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2019 might go down as the beginning of the boom years for investment in legal technology companies (“Legaltech”), or it might be remembered as the good times that preceded yet another historic crash.

Let’s start with the good news. It’s both common knowledge and well established by research that the legal industry has historically been, to put it delicately, slow to adopt technology. If the greater business world is cruising along in a Tesla, most legal offices are puttering around in a ’97 Neon. That might finally be changing, at least if you judge it by the metric of investment in legal technology firms.

The ABA recently published an interesting overview of the upswing in investment in Legaltech over the past two-to-three years. For a long time, investors simply haven’t been interested in betting their dollars on the development of technologies specifically designed for lawyers. And why would they? There are some lawyers still drafting up briefs and contracts in Corel WordPerfect on a Windows 95 machine. The practice of lawyering has not experienced widespread technological disruption since perhaps the introduction of the email-enabled phone. If we can’t be bothered to update our antivirus software, how likely are we to sign on to expensive and complicated new technological platforms?

The Pump Is Primed

But to the VCs in Silicon Valley, well-established, technologically stagnant industries are an untapped well of profit. Silicon Valley thrives on forcing disruption, remaking old industries in a new image. The potential for a massive upside is certainly there, and more and more investors are now taking the swing, betting on projects that promise to improve the legal space.

Around $100M was invested in legal tech by VCs in 2012, whereas in 2018, that number was nearly $1.6B, a 20-fold increase over six years. 2019 is on pace to blow past 2018 both in the number of deals done and total dollars invested.

This is a good thing, full stop. Consumers of legal services stand to benefit across the board. Any innovation that makes legal services cheaper, more broadly available, more efficient, or more transparent is going to be a benefit to the customer.

Whether law firms benefit from these new technologies will depend largely on the firms themselves, but some likely stand to grow hugely off the back of these innovations. The firms that identify value-add technology early and beat the market in adopting it stand to increase their market share, develop happier clients, cut firm overhead, and potentially bring in entirely new lines of business. Integrating disruptive technology can be painful, but it’s a necessary step for firms looking to stay competitive in the coming economic lean times.

The Seven Worst Words In The World

Now for the bad news. It’s a fact that investment in legal technology is accelerating, but the reasons offered above aren’t the only possible driving forces in play. The best reason for investment in legal tech is the one we already explored: Law firms are finally becoming willing to adopt new technologies, and so a market is springing up to create tech for those firms to adopt, and VCs are joyfully funding that market. This rosy view is probably at least part of the reason for the uptick in investment, but there are larger industry trends at play that need to be factored in.

Howard Marks, a billionaire investor for Oaktree Capital, summed the problem up in a wide-circulated memo called “The Seven Worst Words In The World.” The entire memo is worth a read, but the titular seven words sum it up:

“Too much money chasing too few deals.”

That’s the basic problem of VC investing at the dawn of the 2020s. The world has figured out that investing in technology companies is cheap, but has tremendous upside compared to the cash required to buy in. For a relatively small investment, VCs essentially get a lottery ticket. If the company goes bust, they lose their modest investment. If the company turns into a unicorn, the VC might find itself billions of dollars in the black on a six- or seven-figure outlay.

The problem is that there are currently so many investment funds, angel investors, VC firms, and even sovereign nations chasing those investment opportunities that the price of investment has gone up across the board. Demand for tech companies to fund is drastically outpacing the supply of viable companies, and it’s likely leading to overpricing and excessive investment throughout the entire tech field.

This has two primary effects. First, it drives the price of investing up. When multiple investors are jockeying for the privilege of putting their money into the company, it’s generally the investors willing to put in the most money, while accepting the lease control, who get the nod. This is the dynamic that led to some of the more insane pro-company, anti-investor conditions at WeWork we explored in my last article.

The other effect is that it broadens the scope of what can be deemed an acceptable deal. Frustrated investors who missed out on the traditional tech companies will branch out looking for other industries where the competition is slimmer, industries primed for disruption… industries like Legaltech.

Combine it all together, and all signs are pointing to the VC industry being in a speculative bubble that, sooner or later, has to pop.

The Looming Crash

So here’s the question of the moment: how much of the recent rise in Legaltech investment is attributable to organic maturation of the market, and how much is just splashing over from the investment mania sweeping the larger VC world? If the Legaltech sector is developing mostly in line with the actual increasing value of investments and adoption of new technologies, then a pop to the larger VC bubble shouldn’t have all that much effect. In fact, it might even drive more investment to Legaltech if the market segment can weather a larger downturn intact, and prove that the market really is maturing.

