Chris Dreyer:
To be in insurance companies, you need the best legal tech in the game.
Zach Posner:
The interesting part about legal is historically it's been a decade behind, and for the first time I think that we're right there.
Chris Dreyer:
But legal services are a crowded $1 trillion industry.
Zach Posner:
Whatever tech you're using today will be the worst tech that you ever use.
Chris Dreyer:
So let's get insight on the state of legal tech, where the industry is headed and what you can do today to dominate the competition.
Zach Posner:
The secret to this space is...
Chris Dreyer:
... This is Personal Injury Mastermind. PIM is powered by Rankings.io. I'm Chris Dreyer. Each week we get tactical about legal marketing, intake, and operations. Today's guest has backed over 80 legal tech companies. He's the co-founder of the only venture capital fund exclusively focused on investing in legal technology companies, and has everything you need to understand the legal tech boom. Let's go.
Zach Posner:
I'm Zach, co-founder of the Legal Tech Fund, and our goal is to invest in companies that are transforming the world of law. Most of our companies are early stage technology companies. What we're trying to do is find the best ones in the world, invest in them, not only financial capital that most people immediately think about, but it's more human capital. And it's more saying, "Hey, this is an interesting vertical that has tons of different business models, and we try to provide guidance and relationships to help these entrepreneurs accelerate their journey and really reach their full potential. That's our goal."
Chris Dreyer:
Most of the audience listening are the bootstrapped, right? Or they're coming off a big case and that's kind of how they're funding. Can we kind of break down, just before we get into this, maybe just some of the different types of leverage and what the tech fund is on the venture side?
Zach Posner:
Yeah, so there's tons of different ways to finance a business. Arguably the best and the timeless one is bootstrapping a business. But then there are some businesses where, let's say it's a technology business, and you know you're going to need a significant investment over the next couple years before you can really start to generate revenue. If you're an attorney, you can go out and you can find that first case, and you can almost leverage that to get started. But imagine if I told you, "Hey, you're going to need five software engineers, and you're going to need millions of dollars of infrastructure to even get your idea off the ground to be able to show it to somebody." So that's where we come in. And we are basically there to say, "Hey, we'd like to provide these companies some financing."
And in exchange, we buy a little piece of the business, and the theory is that that gets them the leverage they need to almost have explosive growth once they're ready to get going. So you can say that a bootstrapped entrepreneur expects a very consistent path. And you may have some good cases, you may have things along those lines, but we are expecting like zero revenue and then boom, lots of revenue.
Chris Dreyer:
Got it.
Zach Posner:
A venture fund in general is not playing to invest a dollar and get two back. While that's a great outcome, what we're playing for is to invest a dollar and to get 10 plus back, and in some cases, a hundred plus back.
Chris Dreyer:
Team just launched the LegalTech Lab, the next evolution in your core thesis of Law Firm 2.0. You've backed 70 plus legal tech startups. What do you see? What is Law Firm 2.0?
Why Law Firm 2.0 models outperform traditional PI firms using legal tech
Zach Posner:
We are seeing a cohort of software companies that are trying to come out using AI to perform more and more services. And it's saying there's a huge untapped market for legal services where it's just not cost-efficient for attorneys to focus on certain areas, but we believe that technology can help in some of these areas. And what we're seeing are entrepreneurs that would historically go build tech companies, say, "You know what? We're going to go try to build a law firm." So that's what Law Firm 2.0 is. And if you think about it from an evolution on the tech side, we saw a lot of tech historically come out, charge you a monthly subscription fee. We then saw a lot of tech come out and say, "We're going to charge you on a per transaction fee." Mostly so you guys have a clear way as to expensing that back to a client if it should make sense and it's an expensable type of item.
And now we're seeing some things take that a step further and saying, "How can we do more of that work?" This is not stuff that necessarily competes against attorneys. This is more stuff that attorneys are not necessarily focusing on right now.
Chris Dreyer:
You have a better view than anyone in regards to the legal tech ecosystem. I mean, you see which companies there are from a whole mix. There's a lot of competition in the medical chronology and demand letter space. I'm excited to talk about a range of things that I'm probably unaware about.
