Spellbook - The AI Assistant For Lawyers

Thanks To This Week’s Sponsor…

If you build startups, you are well aware of the repetitive process of starting a new project: setting up DNS, designing a landing page, connecting Stripe webhooks, setting up transactional emails, etc. Skip the frustration with Shipfa.st and let their SaaS boilerplate take care of the headaches so you can focus on building a great product.

Company & Team Introduction

Spellbook was initially founded as Rally in 2018 by CEO Scott Stevenson, CRO Dan Di Maria, and Matt Mayer as a legal management platform. The idea came after legal fees ate over half of Scott’s prior music startup’s angel funding, leading him to cross paths with ex-lawyer Daniel Di Maria. The duo teamed up and worked for years to build a strong product offering for Rally, a platform where you can digitally send legal documents to clients and co-workers. Then, in 2021, Github copilot burst onto the scene with its generative AI abilities, displaying incredible efficiency gains for software engineers. It was clear the technology would be game-changing for the software industry, and the Spellbook team quickly identified the similarities between writing software and writing legal documents; both industries follow well-defined structures and rulesets, both are verticals with so much information a human can’t know/remember everything, and there is a massive amount of typing/redundant work. So, the team started building a product tailor-made for the legal vertical, building an AI assistant to make lawyers as productive as possible rather than replacing them. Spellbook is headquartered in Toronto, Ontario, but it has chosen to hire its team remotely. The company currently has around ~39 employees.

Product Overview

One of Spellbook’s main value propositions is that they aspired to build a product that brought massive efficiency gains without changing a Lawyer’s regular workflow. To achieve this, the company brought the AI to where Lawyers spend most of their time, Microsoft Word. Spellbook’s product has a list of compelling features such as the ability to detect aggressive terms and highlight them in red to bring attention to them, make suggestions about potential missing clauses or statements in a contract, draft up new clauses or sections based on the context of your agreement, the bring in relevant bits of important data when in negotiation, for example, average exit multiple of similar companies who’ve sold in the past when negotiating an acquisition. These powerful features allow lawyers to get more done in a fraction of the time.

Total Addressable Market

The market opportunity that Spellbook is tackling is massive. There are an estimated 1.3M Lawyers in the US alone, and due to the high-value nature of their work, small gains in efficiency can result in massive cost savings. The market for legal AI alone was estimated to be worth over a billion dollars in 2022, with estimates that the industry could grow to over 3.9B by 2030, growing at an 18.2% CAGR. The legal industry as a whole amounts to nearly half a trillion dollars a year

Business Model & The Numbers

Spellbook is still figuring out an optimal pricing model to best align the company and its customers. In the past, the company utilized a tired monthly subscription fee with prices ranging from $99-$999/user, but the company is currently “exploring different pricing models, but will likely be a consumption-based model” as the company’s AI compute costs scale up with increased usage. The company is experiencing explosive growth, with revenues growing over 10x YoY and a nearly 300% increase in its customer base from 2022 to 2023. The productivity gains from using Spellbook are undeniable; the team estimates lawyers can manage up to an estimated 30% larger client load with the help of their tool.

Traction

Spellbook has seen massive growth since being founded in 2022. Over 1,700 of the top legal teams in the world are using Spellbook to help streamline their workflows and improve efficiency, including names like Renno & Co., KMSC Law, and Cunningham Legal. More than 86,000 legal contracts are opened with Spellbook each month, and that number is rising rapidly. Usage of Spellbook is also strong; the company refers to each legal task as a “spell” stating the average lawyer using Spellbook uses about 280 monthly spells!

Competitors

The legal tech market Spellbook is building for, and the AI market as a whole, is currently in somewhat of a gold rush. The recent exponential rise in the capabilities of LLMs over the past few years has opened the door to the release of a new set of generative products with capabilities that weren’t available before capabilities, meaning massive new market opportunities have opened up without the external threat from incumbents. These massive opportunities have caused an enormous influx of new startups trying to harness this technology and bring it to these markets. Here are 2 of Spellbook’s main competitors:

Harvey AI - Founded in 2022, Harvey is the 800 Gorilla in the legal AI space. The company is backed by tier 1 investment firms and angels worldwide, including Elad Gill and Kleiner Perkins as co-leads, with participation from Sequoia and OpenAI’s startup fund. The company positions itself as the copilot for “elite lawyers” targeting the Fortune 500 at a presumably much higher price than Spellbook, which is positioned as a more affordable SMB-focused product. Harvey recently raised an 80M Series B round, valuing the startup north of 700M. Annual recurring revenue increased over 10x to $10M in 2023.

Robin AI - Founded in 2019 by ex-lawyer Richard Robinson and machine learning research scientist James Clough. The Robin team claims their product can reduce the time to review legal contracts by up to 85%. The startup is also powered by Anthropic’s Claude 2.1 LLM, allowing for longer prompts than competing models (~150k words per prompt) and their propriety contract data from over 2M contracts. Robin is emphasizing quality and accurate responses from their product. The company has seen its revenues increase 5x YoY, and its customer base increase 4x YoY, allowing it to raise a 26M Series B round led by crossover investment firm Tomasek with participation from Plural, AFG Partners, and QuantumLight.

Funding

Spellbook has raised two rounds of funding so far to make further investments into their product and continue scaling their team as the company continues to undergo blistering growth. The company first raised a 10.9M seed round in 2022 from an impressive group of institutional investors with comprehensive knowledge and experience in the legal field. The round was led by Moxxie Ventures with participation from Thomson Reuters Ventures, Inovia Ventures, The LegalTech Fund, Bling Capital, N49P, Concrete Ventures, etc. Spellbook tapped the capital markets again earlier this week, raising an impressive 20M Series A round with a ton of follow-on investments, which is a fantastic sign that investors are happy with the performance of the company and the company is impressed with the value their investors are adding to the company. This round was led by Inovia Ventures, with participation from Moxxie Ventures, Thomas Reuters Ventures, The LegalTech Fund, Bling Capital, N49P, and Concrete Ventures. Spellbook has raised a total of 30.9M in funding.