Earlier this week, I reported on FTV Capital\u2019s investment in ProfitSolv, the parent company behind multiple law practice management platforms, including CosmoLex,\u00a0Orion,\u00a0Rocket Matter\u00a0and\u00a0Tabs3. Although the dollar amount of the investment was not disclosed, ProfitSolv described it as \u201csubstantial.\u201d Yesterday, I had the opportunity to speak with Adam Hallquist, a principal at FTV Capital who led [\u2026]<\/p>\n
Earlier this week, I reported on FTV Capital\u2019s investment in ProfitSolv<\/a>, the parent company behind multiple law practice management platforms, including CosmoLex<\/a>,\u00a0Orion<\/a>,\u00a0Rocket Matter<\/a>\u00a0and\u00a0Tabs3<\/a>. Although the dollar amount of the investment was not disclosed, ProfitSolv described it as \u201csubstantial.\u201d<\/p>\n Yesterday, I had the opportunity to speak with Adam Hallquist<\/a>, a principal at FTV Capital who led the investment, and who now sits on ProfitSolv\u2019s board, to dive deeper into his firm\u2019s strategy and vision for the legal tech space.<\/p>\n As it turns out, Hallquist brings a unique perspective to legal technology investing. \u201cMy dad\u2019s actually a lawyer,\u201d he told me, explaining that his father worked for a larger firm before going solo for the final seven or eight years of his career. That personal perspective, Hallquist said, gave him insight into the challenges lawyers face with practice management technology.<\/p>\n He also said that, prior to this investment, he spent a lot of time getting to know the legal vertical and the legal tech companies that serve this vertical. What particularly struck him and his colleagues at FTV was\u00a0the enormous untapped potential in the legal market.<\/p>\n Given the proliferation of law practice management platforms for smaller and mid-sized firms in recent years, 0ne of the most striking aspects of our conversation was Hallquist\u2019s assessment of how much of the legal market remains \u201cunvended\u201d \u2014 meaning they are not using any of these platforms. \u201cYou have a lot of lawyers that aren\u2019t really using a practice management solution,\u201d he said. \u201cAnd so the vended market is the minority today.\u201d<\/p>\n Although he admits that it is hard to precisely quantify the number of lawyers using law practice management platforms, he believes it is only roughly a third. \u201cOur sense is that it\u2019s 30 to 35% of the market is vended today and the rest is unvended at the moment.\u201d<\/p>\n If so, that translates to significant growth potential. \u201cEvery year there\u2019s probably 100 to 150 million in new revenue that\u2019s coming up as lawyers are starting to utilize solutions.\u201d<\/p>\n From an investor\u2019s perspective, this creates an ideal scenario, he said. \u201cInstead of having to get somebody to replace something they\u2019re already using, you have a big opportunity to get new customers as they come to market.\u201d<\/p>\n As I reported on Tuesday, this investment was co-led by FTV together with Lightyear Capital, which had already been the principal investor in ProfitSolv and which had created the company in 2020.<\/p>\n What Tuesday\u2019s announcement did not specify was the percentage of each firm\u2019s investment and whether one or the other would now hold a controlling interest. Hallquist provided clarification on that.<\/p>\n Unlike many private equity deals where one firm takes a controlling stake, this deal is an equal, 50-50 partnership between FTV and Lightyear, he said.<\/p>\n This structure reflects FTV\u2019s respect for Lightyear\u2019s track record with ProfitSolv, he said. \u201cWe\u2019re really excited by the fact that they wanted to stay and that they said, \u2018We want to be exactly 50-50 with you guys,\u2019 because I think highly of them as investors. They also have this relationship with the business going on five years now.\u201d<\/p>\n In a series I wrote last year about consolidation of ownership in law practice management technology, I talked about \u201cthe FinTech factor\u201d<\/a> \u2014 and specifically electronic payments \u2014 as one of the factors that had most significantly reshaped the practice management market in recent years.<\/p>\n As a firm, FTV has invested significantly in financial technology, and Hallquist confirmed that a significant focus of FTV\u2019s strategy with regard to ProfitSolv \u2014 which owns the payments platform LexCharge \u2014 will focus on modernizing how lawyers handle payments.<\/p>\n \u201cThe majority of payments are still done via check in the legal world and there\u2019s an ability to move those to ACH and to credit cards,\u201d Hallquist said.<\/p>\n The current adoption rates reveal the opportunity: \u201cA minority of the customers of ProfitSolv are currently using payments today. And we think that a majority of the customers should be using it.\u201d<\/p>\n Hallquist drew parallels to other industries where FTV has driven similar transformations. He cited their investment in JustPark, a parking technology company, where moving from cash to digital payments eliminated fraud, improved accounting, and provided better capacity management.<\/p>\n \u201cThere\u2019s all these other things that you can take into law that feed into how do you think about your accounting and the productivity of lawyers, paralegals, other staff that you have,\u201d he said.<\/p>\n One of the brands ProfitSolv owns is Tabs3, which has been in business since 1979 and still operates \u201clegacy\u201d on-premises products. One question many in the legal tech space have is what happens to those on-premise solutions<\/a> as the industry moves toward cloud-based platforms. Hallquist takes a pragmatic approach.<\/p>\n \u201cWe need to be sure that we solve the problems and do right by our customers,\u201d he said. \u201cThere\u2019s a lot of great customers that the business has on premise that are not immediately interested in moving to cloud and we still intend to be a very good company for them to be utilizing going forward.\u201d<\/p>\n The retention numbers support this customer-centric approach. \u201cOnce you get to using one of their solutions, I think it\u2019s a 95% gross retention business. So it\u2019s like once you get up and operating, you\u2019re not very likely to switch off of whatever the solution is.\u201d<\/p>\n FTV sees multiple avenues for growing ProfitSolv beyond organic expansion. \u201cWe will be open to additional acquisitions,\u201d Hallquist said. \u201cThere\u2019s some businesses that serve really specific markets or that could benefit from being part of our solution.\u201d<\/p>\n The company is also not ignoring artificial intelligence trends. \u201cWe\u2019re not going to turn a blind eye to AI, for example, and to what are the products that can be leveraged in practice management.\u201d<\/p>\n Hallquist emphasized that FTV\u2019s approach to acquisitions is fundamentally growth-oriented. \u201cIt\u2019s more about can we sell something to their customers and they sell something to ours and can we generate more revenue and hire more people and grow both those companies as one more.\u201d<\/p>\nMassive Unvended Opportunity<\/h3>\n
50-50 Partnership<\/h3>\n
The FinTech Opportunity<\/h3>\n
Legacy vs. Cloud<\/h3>\n
Acquisitions and Innovation<\/h3>\n