Last year, I wrote about the launch of TermScout, a unique legal technology startup devoted to reviewing, rating and comparing contracts. Well, not only has the company’s scope grown since then, so has its budget, as it today announces a raise of $5 million in seed funding and the launch of a new product that allows companies to benchmark their contracts against those of their competitors.
The seed funding announced today was co-led by NFX and Ground Up Ventures, with participation from The Legal Tech Fund, Killer Whale Strategies, Underdog Labs, Bridge Investments, and others.
NFX is a well-known Silicon Valley venture firm exclusively focused on pre-seed and seed-stage startups. Companies it has invested in include such major names as Doordash, Lyft and Flickr. In the legal industry, its investments include Headnote, Zero and Smith.ai. Ground Up Ventures also specializes in early-stage investing.
The problem that TermScout aims to tackle is that of the length and complexity of modern commercial contracts, which makes it difficult for businesses and individuals to thoroughly review and understand the contracts they sign. The company cites a 2018 World Commerce and Contracting study that found that businesses spend an average of $6,900 reviewing even simple contracts.
To tackle this problem, TermScout – which won the 2018 Global Legal Hackathon and was a finalist in the 2021 ABA TECHSHOW Startup Alley – uses AI to turn contracts into structured data. That data, in turn, enables users to better analyze and compare their contracts, so that they can see how their contracts compare to the market and whether they align with their own internal criteria.
Otto Hanson, founder and CEO, said that two key differentiator of TermScout is that all of its data is QC’d by human reviewers, and that TermScout’s customers safely share anonymized and aggregated data with one another through a data collective framework.
The product it is launching today, Benchmark, is a unique tool that allows users to compare their IT contracts to hundreds of anonymized and aggregated negotiated contracts, as well as to more than 1,000 unredacted public contracts used by companies such Google, Microsoft, Salesforce, and others.
The product uses hundreds of data points extracted from thousands of reviewed contracts to show where a contract deviates from industry standards.
“We map all that data and we have an algorithm that basically calculates favorability analyzing all those 750 data points against market norms,” Hanson told me. “And then it basically says whether this is a balanced contract or not.”
By using this tool to benchmark their contracts, users can ensure that their contracts strike a balance between the terms they want and the terms their counterparties expect, Hanson said.
TermScout also offers two other products:
- Triage, which a company can use to compare third-party paper to their own contracts playbook, identifying potentially problematic terms early in the review process.
- Certify, a “seal of approval” for companies that their contracts are drafted using terms that are balanced or better – meaning balanced to both sides or favorable to customers.
Plans to Expand
With regard to the seed funding announced today, the company said it plans to use the funding to grow its team, expand its contract database, and support the launch of Benchmark.
The company had previously raised $1.9 million.
With the financing, NFX General Partner James Currier joins TermScout’s board of directors.
“Ensuring your business has a robust contract review system in place is mission-critical for every company,” Currier said in a statement provided by the company. “With state-of-the-art machine learning and insights from thousands of best-in-class contracts, TermScout is creating network effects that will help users convert contracts from obstacles into assets.”
As for what is ahead for the company, Hanson declined to provide specifics.
“What I will say,” he replied, “is that we have very ambitious plans to migrate all of contracting to a native structured data format.”