In today's dynamic legal technology and entrepreneurship landscape, possessing a robust solution, solid financials and a substantial market share is only sometimes sufficient to secure funds from investors and consumers. In 2023, a critical factor that was otherwise overlooked was the alignment of legal tech companies with specific demographics, with most challenges faced by companies led primarily by women. According to Bloomberg Law, women-led ventures in 2023 received less than 3% of total venture capital investments throughout the year. Within the legal technology sector itself, the gender gap continues to persist, with approximately 91% of funded companies having male CEOs, according to a recent report conducted by LegalTech News.
Gender Gap in Legal Tech Investments
As they say, numbers don't lie. Lack of diversity aside, these statistics reveal a glaring historical pattern of legal tech investors consistently undervaluing diverse founders working in the industry. Factors contributing to this ongoing funding disparity could include anything from inherent biases and limited access to networking opportunities to a lack of industry commitment to diverse representation. Notably, the ability of women CEOs to secure funding is not solely dependent on venture capitalists (VCs); legal tech customers, mainly law firms and legal professionals, who possess all the purchasing power, also play a pivotal role.
That said, the future holds nothing but promise for women leaders in legal tech, fueled by the growing interest of investors in the industry, particularly in the form of opportunities in generative artificial intelligence. This rapidly evolving technology can potentially create new careers in the legal space. Despite this, a visible shift in funding statistics may take time.
Though dated in 2017, a study from Harvard Business Review revealed a stark difference in the types of questions posed to both male and female entrepreneurs during a startup funding competition. VCs consistently asked men promotion questions, focusing entirely on their growth potential. On the other hand, women received prevention questions, emphasizing how they can defend doing business in a certain way. The study found that these linguistic nuances translated into significant funding consequences, with those receiving promotion-based questions raising seven times more on average.
While not necessarily intentional, this difference in questioning highlights the inherent double standards that some VCs apply to women founders. Carolyn Elefant, the founder of the Law Offices of Carolyn Elefant, observes that women-owned law firms may find opportunities more accessible as they are not solely reliant on funding, and the substance of their work matters more than in the legal tech sector.
Co-founders of New York-based legal services tech company Priori, Basha Rubin and Mirra Levitt experienced their fair share of implicit double standards while seeking to fund early on. During an investment round, investors acknowledged their product and credible financials but expressed uncertainty about envisioning them as leaders of a billion-dollar corporation.
Investment cycles are inherently risky, with gender biases and other factors influencing funding trends. In a bear market, investors may gravitate toward perceived "proven" founders while avoiding what they consider risky investments. However, the advent of generative AI brings the potential for a paradigm shift, opening up the legal tech industry and attracting VCs who may have yet to view it as profitable in the past.
Promising Future: Investor Interest and Generative AI
Investor interest in legal tech has surged, creating opportunities to improve access for all founders. LegalTech News' analysis of recent legal tech investments indicates that startups with generative AI-powered solutions received substantial funding. Darrow, for instance, which utilizes generative AI to analyze public data for class action and litigation opportunities, raised $35 million this year. As generative AI continues to reshape the landscape, it has the potential to bridge the funding gap and foster a more inclusive environment for women leaders in legal tech.
In the coming months, the challenges faced by women entrepreneurs, legal leaders and founders in legal tech, as highlighted by funding disparities and implicit biases, underscore the need for systemic change—the promising developments in generative AI and increased investor interest present opportunities for positive transformation. Initiatives addressing biases in funding processes, providing mentorship opportunities and fostering diversity and inclusion within the legal tech industry can contribute to a more equitable landscape.
As the legal tech industry continues to evolve, it is crucial for stakeholders, including investors and legal tech customers, to recognize the value of diverse leadership and actively work towards dismantling barriers that hinder the full participation of women founders in the entrepreneurial ecosystem.
