LegalZoom Announces $500 Million Investment, Among Largest in Legal Tech History
The investment, led by Francisco Partners and GPI Capital, puts the company at a $2 billion valuation and comes four years after a deal that valued the company at $425 million at the time.
In one of the largest single legal technology investments to date, on-demand, Web-based legal services company LegalZoom announced this morning that it has received a $500 million secondary investment led by Francisco Partners and GPI Capital. The investment will also include participation from one or more Franklin Templeton Investments funds and funds managed by Neuberger Berman Investment Advisers.
LegalZoom did not release the percentage of the company the new investors were purchasing. However, the investment stands to significantly raise LegalZoom’s valuation from just a few years ago—in 2014, European private equity firm Permira acquired between 47 percent and 50 percent of the company for $200 million, a deal that valued LegalZoom at $425 million at the time. Bloomberg estimates the new valuation at $2 billion.
Through this deal, Permira will remain the company’s largest shareholder. Bryant Stibel retains its entire ownership stake in the company, while Kleiner Perkins and Institutional Venture Partners retain the majority of their ownership stakes. As part of the deal, Dipanjan Deb and Neil Tolaney from Francisco Partners and Khai Ha from GPI Capital will join LegalZoom’s board of directors.
“Delivering valuable solutions that naturally evolve into deeper relationships with customers has resulted in a rare combination of healthy profitability and accelerating revenue growth,” LegalZoom CEO John Suh said in a press release announcing the move. “We’re excited to partner with an impressive set of new growth equity investors that will support our efforts to democratize law.”
“We are delighted to partner with the team at LegalZoom, which has combined preeminence of brand and leadership in online legal services with an attractive business model,” added Tolaney, head of consumer internet investing at Francisco Partners.
The investment comes in a year where on-demand legal services companies are attracting the eye of investors. LegalZoom competitor Avvo announced in January that it had been purchased by online giant Internet Brands, which also has an interest in brands such as Lawyers.com, All Law and Martindale-Hubbell. This investment in LegalZoom, furthermore, is among the largest in legal technology history, according to a 2017 analysis by Crunchbase.
But those companies’ growth has not come without speed bumps. Some services offered by LegalZoom, Avvo and fellow company Rocket Lawyer were the subject of several state bar association actions, including in Pennsylvania, New York and New Jersey, who argued that the services violate ethics rules around fee-splitting and referrals.
In speaking with Legaltech News last month, however, LegalZoom felt the bar association fights were behind it. “We have spent a lot of time, and a lot of energy, and a lot of money educating and, when necessary, fighting the resistance,” said Laura Goldberg, chief marketing officer of LegalZoom. “But we have felt in the past two years that we’ve really won those fights and that there’s been maybe not an overt acknowledgment, but an acknowledgment that we are here to stay.”
The bar association battles haven’t hindered the company’s growth. LegalZoom is one of the most commonly used legal apps on mobile devices, and in the release announcing its most recent investment, the company claimed “more than 10 times greater brand awareness than online or offline competitors.” LegalZoom has also expanded into the United Kingdom in recent years, where it says it has grown subscriptions to 50 percent of U.S. revenue.
“Since the Permira funds’ 2014 investment, LegalZoom has doubled revenue and enhanced its growth rate with exceptional profitability,” said Dipan Patel, a Permira partner, in the release. “We invested four years ago based on a compelling vision, only to see it come to life through great execution and continuous innovation.”
That market position made it attractive to investors that are familiar with software, but perhaps not the legal industry. Francisco Partners previously owned Aderant, a business software company heavily used in the legal space, but exited in 2008. Among the other software companies with investments by Francisco Partners or GPI Capital are K2, Prometheus Group, and SoFi.