2023 Bright Insight: The 2023 National Legal Sector Benchmark Survey Results

Average deal sizes have grown considerably compared to pre-pandemic norms, implying bigger bets and companies that are further along the VC lifecycle.

Venture capital (VC) investment in legal tech exploded during the pandemic, going from sub-$500 million to over $1.3 billion in about a year. Average deal sizes have grown considerably compared to pre pandemic norms, implying bigger bets and companies that are further along the VC lifecycle. The average 2015-2019 deal size was $2.7 million. Last year, deal sizes were reaching $13.0 million before tapering down to where they remain more than twice the pre-pandemic norm at $6.2 million.

Companies such as Rocket Lawyer, Everlaw, and Ontra have done especially well capturing VC interest with all three firms raising more than $200 million each in 2021. 15 While VC-funded firms touch many important aspects of legal business, such as document management, contracting, operations, and even notarization, artificial intelligence is well-represented among fund raising deals . AI-centric companies have captured more than $237 million in VC funding during the pandemic. The largest AI

deal saw an investment of $60.0 million in CS Disco which brings AI, cloud computing and data analytics to the practice of law. 16 Like other sectors, venture capital in legal tech is returning to historically normal levels with the last four quarters totaling $326 million. Broader economic conditions and the overall VC environment have led to investor apprehension despite sustained levels of high interest in the space.

• Firm investment in technology is expected to increase in 2024. Firms that have between 101-500 attorneys have the most bullish plans for investing in technology with their respective technology spends reaching 8.3% (101-250 attorneys) and 8.4% (251-500) of gross annual revenue. • IT security is the highest-interest area of technology by far with 82% of firms anticipating investment in the space. Artificial intelligence (53%) and knowledge management (50%) round out the top three technologies that firms are currently anticipating investing in. • Most law firms have explored augmenting their work with artificial intelligence, however only 17% are currently using the technology. Firms are most interested in using AI to perform legal research, manage documents, and automate expertise. • Venture capitalists have shown a high degree of interest in legal technology throughout the pandemic with four-quarter rolling investment totals increasing from sub-$500 million to $1.3 billion in Q1 2022. Average deal sizes peaked near $13.0 million in 2021 and are currently at $6.2 million, more than double the pre-pandemic norm of $2.7 million. TAKEAWAYS

15 Pitchbook Data, 2023 16 Pitchbook Data, CS Disco, Inc., 2023

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 27