Despite the overall slowdown, AI-focused legal tech startups continue to attract investor interest. For instance, Darrow, an Israeli startup that uses an AI-based data engine to search for class-action litigation potential, recently secured a $35 million Series B. Other AI legal tech startups, such as Paxton AI and Legalyze.ai, have also raised funds recently. However, the industry faces challenges, including regulations that restrict non-lawyers from owning law firms or offering legal services, which can complicate the use of technology.
Key takeaways:
- Legal tech funding is on track to reach about $725 million this year, a significant decrease from the $2 billion in funding seen in each of the past two years.
- Deal flow has also slowed, with only 129 deals reported so far this year, compared to 268 last year and 284 in 2021.
- AI is seen as a potential game-changer in legal tech, with several AI-based legal tech startups raising funds recently.
- Regulations, such as the American Bar Association’s Rule 5.4, are seen as significant obstacles to the adoption of new technologies in the legal industry.