Fintech
Legal tech Clio raises $900M at $3B valuation, plans to double down on AI and fintech
ClioA Canadian software company that aims to help law firms operate more efficiently with its cloud-based technology has raised $900 million in a Series F round that values the company at $3 billion.
The valuation is nearly double the $1.6 billion valuation the Vancouver, British Columbia-based company reached in April 2021 when raised $110 million.
Cliowhich describes itself as “the operating system for law firms,” recently surpassed $200 million in ARR, compared to $100 million ARR as of June 2022 and has been profitable (positive EBITDA) for several years, according to Clio founder and CEO Jack Newton.
The company works to simplify law firm management by centralizing client intake, case and document management, and payments, among other things. It is used by more than 150,000 legal professionals and has recently expanded into the APAC region, as well as acquiring more mid-sized law firms as clients, it says.
New Enterprise Associates (NEA) led the round with an investment of more than $500 million, its first in the company. New investors Goldman Sachs Asset Management, Sixth Street Growth, CapitalG and Tidemark joined existing backers TCV, JMI Equity, funds and accounts advised by T. Rowe Price and OMERS in also participating in the financing.
Notably, “a substantial portion” of the round was secondary funding that will be used to allow existing investors and employees to cash out some of their shares, Newton said.
With this investment, the total capital raised by Clio since its founding in 2008 reaches nearly $1.3 billion.
The mega-round is a significant amount but is, perhaps, particularly noteworthy in today’s environment where venture capital raises of this size are not all that common. For context, there were 105 mega-round raised globally throughout the first quarter, according to CB Insights.
The company has benefited from a couple of major tailwinds, Newton told TechCrunch in an interview.
“With COVID 19, we’ve seen explosive growth in the adoption of cloud technologies in general and Clio in particular,” he said. “We’ve also seen a huge boost from AI and the tremendous amount of interest that lawyers and the broader legal community have in AI and how AI can improve productivity.”
Payments and AI as growth drivers
In 2022, Clio began integrating payments into its offerings, a move that has increased its revenue beyond its core SaaS business, Newton told TechCrunch. Clio’s payments business now processes billions of dollars annually in fiat-specific transactions. The company earns “a small percentage” of every transaction recorded through Clio payments, Newton said.
“We’re really excited about the integrated payments opportunity with Clio and the broader fintech opportunity,” Newton said, “both for the growth it’s led to this point and what we think will be tremendous growth going forward.”
Payments in the legal sector are more complex than electronic payments in general, Newton stressed.
Image Credits: Clio
“For example, there are trust funds and trust transactions that have to be handled in a very specific way. And you can’t remove credit card transaction fees from a trust account transaction in the way that you normally would if you were, say, a small merchant using a Square account,” he said.
In other words, if a lawyer charges $100 for a trust transaction and subtracts $3 in processing fees and only $97 is deposited into a bank account, the lawyer is essentially making a mistake by not depositing 100% of the funds into a trust account.
“So the nuance with legal payments is that the fees have to be taken out of a separate operating account,” he said, adding that Clio’s offering is compliant with trust accounting requirements and is easy for lawyers to use. Clio also offers an accounting product to help businesses manage their finances.
In early 2023, the company also began working to integrate artificial intelligence into its offerings.
This year, it plans to release GA Clio Duo, an integrated generative AI assistant that aims to help lawyers “complete routine tasks and leverage their firm’s analytics to run a more efficient practice,” including an audit log feature for court discovery. It can also do things like make recommendations on which marketing channels a lawyer should use to best generate new leads. And Newton says the company has plans for more AI features in the future.
Clio currently has more than 1,100 employees. Its software is used by law firms in over 130 countries.
“The company has grown beyond its initial SMB market to become a leader in the mid-market, while also experiencing exponential growth in payments and leading the way in important product categories such as e-archiving, document automation and artificial intelligence,” said Amol Helekar, general partner at TCV and a member of the Clio board of directors.
Of course, Clio isn’t the only legal tech to benefit from the AI revolution. In April, UK-based legal tech startup Lawhive, which offers an AI-powered in-house “lawyer” via a software-as-a-service platform aimed at small law firms, raised $11.9 million in a seed round. Backed by companies like Lightspeed and Menlo, Eve has emerged out of hiding last October with a mission to harness the power of large language models (like OpenAI’s ChatGPT) to revolutionize the legal profession.