#108: The Story of Harvey (Vertical AI For Law Firms), Founders Journey Podcast, Picking The Right Market
One vSaaS breakdown. One biz story. One 'how to'. In your inbox once a week.
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Alright, let’s get to it…
One Biz Story:
The Story of Harvey - Vertical AI for Law Firms
A Litigation Attorney and a AI Research Scientist have raised $200 MILLION for their vertical AI solution for Law Firms.
Google Ventures, just led a recent $100M round 🤯
I went deep on the business for you all, here's the overview:
Meet @HarveyLegalAI - the startup using AI to transform legal research and make lawyers more efficient.
Harvey is built on GPT-4 technology from OpenAI, to streamline contract drafting and analysis for law firms and corporate counsel. By automating routine tasks, they're enabling legal teams to focus on more strategic work.
Harvey was founded in 2022 by Winston Weinberg and Gabriel Pereyra.
Weinberg was a former securities and antitrust litigator at law firm O’Melveny & Myers, and Pereyra was previously a research scientist at DeepMind, Google Brain (part of Google’s AI groups) and Meta AI, launched San Francisco-based Harvey in 2022.
Weinberg and Pereyra are roommates; and a few years ago Pereyra showed Weinberg OpenAI’s GPT-3 text-generating system and Weinberg realized that it could be used to improve legal workflows.
Today, Harvey's 100+ customers include major firms like PWC UK, Sidley Austin, Cozen O'Connor, and Cadwalader. They claim their four products (Assistant, Vault, Knowledge, & Workflows) are really moving the needle...
Let's take a quick look at each of them:
Assistant:
A domain-specific personal assistant tailored to your expertise. It helps professionals delegate complex tasks using natural language, making work more efficient and streamlined.
Vault:
A secure project workspace where you can upload, store, and analyze thousands of documents using powerful generative AI. It's designed to enhance document management and analysis.
Knowledge:
This product offers rapid research capabilities across multiple domains, including legal, regulatory, and tax. It provides accurate citations and grounded results to answer complex research questions.
Workflows:
Multi-model agents that collaborate with professionals to deliver precise, purpose-built work products. This product aims to streamline workflows and improve productivity.
While Harvey is tight-lipped on financials, estimates peg their annual recurring revenue in the tens of millions based on their customer base and pricing models. With ~125 customers, and most seeming enterprise, I'd assume ACV's are north of $100K+
Harvey has raised $200M+ i to date from investors including Bedrock, Coelius Capital, Alleion Capital, and angels like the founders of Palantir and Twilio. Just last week Harvey announced a MONSTER $100M round led by Google Ventures.
The law firm industry is a fantastic vertical to go after with SaaS and AI. Why? The Legal Services market is BIG, it's trending towards $500B in the US and $1 Trillion globally.
It's all segmented beautifully with a good mix of small, medium, and large firms.
There are 1.3M lawyers in the US across ~450K firms.
The average hourly rate for lawyers in the US is $313.
However, with big markets comes significant competition. There are some BIG vSaaS players in the space who are likely already working on their own vertical AI solutions: These folks may have a leg up, given the vast set of data they are already sitting on. It will be interesting to see how Harvey competes with them over the next few years:
Harvey has strong financials and growth, and is now setting its sights beyond legal research.
The goal is to build an AI-powered platform for the entire legal workflow and, they won't say this publicly, but they probably aim to eventually replace attorneys with AI entirely.
One vSaaS Breakdown:
Founding Journey Podcast
A bunch of you asked me to hop on another pod and share some more playbooks . So that’s what I did.
From the podcast —
“Hey y’all — what would you do if someone had offered you $100k… but, in order to get it, you had to drop out of college?
And what if that person making the offer was Peter Thiel?
That’s what happened to Luke Sophinos.
Luke dropped out of college to join the Thiel Fellowship where he met incredible founders and gained a Silicon Valley network overnight. He niched down his startup and created a vertical SaaS business for trade schools.
