Episode Transcript
[00:00:00] Speaker A: Welcome to the Relay, the legal show for personal injury law firm owners, presented by Lexamica. I'm your host, Gabriel Stiritz. Today I'm joined by Zach Posner, co founder and managing partner of The LegalTech Fund, one of the most influential voices in legal technology investing. Zach has a unique vantage point on where the legal industry is heading. He's not just predicting the future, he's funding it. In our conversation, we'll dive into what's really driving consolidation in plaintiff law, which technology bets are paying off, and why most law firms are asking the wrong questions about their future. Zach, welcome to the show.
[00:00:33] Speaker B: Thanks so much for having me. Good to see you.
[00:00:35] Speaker A: Yeah, Excited to talk to you about this. It's stuff that we really, really care a lot about here. I want to open with a question for you that I think you have a really good vantage point on, which is that I see a lot of law firm owners who fall into one of two camps. Either they're technology skeptics or, or they're chasing shiny new AI tools and just picking up everything that comes their way.
You're evaluating legal tech companies every day. What is your framework for separating technologies that are actually going to create long term value and competitive advantages versus the ones that are going to be expensive or they're a flash in the pan. Like everybody's got a great website, everybody's got the, the, you know, the great marketing material. Like what are you, what questions are you asking?
[00:01:17] Speaker B: So the question that we're asking is all about like distribution and usage.
So, so we're, I mean, which isn't necessarily a fair, a fair statement to say to your audience because your audience are, are the people using the software. But for us just to zoom out. So I'm Zach, co founder, managing partner of The LegalTech Fund.
I believe Today we have 72 investments in this vertical over only really dedicated investor to this space in the world. Largest in the globe as well. We've, I think the team just told me we're actively tracking 3400 companies, probably adding a hundred plus a month at this stage.
So, and I know that this is a big plaintiff crowd. We, we think about the entire universe of legal. So that includes software selling into law firms for both to help you guys on the business side of the law, how you manage a business and the practice goes into corporates, you know, how their general councils work and, and they function into business units and then all the way down to a consumer, you know, is there software that can help them for things that, you know, there May not be service offerings available today.
[00:02:25] Speaker A: Really quick, out of those 3,500, how many of them do you think are either marketed at or service Plaintiff's law? I'm always curious to know what portion of the market that represents.
[00:02:35] Speaker B: I would probably say there, there's overlap in 25% to a third. 25 to 33% is my guess in some capacity. They may not be directly, but they're, they're, they're using it.
[00:02:48] Speaker A: Yeah, I was going to guess like 10 or 15% based on the size of the plaintiff market, but I guess if there's general use cases, that would expand that pretty significantly.
[00:02:58] Speaker B: Yeah. So you asked me what we look for. Like there has been. So just to give you a little bit of. To go back a couple years, a little bit about history construct. November 30, 2022, ChatGPT came out with that demo. And we all remember, we saw it and it was probably the best demo in the history of not only in technology. I mean, you just saw this thing and you're like, wow. Like every person could was just blown away. And the demo obviously was way further ahead than the technology. I don't even know that it worked. It would tell you crazy things. But when you saw that text populate, it was pretty awesome.
And because the demo was so good, just to give you a sense, it took them 60 days to reach 100 million users. It took Facebook five years to reach a hundred million users.
So lots of people experimented with it. And then our friends at Goldman Sachs came out with a report that said 44% of all legal work is susceptible to AI.
And that was in early 23. And what happened from that point forward is legal was this sleepy technology community, and there wasn't much activity, you know, and now all of a sudden, every entrepreneur in the world wants to launch something illegal. Everybody knows lawyers, everybody thinks that they, you know, that, that they can help somebody and they want to help somebody.
And then at the same time, the financial community kind of poured into the space and every venture fund in the world says they want to do something. So that's created that explosion for what you described. You know, there's just, I'm sure that the listeners here, their inboxes are like overwhelmed on a daily basis with new products. So for us, you know, the thing that we've realized is none of these companies are building their own underlying technology. They're all relying on things like ChatGPT and these other Gemini, which is Google's platform. And so because of that, what really Matters is the end user experience.
It's, it's like you see software and you're like, that's it, I need that right now.
So that usually leads to clients signing up for software. And when I say clients, I mean the PI for, you know, the folks listening, signing up for software.
So that's the first step we're trying to say, are people signing up? Then the bigger step we're trying to say is are they using it?
Because, you know, we've all signed up for software and we've all even paid for software that we just forget about, but we're never using.