Zach Posner:
We're tracking about 2,800 companies. On a monthly basis, we're getting connected to about a hundred new companies every month at this stage. So the explosion here, as I'm sure you're all aware of from your inboxes, is really unprecedented. I know your crowd's a big plaintiff for PI types of folks. This is affecting everything. This is affecting the traditional corporate or transactional lawyers that bill on an hourly basis. This is affecting corporate legal groups, the general counsel's office. This is affecting legal operations within corporates. This even goes all the way down to SMBs and even down the consumers. We're seeing lots of interesting things.
Chris Dreyer:
It's also a mindset shift that you have, and I think a lot of people need to have is not to be afraid of AI and tech and think of it like from the pessimist side. It's like, "What can it do for me from the optimist side?" I think there's a lot of opportunity. You might be one of these firms that can shave off some expenses and get some more margin to let you do more exciting things.
Zach Posner:
We think there's going to be a significant amount of expenses that you can save. And it really, it's almost about freeing folks up to take on more high level work. Something that I think about a lot is the advent of the ATM happened in about the 1970s. And people said, "That's the end of the bank branch." And from basically 1970 until today, I don't have the number, but I think that directionally we're talking about the number of bank branches increased by 3X. Now, some of the roles, there may be less tellers, but every bank branch now has consumer loan officers, it has business loan officers. So the roles shift a little bit, but overall, the application of technology, some people have deep concerns about it, but we think it's going to create more opportunity for everybody to do more meaningful work.
Chris Dreyer:
So I guess, and I don't want to ask this next question from a negative side. Maybe you can help wrap my head around this because Jack from Clio was on the podcast, amazing company, and they're like series F, right? So at what point, and I don't know what their valuation was, like $2 billion?
Zach Posner:
Keep going.
Chris Dreyer:
Okay. Okay, way higher. Way higher. 20 billion maybe, I don't know, more. It's like, I guess because their vision and their ceiling of what's possible is just more extreme than what I'm thinking. I guess they're doing it for acquisitions to supplement their existing infrastructure because they're already, I guess, generating revenue, but at what point do you start taking the revenue versus continuing to build the infrastructure?
Zach Posner:
Well, that really depends on the opportunity ahead of you. When you think that there's a massive opportunity ahead of you and the kind of the competitive landscape, then sometimes it makes sense to just continuously be taking capital to get market share. Because if the flip side is, hey, we can be profitable and grow very slow. That's fine in a world where there's no other competitors.
But if there are other people biting against you, then somebody's going to go sign up that customer, and do you want the capital to have the extra marketing resources? And then there's also places where the capital just makes sense. A lot of this stuff comes down to a construct that we think of, it's called unit economics.
And it's just saying, "Hey, I'm going to have to put out X amount of dollars to go acquire a customer, but I know that that customer's worth Y," which is hopefully significantly larger than X. So it makes sense to go out of pocket negative $100 if I think I'm going to make $1,000 on that customer. And the more that you refine that customer, it's the same thing you think about when you use for an SEO campaign or an SEM campaign like, "Hey, we're going to spend X amount of dollars, and we believe we're going to get this return back."
Chris Dreyer:
I'm excited to talk about the companies too. And the PI firms listening, starting with the attraction, the acquisition side, what are some of the exciting new tech enabled AI things that help on the lead generation, the marketing or sales side?
How legal tech tools like referral marketplaces and LLM call centers transform PI intake and case operations
Zach Posner:
In your world, we've invested in a company called Lexamica, and I'm not sure if you've come across Gabriel before, but what they are doing is basically saying, "Hey, we want to be a marketplace for people to come and get referrals, and at the same time, put their referrals up there. And how do you match the case with the best possible practitioner to execute and go work against that case?"
We think it's a multi-billion dollar per year opportunity. And we think that a lot of this stuff, not only the acquisition of them is done in old-fashioned ways, but then how do you report on them? How do payments change hands? So we get really excited about something like that, if that makes sense.
Chris Dreyer:
Yeah. And we've had Bob Simon on and he's got Attorney Share and you've got, it looks like, I think those are the only two companies that I'm aware of that are in that space. And a lot of times you see two winners, right?
Zach Posner:
I think that's a learning is that this space is big enough, you're going to see multiple winners. I've been investing in this vertical for directionally 10 years and then with a fund and day in and day out since 2019, '20. And it's like a lot of the companies that we've looked at have been successful. It seems like there's just like one thing we talk about internally with is this space just so big and growing so quickly that everybody can do well.