On the other hand, it’s possible that most of this growth is just froth generated in the larger industry’s quest for the next billion-dollar business. If a popping VC bubble takes down the Legaltech sector, it could push us back even further on our profession’s quest to join the 21^st century.

I plan to spend the next two columns digging deeper into the Legaltech industry as it stands. If we get lucky, we might start developing illuminating answers. If we’re luckier still, we’ll develop some even more illuminating questions.

James Goodnow

James Goodnow is an attorney, commentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of NLJ 250 firm Fennemore Craig. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management new release category. As a practitioner, he and his colleagues created a tech-based plaintiffs’ practice and business model. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.

* The New Jersey Supreme Court has disbarred an attorney who charged a widow $120,000 for work that should have cost no more than $15,000. This takes running the meter to a completely different level. [Bloomberg Law]

* A judge has thrown out a conspiracy theorist’s lawsuit against Robert Mueller. Looks like it ain’t Mueller time anymore… [The Hill]

* A Brooklyn pimp has argued in court that he did not kill his girlfriend, but merely chopped up her body. Sounds like a defense Robert Durst would make. [New York Post]

* A former Manhattan Assistant U.S. Attorney is a main contender to be Rudy Giuliani’s lawyer. [CNN]

* NYC’s new top lawyer says that going after Trump is a top priority. [New York Post]

* Two Midwestern firms have merged to form a 400-lawyer firm. That’s a lot of Midwestern charm! [ABA Journal]

Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothmanlawyer.com.

That has dimmed hopes of a quick economic recovery under President Emmerson Mnangagwa, who took power after the late Robert Mugabe was ousted in a coup in 2017.

The Apex Council of public sector unions said the government had not responded to its demands for U.S. dollar-indexed salaries to cushion workers against inflation that economists say reached 380% in September.

The unions said on Oct. 15. that the worst economic crisis in a decade – marked by 18-hour power cuts, soaring prices and shortages of foreign currency, fuel and medicines – meant they were unable to go to work.

“As a consequence of the above, the Apex Council is calling upon all civil servants to prepare for a massive protest march,” the council said.

In a letter to labor minister Sekai Nzenza, the union chair Cecilia Alexander and her deputy Thomas Muzondo said the demonstration would be held on Wednesday, when they would hand a petition to government.

Nzenza did not respond to calls seeking for comment.

Surging inflation has brought back memories of the horrors of a decade ago when 500 billion percent hyperinflation wiped out savings and forced the government to abandon its currency.

The planned march is a test for Mnangagwa, who is accused of using his predecessor’s heavy-handed tactics to stifle dissent after banning several opposition protests.

Critics say Mnangagwa, 76, lacks commitment to political reforms and tackling corruption but he has pleaded for time to bring the economy back.

Finance Minister Mthuli Ncube earlier told lawmakers that the economy is set to shrink by 6.5% this year – its first contraction in a decade – after a drought and power shortages.

Ncube said water in the Kariba dam, which can produce 1,050 MW, was so low that “we are dangerously close to a level where we have to cut off power generation”. Kariba was producing 122 MW on Thursday.

Zimbabwe would spend more than $300 million to import 840,000 tonnes of maize, after the drought left more than half the population in need of food aid, said Ncube.

He said the economy was projected to recover and grow 3% next year on the expectation that there would be better rains to power agriculture as well as improved foreign exchange inflows and electricity generation.

Power cuts have hit industry and mining, the biggest export earner. Earnings from mining fell to $1.9 billion between January and September this year, from $2.4 billion during the same period in 2018, central bank governor John Mangudya said.

Post published in: Business

This week the government moved a step ahead in its currency reforms when the central bank announced new notes will be introduced in two weeks to fight transactional challenges emanating from over-reliance on digital and mobile money in light of exacerbated by cash shortages.

Mobile money, an area in which Econet spin-off, EcoCash is the dominant player, has often been helpful for ordinary Zimbabweans in alleviating the cash shortages they have been experiencing. However, mobile money has also become problematic as wallet holders have had to pay premiums of up to 50% to access their funds in cash and this is why the Monetary Policy Committee of the central bank is moving to introduce new currency notes under the banner of the Zim dollar.

