In what is the last LegalComplex legal tech investment report from Raymond Blyd, data for Q1 2025 shows that the total number of VC equity deals has dropped again, but total investment value remains high – along with a large amount of debt now building up within the sector.
The figures were clearly also influenced by a small number of large deals, such as $300m for Harvey. Overall, it’s a curious picture.
See chart 1 – equity investments, chart 2 – debt funding also, chart 3 – equity and debt funding combined to 2019 with volumes.
A drop in total number of VC-backed equity deals, e.g. 59 in Q1 2025 vs 71 in Q4 2024. That suggests a decreasing appetite among investors for legal tech….and yet….
The total value of VC-backed equity investments was strong, at well over $1 billion, which suggests the opposite.
And there was also a big chunk of debt, which is steadily accumulating across the sector, and is often used when investors are skittish about a company’s outlook and want more reassurances they’re going to get their money back in some form.
So, a mix of messages.
What does it all mean? It seems to Artificial Lawyer that the key message is that investors do indeed like legal tech as a sector, but they are much more judicious about how they are investing now. Rather than scatter their cash into a very large number of deals, cash is getting focused on a smaller number of companies that they believe will really grow.
For example, if you look at 2021 and 2022, total investment values were also good, but the number of deals ranged from 121 per Quarter, to 169 deals. In Q1 2025 there have been just 59 deals, in fact, if you consider the chart, deal volume has been weaker in general since mid-2022.
Moreover, 59 equity deals per Quarter is the lowest number in the chart, which goes back to 2019.
And as mentioned there is a still a lot of debt. According to LegalComplex, which uses a broad definition of legal tech, over $860m was provided to companies in this sector as debt, rather than fizzy equity shots. That suggests a level of risk aversion remains, even if some companies are seen as solid prospects for rapid growth.
In terms of Seed cash, it’s on about the same range as in previous Quarters, suggesting that VC firms continue to be happy to make small punts on a range of young startups.
As noted in previous analyses, the group of companies that are most exposed here are those that are neither seen as rapid growth prospects with huge investors behind them, nor are fresh-faced newbies that likely can only improve their position. I.e. it’s the companies that are a few years’ old, but with a ‘low gear growth trajectory’.
Of course, these charts can’t include those companies that have chosen to bootstrap and live off their revenues alone. That said, given that we are now at a stage where $300m is getting invested into single companies, bootstrapping may be a risky strategy in what is a rapidly evolving market.
Commenting on the data, Blyd said: ‘Legal raised $1.16 billion, excluding debt, which represents a substantial 280% increase compared to the previous quarter (Q1 2024). Despite a 34% decline in the number of investors, 59 companies secured funding during this quarter. This last quarter saw the third-highest all-time figure in the past five quarters surpassing both Q1 2024 and 2023 combined.’
P.S. as readers know, Blyd is wrapping up his work with LegalComplex and looking for new projects. Artificial Lawyer and no doubt all its readers wish him well in whatever he does next.