Chris Dreyer:
Regulatory changes are making room for new players and they're moving fast. Some of the most interesting tools are finding value in cases you've already earned. Here's how these companies are using the data to surface opportunities that give forward-thinking firms a real edge.
Zach Posner:
With everything that's happening with the ABSs in Arizona and the different walls that are changing, there's companies that are trying to mine data in innovative ways to generate leads. There's companies that are going back into attorney's files to say, "Is there things that were missed? Are there other opportunities that come from our clients?" There's companies that are scanning the dark web to find data breaches that in some cases are informing the companies before they're even aware of some of these things.
So what we're really just seeing, and all of these are tools that like without technology, it's almost impossible to do. So I think that we're in this like V1 where people are saying, "Hey, there's a lot of expansive opportunities that technology can help with. How do we try to take advantage of some of these and build businesses around them?"
Chris Dreyer:
Yeah, and I think that's excellent. And I think there's so many advantages of doing the co, doing it kind of the old school with labor, getting your leverage from that manner. We've seen people try to take advantage from labor from a nearshore perspective, but then you got the tech advantaged.
Zach Posner:
I mean, I'm curious your thoughts. We're seeing a big rise right now. We've probably seen 15 effectively automated call centers using automated LLMs to interact with clients. To me, this sounded a little bit crazy. I mean, you guys spend a lot of money to generate leads and to turn that over to a robot, but I'm watching, we're watching the technology improve and the user experience get better. I'm curious what you think about things like that.
Chris Dreyer:
Transparently, I'm an investor in CaptureNow, so I think positively of it. I think-
Zach Posner:
We're big fans of those folks. Yeah.
Chris Dreyer:
First of all, I think what they're doing is amazing. You can barely tell. If you have the medical, the hospitals, the banks, they all do some type of tech enabled intake and it's very common. We're familiar with it. It's just less common, I guess, in the legal space, but I think it could be more not as taboo or more natural in the future.
I do like it just when you do a comparison versus cost of the manual, even if they're doing the nearshore, some of these call centers, the costs are just so prohibitive, especially if it's an overflow scenario. So I think there's some advantage there. One of the things that I think I just had David Haskins on, and he's developing this, where the agent is listening to all the calls and flagging missed opportunities and grading the intake reps. And you think about it from a quality assurance perspective, like if you had a great quality assurance rep, how many calls can they listen to versus the AI agent listens to all of them?
Zach Posner:
So a couple fascinating things there is like, we've heard people saying, "Hey, if you rely on this stuff too much, that can be borderline"... Two years ago, I was hearing that could be malpractice. Now I'm hearing, well, if you don't use some of this stuff, is that not... And then the other thing, look, a lot of the companies we see out there, like what you just described, that kind of came out a year and a half ago for general sales folks, not in the legal industry. Just generalist sales teams, literally watching the transcript as it goes by, giving a flag saying, "You should mention this or you should mention that." The evolution of software where things start out general and then they get tailored for a specific vertical.
I mean, the interesting part about legal is historically it's been a decade behind and for the first time, I think that we're like right there. I mean, we are maybe six months behind and there is a whole cohort of entrepreneurs that are trying to attack this vertical that we've never seen before. The engineers from Google, from Meta, from Netflix, which has its strengths and weaknesses.
Chris Dreyer:
It's so interesting. Even myself, we're trying to use more of the LLMs and try to do our custom GPTs and things per client, on a client level and then there's some hallucination and sums you this and that. One of the things I was excited about was we have an AI hooked up to our HubSpot that basically looks at the communication and does sentiment analysis to help with retention. So if it identifies any things like, "Hey, we're not good enough cases or any negative sentiment," it goes to Slack and it's like, "Okay, we can address this." And it's like just wild some of the capabilities. And I was thinking like we've had Hona on, that would be an amazing thing for those tools to do sentiment analysis for the clients so they can kind of optimize for those five-star reviews. It's wild.