But to understand the Zimbabwean currency changes and reforms and the resultant crisis, one needs to go back to 2009 when the country—ravaged by hyper-inflation—abandoned the Zimbabwe dollar and adopted multiple currencies including the US dollar and South African rand. In 2015, the foreign currency notes dried up at the banks, leading to cash shortages in the economy. Then in 2016, Zimbabwe introduced bond notes as a surrogate currency which initially had equal value to the US dollar but today it trades at 1:15 with the greenback.

The currency crisis worsened even after longtime president Robert Mugabe was replaced by Emmerson Mnangagwa in late 2017. He appointed Mthuli Ncube as finance minister in 2018 leading to the adoption of a monetary policy pivoted around currency reforms which have in turn led to the removal of foreign currencies and re-adoption of the Zim dollar in 2019.

This November Zimbabwe will inject more cash into the economy in the form of new ZWL 2 coins, ZWL 2 and ZWL 5 notes and these will be legal tender alongside the bond notes introduced in 2016 pending their gradual phasing out from the market. According to the monetary policy committee of the Zimbabwean central bank, “the level of physical cash in the economy is inadequate to meet transactional demand” hence its decision to “boost the domestic availability of cash for transactional purposes through a gradual increase in cash supply over the next six months” and starting with the new notes coming up next month.

Hyperinflation fear

With Zimbabweans having to pay premiums for their own money in their mobile wallets, economists including Oxlink Capital’s Brains Muchemwa have described the situation as a reflection of policy failures. But some Zimbabwean economists believe the introduction of new notes under the Zim dollar banner will help address cash shortages in the economy, mainly because of fears that further injection of money will drive up inflation. It may be too late, the economy recently officially sunk into hyper-inflation despite the government stopping publication of yearly inflation data.

Cash shortages have been pushing up transaction fees for digital money, leaving analysts divided over the role of mobile money in abetting or worsening the monetary crisis. Authorities in Zimbabwe have recently ordered mobile money operators to stop cash in and cash out functionalities, apparently because of the premiums some agents were charging and has only re-instatement of these functions after imposing limits of about ZWL100 per transaction. On the parallel market, ZWL100 is equal to $5 while on the official interbank market, ZWL100 is about $6.60

Apart from the pricing distortions and premiums on cash, Zimbabweans are having to cope with sharp price rises, the most recent of which has been fuel prices and data tariffs. Econet Wireless this week hiked mobile voice call and mobile data tariffs while fuel has also gone up by about 12% after the removal of subsidies on petroleum products this year. This is expected to provide further room for inflation increases. Re-Invent Zimbabwe chair and economist Vince Musewe says “increasing liquidity through hard cash will be like giving more chips to the gambler” as prices will likely shoot over the roof.

Apart from the skepticism and divided opinions over the new notes to be introduced and their impact on the economy, some analysts such as independent economist Jeffrey Kasirori say the government still has to do more to clear the way for the new currency notes to have a positive impact. Zimbabwean businesses have long complained about the high costs of doing business and a placid regulatory framework.

“If we don’t address fundamentals especially around the cost of production then the new currency might not work. We await to see what else the government will do to address the business operating framework because as things stand, accessing foreign currency is still problematic for many companies and this makes their production difficult,” says Kasirori.

Control of Bindura Nickel Corp., Zimbabwe’s biggest nickel operation, has been sold to a company linked to an adviser of President Emmerson Mnangagwa.

Sotic International Ltd., a Mauritius-based firm, bought a 74.73% stake in the company from Asa Resource Group Plc, said Muchadeyi Masunda, Bindura’s chairman. Sotic owns Zimbabwe’s Landela Mining Venture Ltd. and is linked to Kudakwashe Tagwireyi, one of Mnangagwa’s advisers and the owner of chrome, fuel and agricultural assets in the country.

Three companies had vied for Bindura Nickel, Masunda said in an interview. He said the stake was worth between $60 and $75 million. Asa is in administration. The deal involves “a substantial payment” in cash and “a commitment” to provide working capital, according to Masunda.

While Zimbabwe’s economy is on the verge of collapse and its mining companies are struggling because of shortages of foreign currency and fuel, it has some of Africa’s best metal and mineral deposits. Bindura Nickel was once owned by Anglo American Plc and has in the past produced about 6,700 tons of nickel a year.

On Oct. 29 Bindura said in a statement that the stake was sold to “a Zimbabwean based mining entity with interests in the mining and production of ferrous metals, non-ferrous metals and precious metals.”

Landela Mining was this month announced as a partner in a $4 billion platinum venture in Zimbabwe that’s backed by Russian investors.

Tagwireyi didn’t immediately respond to calls made to his mobile phone.