Why CLM Is Having A Moment In The Legal Industry: The Rise Of Contract Lifecycle Management Solutions
The latest area of the legal tech landscape to experience a boom is Contract Lifecycle Management (CLM). This sector includes tools that can assist throughout the entirety of the contract lifecycle. Some providers offer an end-to-end solution, while others focus on a specific stage or stages crucial to the process. Key milestones in the lifecycle include contract creation, review, approval and execution. In this article, I will lay out four reasons why CLM is having a moment in legal tech.
1. Money Talks
One reason CLM is making such an impact on the legal tech scene is the eye-opening amount of money to be made in the market with these products. Over the last year, hundreds of millions of dollars have changed hands as CLM providers announced impressive rounds of funding and acquisitions.
Ironclad, for example, raised $150 million at a $3.2 billion valuation in a Series E financing; Evisort raised $100 million in a Series C investment, while Ontra raised a $200 million Series B. Opting to buy rather than build, DocuSign acquired Clause, Litera announced its acquisition of Kira and LexisNexis announced its acquisition of Parley Pro.
2. An Explosion Of Data
Since the early days of the internet, data creation and consumption have grown exponentially, with whole industries (and many aspects of our daily lives) now reliant upon it.
The legal industry is hardly immune to this trend and is certainly responsible for the creation of significant amounts of data. This data includes but is not limited to: emails and other client communications, early drafts and final versions of litigation materials, internal research memoranda, prospecting and client lists, legal billing rates information, documents requested or produced in the course of e-discovery, records of regulatory and other governmental compliance and preferred deal language and negotiation strategies.
This rapid expanse in the use of data has led to an increased need for data management. Without some semblance of structure, data can quickly grow overwhelming. Data management solutions can assist law firms, for example, as they administer the numerous types and amount of data they generate.
Data management can help firms in both the practice and business of law. Access to a database of successful contracts can assist with precedent research, and automating tedious non-billable work can help maximize efficiencies, freeing up time and resources that might be better deployed on client relationship building, for example.
With respect to CLM, data management can be seen as synonymous with document management. The data in this situation is the content of deal documents and other agreements. The use of a data management solution for CLM allows law firms to easily view, organize and compare transactions, even down to the clause level.
Legal professionals can review prior positions taken and the subsequent results to inform whether any modifications are warranted. Some CLM tools include blacklining technology that lets end users cross-reference their own drafts against other specific documents such as market standards. In the realm of credit agreements, for example, the implementation of a normalized organizational system helps simplify convoluted loan arrangements and create structured data out of unstructured information.
3. The Democratization Of AI
While the legal industry has not historically embraced technology as quickly or easily as other disciplines, the influences of data-backed technology and machine learning have infiltrated some of the most successful law firms and legal teams in recent years. More and more companies have built AI plans, which lowers the cost of entry for tech startups. A review of LegaltechHub currently lists nearly 2,100 legal tech companies, with approximately 400 of them falling within the CLM space.
Many CLM providers integrate machine learning to drive intelligent process automation. These AI-powered solutions can extract and manage previously unstructured data from transactional documents across various deal types, including M&A, real estate, credit and intellectual property, among others. Legal professionals and those who support them can use these CLM tools to review deal documents quickly and efficiently and compare their internally-generated documents against market standards.
As with any machine learning-based solution, the models supporting these tools are not built in a vacuum. Rather, experts are needed at the outset to categorize and tag data as well as provide input over each iteration, improving the precision and accuracy each time.
4. Nothing New Under The Sun
While companies certainly value the experience and expertise of a seasoned attorney working on their legal matters, there are benefits to maintaining a record of previous issues that have arisen and been overcome. CLM solutions are therefore valuable because drafters can analyze past transactions to help inform their present analysis.
It is worth noting that some document types do not lend themselves to automated data extraction tools. A prime example of this is credit agreements, which are notorious for their lack of standardization and their inclusion of complex language. Legal tech providers can achieve results akin to automated CLM tools in the credit space, however, provided they have staffed experts who can mimic the data extraction process by manually tagging clauses and subsections. These expert analysts are able to create a standard structure for these documents using brute force combined with their market intelligence. My own company Reorg uses such an approach in our Loan Portfolio Manager—the combination of in-house credit experts coupled with internal document technology results in concise, comprehensive analysis.
CLM solutions are truly having a moment in legal tech. The combination of available funding, increased interest in data extraction and management, and low barriers to entry for legal tech startups have created perfect conditions for CLM tools to thrive.
While interest in these technologies is at a high and there is a growing acceptance of the need for data solutions in the legal industry, the true measure of success will be law firm adoption. We are arriving at an inflection point, and the next hurdle will be evidence of law firms’ willingness to adapt their standard business practices and embrace these emerging technologies.
Darby Green, VP, Product, Strategy & Innovation at Reorg featured in Forbes.