And then like, we have some companies in our portfolio, I think the average user is using this for north of four hours a day.
So like, that's a company called Pattern Data, which structures data for medical records more for mass torts than single event. But just imagine what software you're in for four hours a day. So that's kind of what we look for. We look for are people buying the software, doing free pilots, and then are they actually using it?
If that makes sense. So, so that, that's what we look for. And that's different from what I would suggest your listeners to look for.
[00:06:01] Speaker A: But I do think that there's some really strong parallels that you can draw, which is to say, I mean, look, if you're, if you're a buyer and you're asking questions about the software issue, who's using it?
What other law firms have actually adopted this? How are they using it in their law firms?
Can I talk to them? Would be one. I think that that's like a, those are all really parallel questions to what you're talking about.
[00:06:25] Speaker B: Yeah, but I would actually zoom out a little bit further because at the end of the day, what we're really talking about here is change management. And change is hard.
So the things that I would suggest that the listeners think about are all change is hard. So what are the areas that if you focus on implementing technology, can have like the biggest lift for your practice?
Don't like, experiment with technology because the, somebody sent you something and then do, you know, go down that process that you described. Call your friends, see if they're used. Like, go. Because you say, hey, we want to rethink our intake process. We want to rethink how we work up some sort of file in some way. Like, but focus on the things where if you put the time and the efforts and the resources behind it and it works, it's gonna like move your practice in a step function, not just Something small. So I think that's the biggest thing that we're thinking about that I would advise these days. And that's, you know, we talked to a lot of the big, you know, what y' all would think of as defense firms, but more just like your traditional corporate transactional firms.
And it's like you can spend infinite amount of time rewriting like and, and automating your trademark practice. But like, if that's a tiny practice that generates no margin, like, you know, pick the things that are going to matter in the future because the other things are, you know, you're going to have partners, you're going to have like key employees.
And if they're using tech in a meaningful way at your firm, like, they're not going to be able to leave because. So, because the next firm won't have it. And imagine when you can just unpack a case 10 times quicker and not waste your time on things that don't matter or something can help you prep for litigation in a way that, you know, like so, and then what happens is the best talent wants to come and work alongside of you because you have the best tech infrastructure.
[00:08:28] Speaker A: Yeah, yeah, absolutely. No, that's, that's a great heuristic, which is there's a million things that you can look at.
You're going to have to sort through garbage. So it, it needs to be worth your time to engage with that piece of technology because you may have to sort through three or five different tools to find the right one. So it has to be worth the ultimate payout in terms of either creating value or reducing costs. So I think that's.
[00:08:54] Speaker B: And what, and then you go back to everything you said, hey, let's go find some people that are using this. You know, maybe you're not asking that company for the recommendation, but you're talking to your network to get honest and open feedback.
But, you know, but, but that's, I would just say this stuff, everything takes the same amount of time, takes the same amount of effort. Do the stuff that's going to move the needle.
[00:09:15] Speaker A: So a qu. I. I'd love to hear your take on this, Zach. One of the things that I've been talking to law firm owners about almost non stop this year, because I think by the end of this year we'll see parity with humans is voice AI. And for personal injury law firm owners, intake is a huge deal. Over the past three years, we've seen this massive shift to offshoring for intake. We've seen cost reductions from, let's say 20, you know, $18 an hour to somewhere in the range of, you know, 10 to 12. With offshoring, AI is going to just slash that cost again. But it also has to be really good because the bar for these personal injury law firm owners is really high. If you, in order to meet parity with a good call center person right now the AI would have to sign 92% of qualified leads on the first call to an E sign document. I don't think we're quite there yet. I'd love to hear your take on how soon are we going to get there. What are the trends that you're seeing in the voice AI space?
[00:10:10] Speaker B: So this has probably been the biggest surprise for me or something that just like crept up that I, you know, we heard about this, you know, directionally two years ago we tracked some early folks and we almost ignored the category because we said, you know, these leads, they're, they're worth so much money you wouldn't trust something, you know, but what's to a robot. But what's happening is the technology is getting so much better in general. There's a construct called Moore's Law that says, you know, directionally, the power of a computer chip will double every two years and the price will half.
