Edison Partners backed legal tech company Bodhala at a time when the industry shows growth amid the pandemic, the firm told PE Hub.
The Princeton, New Jersey-based growth equity firm invested $10 million in Bodhala, the firm said on Wednesday.
Bodhala applies data science, machine learning and analytic insights to help companies analyze, interpret and optimize their spending on legal matters.
The company experienced more than 300 percent growth in both revenue and headcount in 2019 and is on pace to do the same in 2020, Daniel Herscovici, a partner at the firm, told PE Hub.
“During the last recession, legal spend dramatically increased and was one of the biggest spend categories,” Herscovici said. “We are seeing the signals of this in this dynamic.”
The company has already seen an increase in new customers over the past few months as more companies require affordable legal counsel in the recession, Herscovici said.
Most of Bodhala’s customers are mid-market companies lacking internal corporate counsel, so they often turn to outside counsel to deal with challenges, the investor explained.
Bodhala’s platform compiles options of best-suited legal service providers based on data and search criteria. The company also automatically ingests legal spend data, analyzes it, and then proposes ways to reduce that spend, Herscovici said.
Bodhala has seen an increase in demand from PE clients, who are searching for the best-positioned and most affordable legal advice on matters around the CARES Act, among other portfolio-related issues, Bodhala’s co-CEO Raj Goyle told PE Hub.
“There has been a huge rush of advice around the PPP process, SBA loans, the CARES Act generally,” Goyle said. “Within certain sectors there has been a stepping up of what will become inevitable litigation over the impact of corona. In particularly, for the companies in the portfolios of the PE firms.”
According to Goyle, there are hundreds of millions of contract disputes coming down the pipeline due to covid-19 – and that will be reflected in Bodhala’s business.
Bodhala’s PE clients often use the data system to not only find legal service options, but also to understand how to structure their economic relationship with their existing legal contact, Goyle said.
“Most of the PE industry is actually blind on how to structure the value relationship with their outside law firms,” Goyle said. “In the covid crisis, where every penny is now being guarded so zealously, knowing what they should pay and what the market price is for the service is really important.”
PE firms that are Bodhala’s clients have been increasingly seeking electronic bills from the outside law firms they work with, Goyle said.
Traditionally, law firms are slow to bill and generally do it through PDF filings, which are difficult to parse and generate insights from with technology.
Some of Bodhala’s PE clients are now pushing these firms to submit bills electronically through the platform to gain improved transparency and insights. That will ultimately give firms leverage to negotiate better rates for the legal costs they anticipate ahead, Goyle explained.
“Law firms price everybody as if they are LeBron James, when we know there is only one LeBron James,” Goyle said. “Because without any benchmarks, without any data, it’s almost impossible for a private equity firm to know what they should pay.”
According to Bodhala’s research, companies spend nearly $500 billion annually on outside counsel with hourly billing rates tracking at almost four times the rate of inflation. Bodhala data shows the top-15-by-revenue firm street rates went from under $700 in 2000 to more than $1,650 per hour today.
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