Zach Posner:
So, yeah, my guess is all of them are adding this stuff in. I think that's the other thing that's interesting is this stuff is easy to layer on. So people ask us how many of our companies are thinking about AI and it's like 100%. Now that may not be like AI first, but it may be there's nobody. We have one of our early investments that we couldn't be more proud of is a company called Proof and it's effectively Uber for process serving. But they are doing things now with affidavits, with the way that you set up a serve with LLMs to just like take all of the work away from a paralegal, make it so much easier for them. Take a half hour process and make this a 30-second process. And at the end of the day, if you just break down any process one step at a time, we're now seeing LLM tools or AI tools that can help with almost everything.
Chris Dreyer:
I've heard you say this in another interview, you've mentioned the shift from solutions to infrastructure. Could you kind of explain what you mean by that in regards to maybe how a PI firm is built?
Zach Posner:
If you think about all the work that a PI firm has, right, it's a series of small steps that collectively get you to an end goal. And the more you can break down those small steps, the more you can pinpoint places where technology can slide right in. And I think that the answer is not to blow the ocean and replace everything. It's just like, how do you start with like one little piece here, one little piece here. One of our company's Foundation AI is just thinking about the incoming mail that comes into you every day.
Chris Dreyer:
Yeah. I think Sweet James uses that.
Zach Posner:
Yes. How do you organize that? How do you immediately get that into the right client file? How do you do things along those lines? Literally one step at a time, how do you think about these things? And I think that there's a lot out there right now, and you're about to see a lot more.
Chris Dreyer:
What are some of the merging ones that you've invested in and that are just doing things that specifically catered to like where PI could potentially find some real advantage that maybe we haven't talked about?
Zach Posner:
A little bit more on the mass tort side, there's a company called Pattern Data, and there's a lot of things out there for medical record retrieval and things along those lines. But what they're doing is like they're structuring all the data from the medical record, and they're synthesizing that against the profile of a tort. And they're basically telling you how effectively good of a case you have and what level of damages that your client may qualify for.
This is as an alternative to hiring a bunch of offshore nurses and flipping page, of hiring a football field with a nurse and flipping millions of pages and not understanding what the characteristics of the inventory that you're working with have. And then what happens when something changes or you want to run a scenario? What happens if we include this group? What happens if people were damaged by this and it wasn't included?
Instead of going back through everything, you just run a query. And this stuff's available on a real time basis, absolute game changer. I mean, there's some stats that come out of that company that say, "Some of their users are in this from north of four hours a day." And that's really the test of what we think about. How often are you logging into some set of software? And the more often you log into it, the probably more impactful it is to your life. What software are you in for four hours a day?
Chris Dreyer:
What about the CRM or any of the project management or basically the big companies, your Filevines and Clio's and are they already kind of hit in that space?
Zach Posner:
We've intentionally stayed away from some of them as a function of I mentioned. We started our fund in 2020 and that category was kind of established. We're super curious. Some categories, it makes sense that they feel like they're wide open, and some feel like, well, there have already been a couple winners and it makes sense for those winners to continuously keep going. Clio just made a brilliant acquisition. They're in the billions of dollars as you... Jack's extraordinarily strategic, but it is interesting that now we're seeing things. We're looking at a lot of time keeping softwares right now, but the interesting part is if somebody puts a little widget on your desktop, and they track everything you do with the purpose of keeping time and trying to understand what matter you're working on, well, in theory, they know every file you've ever touched associated with that.
So we're saying, "Hey, could there be a completely different paradigm of practice management solutions?" And then the other stuff that we're really thinking about is like, you mentioned all these categories and all these different software. We think this trend of more and more software companies happening is just going to continue. Well, where's the middleware that lets this software communicate with each other? We're really interested in some payment stuff, how disbursements are made, credit card processing, things along those lines. We invest in a company called Confido. There's a company called JurisPay, which is starting to help finance some of the case costs that attorneys have where there's a big litigation finance market, but there's not necessarily... There's a lot of money laid out for every single one of these.
Chris Dreyer:
There's like a monopoly on that one side, but, yeah.
Zach Posner:
On the lower side, we're not seeing anything, and we're looking and saying, "Well, wait a second. If an attorney is using some of these digital tools, we think we're about to come up with some data saying they may have a higher probability of winning their case." So maybe it's like a really smart move to help them finance some of these until their case ends up settling or they win their case. So that's a company called JurisPay that we're excited about.
