The legal technology company Clio this morning announced a Series E investment of $110 million at a valuation of $1.6 billion, making it the first law practice management company to achieve so-called unicorn status and one of only a small number of legal tech companies overall to achieve that status.
In special episode of my LawNext podcast recorded ahead of today’s announcement, Clio cofounder and CEO Jack Newton joined me to provide details on the investment, discuss the implications for the company and its customers, and share his thoughts on what this means in the broader context of the rapidly growing legal technology market.
“It’s a really exciting development, not just for Clio — and it’s certainly a moment for us to celebrate — but I think it’s a bit of a coming of age for legal tech overall,” Newton said in our interview.
A “unicorn” is a term used in the venture capital industry to describe a privately held company with a value of $1 billion or more.
“What I’ve observed over the last 12-18 months is the amount of inbound interest from the investor side in legal tech has increased by an order of magnitude, and I think alongside other spaces like fintech before it, legal tech is now truly coming into its own and really starting to gain the interest of truly world-class investors,” Newton said.
This latest funding round was led by funds and accounts advised by T. Rowe Price Associates, Inc. and also included OMERS Growth Equity. Both firms have long histories of partnering with leading technology companies to grow them into billion-dollar, IPO-scale companies.
It follows Clio’s 2019 Series D funding of $250 million, which at the time was one of the largest investments ever in a legal tech company and the largest ever for a Canadian company, and brings total investment in the 13-year-old company to $386 million.
It also comes just a month after Clio announced a sweeping new mission statement and vision for the company, which is “to transform the legal experience for all.”
Clio says this new financing will be used to further invest in developing its platform, make strategic acquisitions, and expand its workforce by 250 employees in 2021, with the goal of bringing its total headcount from its current 575 to over 1,000 employees within the next 12 months.
“Clio has significant growth opportunities given the company’s innovative product offerings and leading market position in the legal tech space,” Andrew Davis, director of private investments at T. Rowe Price Associates, said in a statement. “We look forward to collaborating with the team and working to accelerate the company’s efforts to improve technology offerings to the legal industry.”
Effect of COVID
In our LawNext interview, I asked Newton if he thought the pandemic was a factor in driving investor interest in cloud-based legal technology companies.
“If you look at a lawyer and how they practiced law in 2020, it wasn’t all that different from how they practiced law in 1980,” Newton said. “I think what we’ve seen COVID help accelerate is probably a decade or more of transformation.”
That transformation, he said, is being driven by the cloud, and is both spurring lawyers to move to the cloud and helping clients connect with lawyers in the cloud, so that lawyers are better able to deliver legal services through the internet.
“This is the kind of transformative change that comes across once in an investor’s lifetime, if they’re lucky,” Newton said. “I think that’s part of what we’re seeing in this massive rush to invest in legal tech — a recognition that there aren’t that many unturned rocks in industries that are waiting to get fundamentally transformed in this way, and legal tech is a really nascent opportunity that has a lot of room to run.”
Given that both T. Rowe Price and OMERS have histories of helping build their investments into IPO-scale companies, I asked Newton if that signals an IPO on Clio’s horizon.
He said that, while it is true that both firms invest in companies that are on the trajectory to a successful IPO, they both take long-term views of their investments. Rather than just take companies to the point of an IPO, they continue to invest in them beyond a successful IPO and sometimes hold those investments for years or even decades.
Newton said that an IPO “would be a natural milestone” in Clio’s evolution, but that the company has never looked at an IPO has something it will necessarily do at any point. Even if it does, he does not see an IPO as an eventual finish line, but rather a step along the way to building an enduring company.
“I look at the IPO as a bit of yard post that would ideally be all about setting Clio up to become an enduring, 100-year-plus company,” Newton said. “I really think about how do I build Clio into an organization and an entity that is able to have this enduring and permanent impact on the world, and a positive impact on the world that will outlast me and outlast anybody that might be currently at Clio.”
Newton said that acquisitions will “absolutely” be a component of Clio’s growth strategy going forward.
Referring to Clio’s mission of transforming the legal experience for all, he said that is an ambitious goal and that “we’re going to run at that as hard as we can with as much manpower as we can.”
But the company will be selective in its acquisitions, Newton said, looking for product additions that help it accelerate its ability to realize that vision and that help it deliver new value to its customers.
The company will also be expanding its workforce, Newton said. To its current staff of 575 people worldwide, it will add 250 by the end of 2021 and grow to over 1,000 within the next 12 months.
In addition, Newton said, he hopes to build out Clio’s ecosystem of application integrations from its current 200 to eventually include 1,000 or more.
The Value to Customers
In the podcast interview, I asked Newton what this all means for Clio’s customers. He said that this should be welcome news for customers, because it means Clio has more resources to invest in product innovation, and because these investments from world-class investors show their belief in the company’s future.
“If you’re a customer, you want to be on the product that’s the winner in the marketplace, because there’s a flywheel effect that takes hold, where the company with the biggest critical mass of customers can invest most aggressively in product innovation and, in turn, draw more customers because they want to be on the most innovative product,” he said.
When you see a company win in the marketplace and see world-class investors put money into that company, those are positive signals for customers, Newton said, because it means they will deliver more innovation and devote more staff and resources to customer success.
“That flywheel, that positive feedback loop, is really powerful,” Newton said, “and it should be exciting for customers to see the products and the companies that they partner with winning, because that means that they’ll win in turn.”