The most recent numbers on this AI stuff is the processing power. Its ability is doubling every seven months and that's accelerating. So whatever the demo that you see today of anything using AI in voice, just imagine this is the worst that it will ever be. Like it is only moving in one direction in seven months. Like the Pro, everything that happens could be, you know, double as good. So yeah, I think this stuff is real. I think the questions that we're thinking about are is this stuff that needs, you know, do the, do the listeners here end up buying something that's configured and customized for legal or is this something that, like there's some general voice technology that ends up working really well for legal? But yeah, we, we. I think this stuff is coming in a big way. I, there's some, that there is, there's some stats saying I, I saw something recently saying it's basically on par with some of the firms in India, you know, that used. I gotta unpack it. But there was something about like accents. But now AI is actually changing people's accents.
Yeah. In a real time basis as well.
[00:12:00] Speaker A: I think 12 months ago I had a firm owner who's running a 60 person offshore call center show me an AI accent changer that he was using in production and that's pretty phenomenal. But I think that we'll start to reach parity around the end of the year for personal injury intake call centers. And I just don't see any reason for once you hit parody why you would ever go back. I mean you can have human and loop escalations, but that's a major cost center for law firms because they have to handle the calls 247 and it's, it's a large part of their headcount in, in the personal injury space. And so if you can reduce that and you can get that reliability once you switch over, then you can't go back.
[00:12:40] Speaker B: Yeah, and then you, but you. I mean it's, you know, I don't think of it as much as the expense, but I think about it as much as like, like what you can do with languages. Like whatever. You know, this AI agent can switch to 15 different languages in two seconds and whatever the success rate is in whatever language we're running stats against, it's going to be identical in some language.
[00:13:02] Speaker A: One of the things that I'd love to hear your thoughts on. You started to hear about Voice AI two years ago. We're finally seeing it get to a place where law firms are testing it. And I'm talking to firms that are building their own, they're testing.
I mean in our space we have Supio Eve even up two out of those three large funded have already released at least beta voice AI intake agents and some of these workflows around it. What are the early signals you're hearing right now? Like what, what do you see coming down the road in 26 and 27 that, that these law firm owners should be thinking about, okay, this is going to start affecting me. I don't see it on the horizon yet. But I mean you probably do. Is it just. Are we just seeing just more maturation of the tools and just better implementations?
[00:13:46] Speaker B: Think. I think the traditional categories will start to blur. So you think about like practice management software or like you think about the, the file vines of the world or things along those lines. And you know, we looked at something, you know, for, to, to help do time tracking you. You drop something on your desktop and it knows what doc you're in it. It directionally knows what you're doing and it automatically builds those. That time tracking those narratives. But then you say well wait a second, if it know if it's on your desktop and it knows every file you've ever opened, why do you need something to manage all of your files? Why, why isn't that automatic, you know what I mean?
[00:14:28] Speaker A: Yeah, yeah. I mean I think that's one something that I think there's a bit of an unbundling happening right now because each tool requires a pretty specific investment from the company. But I, I think it's going to come back together. Something. I was in Google sheets this morning and I left a comment for someone who's currently away and he had it on his calendar and Google surfaced into the comment box in Google sheets. Hey, Connor's out of office until Wednesday, FYI. You're leaving him a comment. He won't be back. That level of like you're talking about, that synthesis across disparate sources I think is going to be incredibly powerful in this space. And I don't see it quite yet.
Not in Legal. Like that's a pretty sophisticated product approach that I don't think we're there yet.
[00:15:14] Speaker B: I just think that all of this stuff is going to blend together.
[00:15:18] Speaker A: Yeah.
[00:15:19] Speaker B: And I think that the delineation between these, these products as we've thought about. I need to go buy this. I need to go buy this. I need to go buy this. Like I think all of that stuff is going to fade together a little bit and designed to create a better user experience for people to just have better lives.
[00:15:35] Speaker A: I'll push it one step further. And I don't know if you have a point of view on this, but one of the things that I'm waiting to see is if the technology companies and the law firms themselves in our space, if that starts to blend together. Because I'm seeing some lawyers that are looking to invest in AI inside of their firms building that product themselves. And also there's tech companies that I know are looking at buying law firms to deliver that service. And generally right now those two are not connected.
But I am curious to see over the next couple years if we see a true AI because we don't have a true like technology AI law firm in the personal injury space. And I've seen, I'm seeing some of those starting in other verticals inside of legal.
[00:16:22] Speaker B: Yeah, you're, we're going to see that. I think that's the simplest way to, to think about it. Like we've, we've, you know, you're already seeing some. And you see these, these are some of the listeners, some pretty forward thinking tech enabled law firms we think with the construct of what's happening in Arizona. And like you're gonna, you're not gonna see it, you're gonna see it pop up on the Fringes for very specific things.