Chris Dreyer:
What about on the trial side, right? Anything to help maybe the type of story that you're going to tell or what the amount that you should be asking for and those types of things.
Zach Posner:
So yeah, we're seeing some interesting things pop up. One I hope that more good news shortly about, but what we're seeing is like they're looking at transcripts and trying to understand what expert witnesses have done in the past, what they're going to say. We saw a cohort of stuff a couple years ago where it's about judges and their sentiment. We have not seen any of those really take off, but even down to the word, "Hey, what are the words that you don't want to use in front of a judge because we've seen them get upset about those words before." So we're seeing on the expert witnesses, we're seeing it on the prediction of what a case is worth, what the value is. That's almost the holy grail that we have not seen.
Chris Dreyer:
The reverse colossus.
Zach Posner:
Yeah, exactly. But that requires a lot of data to get there, and we just haven't seen that quite yet.
Chris Dreyer:
Yeah. I've always wondered if some of these companies, if that's their end goal, it kind of looks like it, but I'm not going to name names, but...
Zach Posner:
It is, but you have to think about who has the data at scale.
Chris Dreyer:
There are certain cases, SSDI, maybe there's just low value fees. Has AI or tech been able to open up maybe practice areas that are potentially monetizable now that weren't before, maybe opened up the TAM? Is there anything on that side?
Zach Posner:
That's what this Law Firm 2.0 concept is. We've seen two or three entrepreneurs trying to tackle the Social Security in the last couple months. At the end of the day, a lot of this stuff that's if then analysis and it's lower value creates big opportunities. And for that one specifically, the threshold's not as high where I don't believe you need to be an attorney. There's some qualifying level of knowledge where you can represent people in and around Social Security. So I think that that's an area you'll definitely see. And that's what we've seen things like criminal record expunctions, like things along those lines pop up for this Law Firm 2.0 stuff.
And on the consumer side, we think it's infinite. We think when somebody's going to rent an apartment on Zillow, why doesn't Zillow say, "Can you look at this lease and review this lease for us?" Or this morning we actually, it was announced we invested in a company called HelloPrenup and it literally walks a couple through the steps to engage in a prenup at any given stage, anybody can offboard from that software and talk directly to a lawyer.
And then in the meantime, there's a lot of fun stuff that can come from that. It's the start of a family coming together with disclosing all their finances. Well, maybe there's wealth managers that would be interested in that cohort, or maybe there's other services that can be... Maybe there's trust and estate services that can be provided. So that's the neat part with the legal stuff is if you help people with their legal problems, there's a lot of like exhaust data that comes out that can create additional opportunities for these companies.
Chris Dreyer:
Very cool. Very cool. I think it's interesting from your vantage point, you're looking at it at a higher, bigger picture. Where do you see the PI space? In particular, I'd like you to maybe give your thoughts on the auto because now we got the robotaxis, the Waymos, the...
Zach Posner:
Bill Gates has this famous quote that says, "People overestimate the progress that technology will have in two years, and they underestimate the impact that it will have in ten." And if you actually think about the entire Uber story for a second. If you start with Uber, 2008, 2009, they say, "We're going to replace a black car, and we're going to connect people for black car services." And people said, "Wow, interesting little market." Then they said, "They're going to do UberX," which five years later, which turned into replacing effectively a taxi cab. But what they didn't realize at the time was it effectively became a car ownership replacement. So the market was much bigger than anybody ever dreamed. And then that had like second order of magnitude effects where like kidney donations were... Or DUIs were down because people wouldn't drive drunk. And then kidney donations and organ donations ended up going down significantly because who donated their organs, people that are killed in car crashes.
And now to your point, then you take that one step further and say, "We're two or three years away from Waymo. What happens to an $800 billion insurance industry? What happens to auto people that think about auto?" We think this is going to be an interesting 10 years, not exactly sure how this is going to play out. I would just say that one thing that I do feel confident about is every advancement of technology, people have said, "This is the end of jobs," and that has never happened. It has just been a little bit of a changing role.
