Legal-tech startup LawVu raises another $15m for expansion

Tauranga-based legal-tech startup LawVu has completed a $15 million investment with New Zealand tech venture capital firm Movac. 

The money raised will help LawVu’s continued expansion internationally – particularly into Australia, the US and the UK.

The SaaS company, founded in 2015, helps in-house lawyers track their legal spend and workload through a cloud-based management system that consolidates their work in one place.

Co-founder and CEO Sam Kidd says the company has been “relentless” in extending its international foothold despite the economic headwinds. Some 93 percent of revenue is derived from selling offshore, across 15 countries.

Movac is a new investor into the company – one LawVu had approached in the past without making a deal work. 

The startup has raised $55 million to date. Silicon Valley-based Shasta Ventures and Australia’s AirTree Ventures came in on earlier rounds, and New York-based venture capital firm Insight Partners led its Series A round in 2021. Insight and AirTree led LawVu’s $20 million raise last year.

The pricing environment presents the biggest challenge when approaching existing investors for more money at the moment, says Kidd, as it’s difficult for them to work out the company’s capital value given they’re somewhat conflicted.

He wouldn’t reveal what the latest raise values the company at, but it managed to avoid a down round, where a company has to sell its shares at a lower price than in early financing. “That’s a hard ask” if you read any tech article right now, says Kidd. 

The best way to avoid a down round, which impacts all shareholders as it’s dilutionary, is to continue to grow at a rate where investors still see potential upside, he says, and not put yourself into a position you can’t get out of.

“When we were raising when money was available, we didn't have insane valuations and so we always had something that we could grow into. I look at some of our competitors and they're in an interesting spot, I would say, now.”

“We did avoid the vanity valuations that you can get [with] an offer from some of the US companies. And I think we were always mindful that we would be raising capital and what would happen if it was an environment where capital wasn't flowing freely. And we just wanted to make sure that we always avoided the chance of a down round, and it's one of the things that has paid off.”

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More than money

While the additional cash injection is nice to have, says Kidd, Movac brings more than money to the table.

“With Movac we've got a partner that understands what it's like to grow a global company from New Zealand. They bring excellent expertise and so that was something that we were really keen to get into the company – just a different point of view, and different people on the cap table.”

Movac general partner Jason Graham, who will join the LawVu board, says the company has incredible potential for growth and disruption in the legal sector. He says it was a natural fit for Movac’s $200 million Growth Fund 6, which is focused on revenue-generating businesses looking to fuel expansion, while its $35 million Emerge Fund invests in disruptive early-stage ventures.

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Graham says the last time the VC firm spoke to Kidd was during the Covid tech boom when interest rates were near zero and venture capital money was flowing freely globally. Movac has been through those cycles before and isn’t willing to pay the same prices in that sort of market as high-flying firms based in the US, or other offshore locations, he says.

“They tend to be playing a different game and not one that’s necessarily sustainable or to do with generating long-term returns. We're fine with missing out on deals on pricing in this context. Internally our saying is ‘if we miss them at the lights, we'll catch them at the roundabout’ and while that doesn't always hold true, it has for a number of our best investments like Vend, Unleashed, Auror and now LawVu.”

Broadly speaking, overseas VCs have retreated to their home markets, as they tend to do as soon as the market turns, says Graham.

Since 2021, LawVu has grown significantly and the pricing from a risk/reward perspective is now much more attractive in Movac’s view, he says.

Pricing isn’t straightforward in this market, and corrections and movements in the private market tend to lag those of the public one, which complicates things further.

“We’re seeing a lot of internal rounds, kicking the can down the road valuation-wise and hoping companies grow into some very rich 2020/2021 valuations over time. Some will manage to grow into those valuations before they need to raise again [like LawVu] and some won't. Companies that do need to raise capital in this market are doing so if they're realistic about pricing and their progress.” 

Given the cost of capital has increased as interest rates have risen, VCs are putting more emphasis on sustainable growth from a cashflow perspective. In this sort of market, says Graham, some companies will need to make ‘course corrections’ to their burn rates.

