Investor Funding is Down

Investor Funding is Down in 2022. How Long Will it Stay That Way?: eDiscovery Trends

During my coverage of last week’s Gavelytics story, I ran across another story that said that venture capital (VC) investor funding is down in 2022 for legal and it appears to extend to eDiscovery too.

The story in Artificial Lawyer (Is Legal Tech Facing a VC Funding Crunch?), notes that legal tech funding has had an incredible run. From Jan 2016 to June 2022 there have been over 1,800 funding rounds in legal tech, totaling over $13 billion in capital raised.

However, the article also notes that in Q2 of 2022 there was a sudden decline in the number of companies getting funding – from 90 to just 36. That’s way lower than the historical average, at least since 2018. The number of rounds has steadily increased each quarter since 2016, with the values really shooting up from around 2021, with an incredible quarter at the start of this year.

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So, if investor funding is down, what’s causing it? The economy is the biggest reason, of course, with many US economists now expecting to see a recession in the US. We have also seen several legal tech IPOs flounder recently, e.g. LegalZoom has dropped around 67% in value since it went public. Disco and Intapp have also seen their share prices drop since their IPOs. Disco’s stock price, in particular, debuted in July of last year at $44.81 per share and rose to a high of $65.67 per share by September. The price this morning? $19.65 per share.

Of course, all tech stocks are being hit hard these days, not just legal tech stocks. How is that affecting transactions involving eDiscovery companies?

Friday, Rob Robinson published the list of eDiscovery Mergers, Acquisitions, and Investments in Q2 2022 on his excellent ComplexDiscovery blog. As Rob reports, there have been at least 5 publicly noted M&A+I events in the eDiscovery ecosystem during Q2 2022. That’s significantly lower than the 17 events that were recorded in Q2 2021. And the Q2 2022 investment pulse rate (5) appears to be the second lowest Q2 investment pulse rate since 2015. The only one lower is Q2 2020 with four total events, when the pandemic’s immediate influence essentially paused investment activity for two months.

Last year was a record for M&A+I events, with 54. This year, we only have 13 through the first half of the year – a full-year pace that’s currently less than half of last year’s total.

So, clearly, investor funding is down in 2022 for legal tech companies, including eDiscovery companies. How long will it stay that way? We’ll see.

BTW, as always, Rob has a listing at the bottom of the post of publicly noted M&A+I events he has tracked since all the way back in 2001!

So, what do you think?  Are you surprised that investor funding is down in 2022? How long do you expect it to stay that way? Please share any comments you might have or if you’d like to know more about a particular topic.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by my employer, my partners or my clients. eDiscovery Today is made available solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Today should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

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