Last week Clio, a Canadian legal tech business, raised $900m in a Series F round, valuing the company at $3b. The valuation nearly doubled from $1.6b in April 2021. The round was led by a >$500m check from New Enterprise Associates. Other new investors included Goldman Sachs Asset Management, Sixth Street Growth, CapitalG and Tidemark, while existing investors, TCV JMI Equity, T Rowe Price and OMERS also added new capital.
Here are a few things that stood out about the deal and the company.
Clio’s annual recurring revenue (ARR) doubled from $100m in June 2022 to $200m today. The growth is driven by payments and AI, according to the company. Growing 41% per year for two years starting at $100m is extremely impressive. It’s faster than any public software company.
Clio’s most recent growth came through payments — another sign of the vertical SaaS story is coming true. Clio launched payments in late 2021 and in 2024 it now processes billions of dollars of transactions annually. It was one of the main drivers of revenue in the past two years.
One of the biggest software trends in the last half decade is embedded financial services that give vertical SaaS businesses more revenue opportunities. This is a perfect example of that trend playing out.
Clio focuses on small and mid size law firms, and the payments product solves unique challenges for them. Generic payments products don’t work in certain scenarios like trusts. If lawyers were to use a payments platform that charged the typical 3%, they’d be committing malpractice because trust funds can’t be used in that way. After looking through their demo, it’s clear how their payments product solved this. Clients can add funds online (an improvement over a paper check) but not have any payments collected. Then lawyers can bill directly against that trust fund for their services, with the client getting notified via invoice. It’s a savvy way improve the experience for both lawyers and their clients.
Clio has a unique opportunity to drive AI adoption in the legal industry, both in expected and unexpected ways. The legal industry has historically been slow to adopt new technologies, but the pandemic accelerated the shift as many law firms onboarded software for the first time. Clio is well-positioned to capitalize on this trend, having already built relationships with hundreds of thousands of lawyers.
The legal industry is a natural fit for AI applications, given its text-heavy nature. Many people immediately think of AI being applied to legal tasks. Think reading through hundreds of documents during the e-discovery process, or speeding up contract review by flagging key terms and discrepancies. And Clio is certainly exploring these use cases to help lawyers work more efficiently.
However, Clio’s approach goes beyond the obvious AI applications. Clio began as a practice management platform and many of their tools are back office tools that happen to be built for law practices, rather than document workflow tools specific to the work that lawyers do. These products might be enhanced with AI in more traditional ways, such as incorporating natural language to speed up routine admin tasks or setting up AI-voice-powered inbound sales reps to capture demand more reliably.
While the above application examples are speculative, Clio does have the market position to enable them to build AI tools for lawyers, regardless of their eventual form factor.
This fundraise is the largest in legal tech history. $900m is the largest fundraise in legal tech history (at least, depending on how you measure it). A few other recent large deals include LegalZoom’s $500m round in 2018, Clio’s $250m round in 2019 and RocketLawyer’s $223m round in 2021.
A significant part of the transaction was secondary financing. A “substantial amount” of the financing was secondary financing, with cash going to existing investors, founders and employees. It’s not unusual for late-stage venture rounds to include secondary, but it sounds like this was more than normal. It underscores a 2024 trend: venture funds exiting within the private markets via secondary transactions. With IPO markets functionally closed right now — but plenty of capital chasing large private SaaS companies — the Clio deal is representative of the times.