Kidd wouldn’t provide revenue growth figures but in 2021 the company told NBR revenue was within a $5 million to $20 million band and annual recurring revenue had a compound annual growth rate of more than 250 per cent. 

Employee numbers have grown to 125 with all the R&D work done in New Zealand.

LawVu has also recently hired experienced hand David Lancelot as chief legal officer, who is based in San Francisco. 

More than half of LawVu’s revenue comes out of the US, and Kidd says it makes a huge difference having people in-market, in the same timezone, who have connections and understand how business works there.

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When to raise more?

The big question for most startup founders is when to raise more capital, and Kidd says he’s already having meetings about the company’s next raise – likely later in 2024 – despite just having closed this one. 

He says you have to be mindful of your growth rate and where you’re going to need to invest capital to keep up with that.

“We’re always trying to just take enough without diluting too much or taking a huge amount of capital onto the books.”

Before the latest raise he had retained a 15.72 percent stake while co-founder Tim Boyne had 10.48 percent.

Kidd says they’re constantly looking at how to fund the growth opportunities they see overseas, particularly in the UK market where LawVu is starting to get a lot of traction and wants to add more personnel on the ground.

It’s also hiring on the R&D side as it’s always a struggle to get enough developers inhouse to build at the pace you want, he says.

Like many companies it’s gaining a lot of traction in the AI space but that’s capital intensive. The new investment will help the company to stay at the forefront globally, says Kidd.

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Understanding secondaries 

Kidd says in the early days of the company he wasn’t aware of secondaries – the buying and selling of existing stock in an unlisted company.

“I remember going to an interesting talk, which was just before the Hi-Tech Awards, and there was a whole bunch of other Kiwi founders that had sold out early and they said they weren’t aware of secondaries.”

It’s something that’s not talked about much with Kiwi startups but it’s useful for founders to know how it works, he says. 

Some early-stage investors in LawVu have taken cash off the table or cashed out entirely in subsequent capital raising rounds and “done well”, says Kidd. 

The co-founders have also sold down some of their shares. It wasn’t a lot, and how much founders take off the table depends on their personal situation. In Kidd’s case, LawVu wasn’t his first gig, but first-time founders may need to get some money back in those early rounds.

Kidd says he had five years of ploughing money into the company with no income after starting LawVu. 

“To then have the opportunity to take a bit of money off just to fill that gap from spending a huge amount of savings and having no income for five years, helped level me out again.”

Many investors, particularly from overseas, are supportive of secondaries to help founders get a little bit of capital behind them, he says.

“If someone invested in the company is suddenly selling 90 percent of their shares, you’d probably get other investors a little bit nervous, but investors also want to make sure that you’re focused on growing the company and that you’re not strapped for cash.”

“They know if you've got less money worries at home then you're able to focus on growing the company and doing right by the investment coming through. All the investors that we have brought in have been great with advice around that and what to do. But again, it's down to individuals.”

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Start early

Kidd’s other advice to startup founders is to speak to potential investors as early as possible, and let them know who you are so they can follow your journey.

It wasn’t something LawVu’s co-founders thought to do in the early days. 

“We did the typical Kiwi thing of let’s not talk to anyone about how great we’re going and kept it close to our chest. And then when we were ready to raise capital, we sort of appeared and everyone's like, ‘who are you guys? You sort of appeared out of nowhere’, as opposed to bringing VCs on your journey.”

Without having built those relationships, the co-founders found their first raise incredibly hard. 

Even now, the point of the next meetings Kidd has arranged with VCs is so they can follow the company’s progress. 

“That’s probably the mistake that a lot of companies make is to wait until you're good to go. But you really should be talking to people before you want to raise and ask for money.”

Even when investment money was flowing freely, it wasn’t easy to raise capital, he says. He used to hear stories of some companies speaking to one VC and getting $10 million off the bat, which made him wonder what they were doing wrong.

However, after speaking to a number of VCs you realise they don’t give away their money easily and are talking to a number of founders at once.

It’s a case of finding the right investors, at the right time, in the right place, he says. 

“They really need to get to know you and you need to speak to a lot of companies. I get rejected a lot more than I get yeses, that's for sure. But you find the right people that understand what you're doing.”