So, you know, and we actually, we just announced, we're basically creating a lab where we're calling for entrepreneurs that are saying, hey, we think the future is something called a law, the Law Firm 2.0.
And it just says there's going to be some disruption. We see it more on the hourly side than we do on the plaintiff side. But I'm sure that there will be instances of it popping up as well.
[00:17:17] Speaker A: I mean, I agree 100%. And I think for the listeners being an. Because there will be AI technology platforms that are law firms that are offering legal services, it's going to happen in Arizona first, Utah, Washington, Puerto Rico maybe, I don't know why Puerto Rico, but that's happened, happening and, and it will continue to happen. I think it just moves the table stakes that if you're a law firm right now in the space, even if you have a dominant market position, that's not safe. You're not safe because you have a dominant market position. Because the cost structure of the technology driven technology first firms is going to be so radically different from what you're doing right now.
[00:17:57] Speaker B: I mean look, there's a lot of stuff that's constantly evolving. I mean with technology, like, I mean even look at like what's autonomous cars going to do to car accidents.
Yeah. I mean, and even look, we pulled some stats as to what Uber did to drunk driving, you know, to DUIs and such. And by the way, that's like a first time.
[00:18:17] Speaker A: I'm so interested. What did it.
[00:18:19] Speaker B: I think it's down. I think in cities that have Uber the number is down by 16%.
So there's material, but here's what's actually more material. That's great. Sorry, that, that's good and bad in general. So what, what's happening is organ donations are down by the same thing. Because who used to donate organs? It was in general young males that would go out, drink and get into car accidents and unfortunately pass away.
So Uber is, you know, like you can trace organ donations back and you know, then, then we start thinking about what happens to an $800 billion a year car insurance industry. What happens to, you know, and that's all for Uber. And look, a lot of these things. Bill Gates has a famous quote. People, people overestimate what's going to happen with two years in technology. Underestimate what's going to happen in 10. And I think Uber came out in 2008, you know, and first they came out with the, the black car replacement for A limousine, you know, and then in 10 or 12 they came out and you can see now with UberX which people thought you were replacing a taxicab, but you ended up replacing car ownership, you know, and then that just built on it with the DUI stat and the organ donation and now we have autonomous driving coming. So I think that there's changes coming from.
And this isn't unique to this business. I think this is every business is seeing.
Yeah.
[00:19:38] Speaker A: But I do think that that personal injury is maybe not uniquely, but definitely suited to the type of technology that's coming to market right now in a way that it wasn't necessarily. One of the things that I think is so interesting is that legal, legal practice management systems fundamentally are datab.
And when that came through and law firms moved to those and then they moved from those on prem to in the cloud, those were changes that affected law firms pretty dramatically. But fundamentally like the data structure for a practice management system for a database is not the way that law operates. Right. Like at the high level it's files and then you're filling in fields. But law is words. And so I think that AI has the bit with law in a way that prior technological waves haven't necessarily. So I think the change will be deeper and longer lasting for law than it has been in as other things have come to market.
[00:20:34] Speaker B: And that's why you mentioned.
You know. And that just goes back to that Goldman Sachs report that, you know, I, I would just say there's no, you know, we're seeing probably more transformation on the transactional side than we are on the point on the PI side. And that's why some of the companies you mentioned are raising hundreds of millions of dollars. So I get it all. It. It's all kind of this thread that says. Yeah.
Tracing it back to that one simple report that said 44% of all legal work is susceptible to this stuff.
[00:21:03] Speaker A: Yeah. But I.
[00:21:04] Speaker B: And now you have some regulatory frameworks that are changing as well at the same time to accelerate tech. You know this.
[00:21:12] Speaker A: Yeah. We have non correlated factors that are, that are accelerating change in our space. Specifically with ABS's like deregulation.
AI don't have the same common cause, but they are absolutely feeding off of each other to, to change their two.
[00:21:26] Speaker B: Forces at the same time converging. That's.
Yeah.
[00:21:32] Speaker A: A. It's an interesting time. There's going to be some big winners and there's going to be probably a lot of losers in this as well as, as it changes.
[00:21:41] Speaker B: We, we think of this as A K, you know, so like you're going to have law firms that like get on this stuff that are listening to this podcast right now and paying attention to this and they're going to go like this.
And then we certainly talked to a cohort of them, they're like, ah, I don't believe in this stuff. And we think they're going to go like that. And I think that, and I think by the way, the next directionally 10 years can be like a golden age for the law firms that are thinking like this. Like, you don't need to be miraculous, you don't need to be spent. You just need to adopt this stuff in little pieces.
