I have read more than once this week that the sentiment of many at the CodeEx Stanford FutureLaw Conference last week is that insufficient capital is an impediment to developing technology and innovation in the law.
Insufficient capital? Here’s some data for the year 2015 on the 100 largest law firms in the country.
- Total revenue: $83.1 billion, up by 2.7 percent (a new record).
- Total net income: $32.8 billion, up by 3.3 percent.
- Average revenue per lawyer: $894,253, up by 2.6 percent.
- Average profits per partner: $1.61 million, up by 4 percent.
This represents a ton of capital.
Firms as a whole may be unlikely to invest in a startup. Not everyone in a firm will be in agreement on making an investment in technology. But let’s take individual lawyers.
10 partners could go to the bank and borrow $5 million in startup capital at an interest rate of 3.5% and lend it to the new entity at 6%. The partners personal assets are more than sufficient to secure $500k each. This gets them to producing revenue, if not a profit. Plenty of capital will follow on if they need it from their connections in the angel and/or venture capital community.
Getting technology developed and to market is much easier and less expensive today than years ago. It is much easier to get things to producing revenue and a profit.
I may be missing the boat, but every time I hear we can’t raise capital what I hear is that I am not willing to put any skin (money or work for free) in the game. Money has never been cheaper, technology has never been more open, development has never moved faster and third party resources/services (think integration partners or the cloud ala AWS/other cloud services) have never been more available.
The law also has the advantage when it comes to capital and getting things done in that we as lawyers know business. We have practiced law and we know how to build and work with relationships. People from other industries have not been exposed to what we have and don’t have near the experience.
I get that there are cultural impediments. Lawyers being adverse to risk. Lawyers wanting to be lawyers and not business people. And lawyers wanting to invest in other arenas than the law.
But those impediments are not unique to lawyers. Most people are adverse to risk. Most people work for companies rather than starting one of their own. And most play their cards pretty close to their chest when it comes to their investments, investing in mutual funds and their home.
We also don’t armies of lawyers in order to start legal technology companies. We need a few people who have the courage to bootstrap and borrow some money to get a concept off the ground.
Zuckerberg, Gates/Allen or even Britton, Stanley, Stern, Walters, Newton or Port (in legal technology) did not sit back and say capital was an impediment to acting now and building. Capital, if they wanted it, followed on once they proved they had something.
Iamge courtesy of Flickr by Phil Roeder