that frequently. This was requiring partners eating bills. It was something that was causing an issue for them in terms of having their own internal review team, so they built Periscope as essentially to tie into other data sources, pull that information, and allow you to get at the end of every single business day, so that you knew you could budget. You could predict. You could see what was going on inside your review every single day. They knew this was an issue because it was their issue, and for the last four years, they’ve been using this product internally and differentiating their service.

Now they’ve effectively said, “Listen, why don’t we make this available for others to use? If it’s been such a win for us, for our clients, saving 25 to 40% off review, for us, becoming a more efficient and a more profitable group, why are we not giving this to the rest of the industry?”

I think that this is a question you’re going to see a lot of firms asking now, because I think a lot of firms, not only ones that I know about, have built something internally that they then say, like, “Are we the only firm in the world that has this issue? Couldn’t be. It couldn’t be.” Really, really long way of answering. The reason the technology has sucked in legal is that number one, it’s hard to make a business case for the billion dollar rocket ship, and on the other hand, having expensive consultancies develop this software tailor-made is not really a good solution, especially in an era where building Cloud-based technology has never been so inexpensive, so what I think that law firms getting involved may actually fix that.

Chad Main: That’s it for this installment of Technically Legal. We hope you liked it. If you want to learn more about anything we talked about with Zach or Catherine, you can go to the episode page on TLPodcast.com. If you want to subscribe, which we hope you do, you can find us on most major podcast platforms, such as Stitcher, Google, iTunes, et cetera. If you want to get a hold of me, you can email me at cmain@percipient.co. That’s C-M-A-I-N@percipient.co. Thanks for listening, and hope you’ll tune in next time.