Chris Dreyer:
I'm sure you're in the mix of this because a lot of these companies that you invest in are overlays of the core model of your anthropics and things like that. We had Grok 4.0 come out, and I don't know if you saw all of its testing and knowledge capabilities that blows ChatGPT and Gemini and all of them out of the water. It's supposed to be the most intelligent, but then OpenAI releases their next version. So it's this concept, but what's your thoughts on that space?
What law firms should ask to evaluate whether new legal tech tools improve workflows or create bottlenecks
Zach Posner:
First off is whatever tech you're using today will be the worst tech that you ever use. So if you just go in with that assumption. And look, the secret to this space and a lot of this software is spectacular user experiences. So we don't look at these things, we don't try to assess the best tech in the world. We are just trying to assess over some threshold that says, "Yeah, they know what they're doing on the tech side."
What we're looking for is the best user experience. How do you feel at home with that software? How is that software talking to you as a plaintiff attorney with these specific goals? If you see that, you're going to end up buying that, and you're going to end up using that. Now at the same time, the tech is going to get better. So what we're looking for are the companies that can consistently be swapping out the plumbing behind the scenes. But if you said to me, "Am I okay with 99% accuracy or 99.6% accuracy, but the 99% fits your workflow, and then 99.6, you're using a generic tool by yourself, and you're not leveraging the know how and the... We're backing the companies that are waking up every day and there's 20 engineers, and all they're thinking about is how can they make this software incrementally better to solve your next pain point?"
Chris Dreyer:
Thank you for that. I don't want to hire... Look, when you're choosing your CRM and it's like, "I don't want a Salesforce engineer, I just want the tool to work."
Zach Posner:
And work in your way. One of our first investments was software for venture capital funds, and it was extracting information from documents the same way you need extraction done, but the difference was all of the fields that this company had said things like, "Does this go and fund one or fund... What fund is this a part of? "That would never exist in any file you ever use, the concept of a venture fund. But for us, that's how we think. Is this the accelerator? Is this fund one? Where does this fit?
I mentioned a company at the single event stuff that's WallPro, I mentioned something at the mass tort that's for pattern data. There's ones for malpractice, there's ones for all of these different sub verticals, but I think they actually all need to exist because the job is different for each one. Looking at a car accident versus looking at a challenge with a drug manufacturer for 10,000 folks, they're very different workflows. So whoever nails that workflow and makes your life a lot easier, they're the ones that start signing up the customers and that's kind of what we're looking for.
Chris Dreyer:
Fantastic. Yeah. And I mean, I put myself in those shoes. I'm the same way. That's how I think of them is like the adoption rate, especially when you have a big team that you're trying to get them to adopt as well. We just went through a scenario behind the curtains. It's like we were using Rank Ranger, a really great tool, very customizable. Then we went to all custom Looker Studio, feeding in everything got... And then it's like, but agency analytics is here, it's been around and it's got all these integrations and natural, very intuitive and it does, maybe it's not 95%, maybe it's 90. So that's kind of, I think the user will invest more than 90% if it's intuitive.
Zach Posner:
Yeah. And that's like, "Hey, integrations. Are you working with Filevine? Are you working with Clio?" If you can press one button on this software and it just works, but that's an example of something that the ChatGPT is not going to focus on day one. The thing that still blows my mind is like Microsoft Word could have solved half of the legal tech out there, but they chose not to and there's a multi-billion dollar industry of people that have Word plugins. And that's where a lot of attorneys live in, and that's the argument for verticalization, "Hey, create a better user experience and they will come."
Chris Dreyer:
Fantastic. Zach, this has been a ton of fun. I could chop it up with you. We talked about a lot of exciting tools. Where it can go to people to connect with you and if they have any questions and they want to touch base?
Zach Posner:
Please check out legaltech.com. We also put on an amazing event called the TLTF Summit that is designed to showcase all of this technology. Legaltech.com is great. Look at us on LinkedIn as well, and we'd be thrilled to sell it to anybody.
Chris Dreyer:
Yeah. And I'll be going to the summit, guys. So if you're heading there, please say hi to me too. And, Zach, thank you so much for coming on the show. Technology changes, market shifts. What doesn't change is the need for a clear, dependable plan to bring in more cases you want. That's what we do at Rankings.io. We help personal injury firms create sustainable, measurable growth. To learn more, visit rankings.io. Thanks for joining me. I'm Chris Dreyer, and I'll see you on the next episode.