And I think that, you know, the next 10 years is going to be an amazing time to be in this.
[00:22:16] Speaker A: So I'll, I'll end with something that I don't know if you and I have talked about, Zach, that I think is good news for the plaintiffs industry. And I would encourage, if there's listeners here who are looking at the technology side of this, hourly billing, flat billing, I think will, will potentially change as a cost, as a pricing structure pretty significantly. And you would know better than I would on that front. But essentially the, my thesis on that is consumers who are buying hourly services, flat rate services, are aware that the lawyers that they're hiring are using better technology and AI and so that should change the pricing structure. Right. And they're, and it's in their price sensitive. On the plaintiff side, we have not seen any indication that consumers are price sensitive to the take rate that plaintiff's lawyers are offering. Because I've seen over the past five years law firms have come to market with oh, we only take 25% of your recovery or we take one third and these other guys take 40%. And there's actually no price sensitivity by consumers on the plaintiff side and which is I think really good news for the people who are forward looking and saying, well we can support the same pricing structure because those consumers don't care, they just want the best service and they, and so then you can go and invest in technology, not worry that it's going to cradle your business model. So I think it's actually really good news.
[00:23:32] Speaker B: No, it's the opposite. In any margin, any cost savings you get to keep.
[00:23:37] Speaker A: Yeah, so we're, we're, we're, we're kind of uniquely situated in that way which I think is, is good. Although I mean there's obviously down like it's highly competitive market and it's only going to get More so, but at least the price structure, I think, is pretty solid.
[00:23:50] Speaker B: I'm. I'm giving a positive outlook for the 10 year, you know, like afterwards, I think different dynamics somehow that has to creep back. But I think there's a lot of figuring out to do in the next couple of years, and I think there's going to be an opportunity for those that are willing to take some small experiments, you know, probably do really well.
[00:24:08] Speaker A: Zach, as we wrap up, any pieces of advice for law firm owners in the plaintiff side that you would give them? You're traveling the world. You're talking to hundreds of the best minds in legal and in technology and in finance. Like, what are you. What are you telling people? What should we be thinking about?
[00:24:26] Speaker B: Encourage your team to use this stuff in their personal life as much as they can celebrate it, because it's. It's a culture, you know, that's the hard. It's like the cultural mindset. That's the hardest thing. And I'm not telling you to go out and change every single thing that you do. I am saying, like, play with this stuff, understand its power, and then your team will start questioning, oh, could we be doing this? Could we be doing that? And that's kind of the place that you want to be at right now. But you got to play with it. You got to understand it, you got to challenge it. You got to, you know, and I think that, like, because when you can understand what could be, you can start to envision what you can do.
And I know that's simple, but that's that, like, for. And again, that construct of celebrating. It's like every Monday we go through our investment meeting and we go through all. But like, part of that is everybody talks about a piece of AI that they use in the past week.
And, you know, when our marketing person says we needed to create a.
An image for an event, and I just went onto this and I searched it and got this in 30 seconds. Opposed to calling 10 different designers to try to see if they had time this week.
You know, these are little wins that add up, but people understand what's possible. And then the next person's like, well, wait a second. Could we do this?
[00:25:42] Speaker A: Awesome. Well, Zach, thank you so much for taking time today. Really appreciate it. And if people want to reach out to you, ask you questions, get involved in the future of legal tech, how should they connect with you?
[00:25:54] Speaker B: Legaltech.com is the easiest way. I would, you know, find me on LinkedIn. We're pretty active. And then we also didn't get into it, but check out TLTF summit.com, which you can find from Legal Tech. But that is a, you know, we, we are trying to, we've really tried to create I think we've been successful in, in kind of setting up the showcase for the next generation of technologies and bringing all of the thought leaders together under the same hotel in this year, Austin, Texas, for a couple days.
[00:26:24] Speaker A: And I'll give my shout out. I invited a friend from the Personal Injury space to attend one of your your latest conferences. He said he'd stopped going to all the legal personal injury conferences for two years because they're all sales pitches. But he's going to every Legal Tech Fund conference moving forward. So it is quality. It's not a sales pitch. It's, it's amazing. I've been the last three years. So Zach, thanks so much for being on the show.
[00:26:45] Speaker B: Always great to talk, so much for having me. It's amazing to be with you and looking forward to future conversations. And thanks for having me.
[00:26:51] Speaker A: Thank you.
[00:26:52] Speaker B: Thanks, Gary.