He rarely does interviews despite being the most knowledgeable person out there on vertical SaaS.
Thankfully he’s a friend, so we sat down to go deep on why the highest-upside SaaS opportunities have shifted from horizontal to vertical, why owning the transaction layer is key to building a venture-scale vertical SaaS business, and tactical frameworks to grow a vertical SaaS product (many of which he goes into detail about in his Vertical SaaS Bible).
One ‘How To’ :
How To Pick The Right Market To Go After:
The market you choose to go after is a huge determining factor in your success. I get asked all the time, “How do I ensure I’m going after the right market?” Here’s the questions you need to answer…
Question #1. Is it big enough of an opportunity?
This all comes down to how big of a business you’re trying to build. If you want to raise money, VC’s will require you to go after a market that can create a billion dollar business.
Do a TAM (Total Addressable Market) analysis. If I charge $X, and everyone in the space buys my solution, can this create a business that is big enough if I achieve 5, 10, or 15% market share? Remember, most businesses start to plateau around 15-20%. So you need to have a lot of room to grow into it.
Your analysis should include future products that you can charge for, not just your initial offering.
Question #2. Does the market have a healthy segmentation?
You have to be comfortable with how the market is segmented. If it’s monopolized by 5 players ie. Telecom it’s going to be EXTREMELY hard to win. I always look for markets that have a good mix of SMB, MM, and ENT companies.
Question #3. Can I compete and win in this market?
Doing a competitive analysis is important before really going after your idea. If you’re entering a space that has hundreds of venture-backed competitors, that has already been ‘won’ it’s going to be difficult.
Look for blue-ocean markets, places that lack a bunch of offerings. It’s healthy to have competition, you just don’t want an absurd amount of it.
Question #4. Are the end customers willing to change?
Some markets lack early adopters and individuals that are even willing to try anything new. In my experience, traditional academia is the WORST. They won’t change even when they know they should.
Make sure you’re going after a space where folks want to grow and improve, and are willing to try new things to improve their business.
Question #5. Can I sign up a significant number of customers with the first version of my product?
If your end-market is full of massive companies, they aren’t going to change without a HUGE product that takes millions or tens of millions to develop.Finding a space where you can get in the door with an initial light-weight offering is crucial.
You don’t want to be in the ‘lab’ building a product that doesn’t have users for years and years. What you’ll find is regardless of validation you just won’t really know what to build until it’s in the customers hands.
Next step? Sum it all up into a market scorecard…
I’m a big proponent of scorecards. You can build a rubric with all of these questions baked in, add some more to it if you think it’s necessary. Create a list of hundreds of markets and force rank them based on your scorecard.
Choose the right market.
Do the work up front.
It will make life so much easier.
Have a product or service that would be great for our audience of vertical SaaS founders/operators/investors? Reply to this email or shoot us a note at ls@lukesophinos.com
Harvey's journey is indeed incredible. They've just now raised a mega-funding round of $160 million at an $8 billion valuation. I do think that there's a huge gap in the LegalTech market. I mainly see three opportunities to build in this space which are: (1) Domain-Specific LLMs for specific practice areas such as IPR, Capital Markets and M&A etc. These LLMs would have to solve one particular problem properly like building a tool for patent research or an IPR co-pilot, (2) AI-Native Law Firms for specific niches is also a big opportunity. Building for niches such as startups and MSMEs which have traditionally been underrepresented by BigLaw due to low-margins is huge. These firms would be able to capture most of the value due to AI being a core part of their infrastructure, (3) Cybersecurity Solutions for Law Firms is huge because law firms deal with confidential and sensitive information with legal services being built on a foundation of trust and reliability. Nearly, 60% of law firms globally report cyber threats with this being amplified with Quantum Computing and AI. Cybersecurity becomes a core strategic necessity. I write a newsletter focused on LegalTech analyzing trends and opportunities for building. Would love to get your thoughts on it!