Is the legal industry the new start-up hotbed?

Though tech may be all the rage, the legal industry might actually be the place to be for new start-ups. The field is undergoing something of a revolution right now, positioning it as one of the hottest markets out there.

A huge 2013
One of the easiest ways to determine how well a sector is doing is to look at the amount of funding its start-ups have accrued. In terms of pure dollars, the legal industry is quite healthy in this regard.

According to Tech Cocktail, some of the hottest new enterprises did well for themselves in 2013. The news source dove deep into last year’s news and found that many businesses drew significant capital from a number of sources. For instance, Modus, which develops eDiscovery tools, received $10 million in funding, and Lex Machina, a legal analytics firm, got $4.8 million, including some from a venture capital group in Boston.

In total, the news source estimates that legal start-ups received $458 million in funding last year. This is a huge leap for the field as new businesses only took in $66 million in 2012. Writing for Tech Cocktail, Joshua Kubicki attributes the growth to newfound confidence in the sector as a whole and a proliferation in burgeoning companies.

The momentum is expected to carry through 2014. January alone was a fantastic start as $12 million was given to four startups in separate deals.

On the whole, this is fantastic news for the legal industry and consumers alike. As more services go online and new start-ups receive funding, the entire market will evolve. Law firms will be able to capitalize on new online platforms to expand their offerings and help further growth and revenue. Meanwhile, people in need of legal services will have an array of options tailored to their needs.

The good news for entrepreneurs is that the legal field is expected to expand further and doesn’t appear to be a bursting bubble yet. If you’re in the sector already and see a need for a particular type of service or want to combine some aspects of the law with technology, this may be the best time to do it. The current start-up valuation on AngelList is $4.4 million.

Of course, how you move forward from that figure depends solely on your strategies for managing your business. You could choose to have your enterprise evaluated and try to sell it for that figure, or you could partner with investors by selling equity.

Regardless of which option you choose, you should act fast. As more legal start-ups debut, it’ll get harder and harder to stand out from the pack. Getting in on the ground floor and building excitement for a new brand as soon as possible is the best way to secure a solid round of funding.

A big change for the industry
In an article for VentureBeat, Nicole Bradick of the Potomac Law Group explained that the legal sector is in quite a bit of trouble. She notes that clients have begun voicing their displeasure with sky-high fees and “significant inefficiencies.” Additionally, major firms have closed their doors, cut their workforces and merged with other groups.

This has galvanized nearly the entire field to buck traditional methods and innovate, which Bradick asserts hasn’t been its strong suit. Like Kubicki, Bradick highlighted some of the biggest startup deals and funding rounds from 2013.

However, she also explained that even well-established enterprises are turning things around. She reports that firms like the Potomac Law Group “are embracing the use of technology or even creating tech solutions to serve clients better, faster and cheaper.” The shift was necessitated by consumer demands for more reliable, expedited and budget-friendly legal assistance than what’s usually available.

It’s great to see major firms taking this approach. Because these organizations are so large and have such an in-depth understanding of the market as a whole, they’re in a solid place to change the game completely.

This can also be great news for start-ups. In almost every field, startups are viewed as hot commodities by bigger businesses. Look no further than Nest Labs, which builds high-tech versions of basic household appliances like thermostats. It was bought by Google for $3.2 billion, in no small part because of the potential it has.

Legal start-ups can profit greatly from this mentality. Should a new company develop a revolutionary platform or service, major firms and businesses will likely be interested in it. This will allow the owner or ownership group to sell the startup and then turn around and use the money to build another enterprise.

Alternatively, entrepreneurs can maintain control of their companies and create strong brands. Though the field is mainly built on the backs of name firms and a handful of major groups, the sudden explosion of new businesses indicates that the industry is now open for greater competition. Who knows, maybe in a couple years some of today’s start-ups could end up being the biggest names in law.

I fought the law and the law won
If you want to get into this field, you need a few things:

In-depth legal knowledge
A game-changing service
Great branding skills
A strong pitch

Those last two are elements that every entrepreneur needs, but they can truly make a world of difference in the legal field. You’ll need to tailor your brand and pitch to investors and consumers of legal services. After all, financial backers and clients have much different expectations of a law firm or online law platform than they would of a restaurant or manufacturer.

Spend time getting to know the field and how to connect with it. If you’re not a lawyer or part of a firm, it’d likely be in your best interest to hire someone who has that experience to help with branding and pitching. What’s more, their experience will likely give investors confidence that your startup understands the industry and is worth supporting.