Robert Ambrogi Blog
Earlier this week, I reported on FTV Capital’s investment in ProfitSolv, the parent company behind multiple law practice management platforms, including CosmoLex, Orion, Rocket Matter and Tabs3. Although the dollar amount of the investment was not disclosed, ProfitSolv described it as “substantial.”
Yesterday, I had the opportunity to speak with Adam Hallquist, a principal at FTV Capital who led the investment, and who now sits on ProfitSolv’s board, to dive deeper into his firm’s strategy and vision for the legal tech space.
As it turns out, Hallquist brings a unique perspective to legal technology investing. “My dad’s actually a lawyer,” he told me, explaining that his father worked for a larger firm before going solo for the final seven or eight years of his career. That personal perspective, Hallquist said, gave him insight into the challenges lawyers face with practice management technology.
He also said that, prior to this investment, he spent a lot of time getting to know the legal vertical and the legal tech companies that serve this vertical. What particularly struck him and his colleagues at FTV was the enormous untapped potential in the legal market.
Massive Unvended Opportunity
Given the proliferation of law practice management platforms for smaller and mid-sized firms in recent years, 0ne of the most striking aspects of our conversation was Hallquist’s assessment of how much of the legal market remains “unvended” — meaning they are not using any of these platforms. “You have a lot of lawyers that aren’t really using a practice management solution,” he said. “And so the vended market is the minority today.”
Although he admits that it is hard to precisely quantify the number of lawyers using law practice management platforms, he believes it is only roughly a third. “Our sense is that it’s 30 to 35% of the market is vended today and the rest is unvended at the moment.”
If so, that translates to significant growth potential. “Every year there’s probably 100 to 150 million in new revenue that’s coming up as lawyers are starting to utilize solutions.”
From an investor’s perspective, this creates an ideal scenario, he said. “Instead of having to get somebody to replace something they’re already using, you have a big opportunity to get new customers as they come to market.”
50-50 Partnership
As I reported on Tuesday, this investment was co-led by FTV together with Lightyear Capital, which had already been the principal investor in ProfitSolv and which had created the company in 2020.
What Tuesday’s announcement did not specify was the percentage of each firm’s investment and whether one or the other would now hold a controlling interest. Hallquist provided clarification on that.
Unlike many private equity deals where one firm takes a controlling stake, this deal is an equal, 50-50 partnership between FTV and Lightyear, he said.
This structure reflects FTV’s respect for Lightyear’s track record with ProfitSolv, he said. “We’re really excited by the fact that they wanted to stay and that they said, ‘We want to be exactly 50-50 with you guys,’ because I think highly of them as investors. They also have this relationship with the business going on five years now.”
The FinTech Opportunity
In a series I wrote last year about consolidation of ownership in law practice management technology, I talked about “the FinTech factor” — and specifically electronic payments — as one of the factors that had most significantly reshaped the practice management market in recent years.
As a firm, FTV has invested significantly in financial technology, and Hallquist confirmed that a significant focus of FTV’s strategy with regard to ProfitSolv — which owns the payments platform LexCharge — will focus on modernizing how lawyers handle payments.
“The majority of payments are still done via check in the legal world and there’s an ability to move those to ACH and to credit cards,” Hallquist said.
The current adoption rates reveal the opportunity: “A minority of the customers of ProfitSolv are currently using payments today. And we think that a majority of the customers should be using it.”
Hallquist drew parallels to other industries where FTV has driven similar transformations. He cited their investment in JustPark, a parking technology company, where moving from cash to digital payments eliminated fraud, improved accounting, and provided better capacity management.
“There’s all these other things that you can take into law that feed into how do you think about your accounting and the productivity of lawyers, paralegals, other staff that you have,” he said.
Legacy vs. Cloud
One of the brands ProfitSolv owns is Tabs3, which has been in business since 1979 and still operates “legacy” on-premises products. One question many in the legal tech space have is what happens to those on-premise solutions as the industry moves toward cloud-based platforms. Hallquist takes a pragmatic approach.
“We need to be sure that we solve the problems and do right by our customers,” he said. “There’s a lot of great customers that the business has on premise that are not immediately interested in moving to cloud and we still intend to be a very good company for them to be utilizing going forward.”
The retention numbers support this customer-centric approach. “Once you get to using one of their solutions, I think it’s a 95% gross retention business. So it’s like once you get up and operating, you’re not very likely to switch off of whatever the solution is.”
Acquisitions and Innovation
FTV sees multiple avenues for growing ProfitSolv beyond organic expansion. “We will be open to additional acquisitions,” Hallquist said. “There’s some businesses that serve really specific markets or that could benefit from being part of our solution.”
The company is also not ignoring artificial intelligence trends. “We’re not going to turn a blind eye to AI, for example, and to what are the products that can be leveraged in practice management.”
Hallquist emphasized that FTV’s approach to acquisitions is fundamentally growth-oriented. “It’s more about can we sell something to their customers and they sell something to ours and can we generate more revenue and hire more people and grow both those companies as one more.”
In March, Forbes had reported, “ProfitSolv Seeks Buyer Amid Sluggish Merger Climate.” I asked Hallquist if he agreed with that assessment of the climate as sluggish. He sees it much differently.
“From FTV’s perspective, this has been the most active start for six months of the year that we’ve had in the firm’s history from dollar volume being deployed,” he said. “So we feel like it’s still very active investment environment.”
Looking Forward
As FTV begins its partnership with ProfitSolv and Lightyear, Hallquist outlined an ambitious agenda. The firm has assembled “a 50-plus items long” plan for the first 12 months, supported in part by FTV Propel, FTV’s operational support group that includes former executives from companies such as Silicon Valley Bank.
“The thing that I want to emphasize is that the way that we look at things is we’re growth-oriented investors,” Hallquist said. “Let’s make a product that’s really good that customers are talking about, that they’re very positive about. Let’s not just compare it to Joe down the street. Let’s look more broadly at what’s happening in the broader technology ecosystem and see how we can bring best-of-breed solutions from anywhere to the product.”
All of that said, Hallquist recognizes that ProfitSolv has some “formidable competitors” in the law practice management market. But that, he said, “keeps all of us on our toes.”