Exclusive: As UpCounsel launches crowdfunding campaign, Phoenix's story of her rise since shutdown (2023)

[Note: this is the first in an exclusive two-part series on the legal market UpCounsel, which is now launching a crowdfunding campaign 16 months after being rescued from closure by new owners. The campaign will open to the public on July 28th, but readers of this blog can do soAccess the private campaign of friends and family, with early benefits for investors including a lower valuation threshold.

Part two of this series, Monday, is an exclusive LawNext interview with UpCounsel CEO KJ Erickson and Chief Revenue Officer Paul Drobot.]

On February 3, 2020, the death knell sounded for the legal market.UpCounsel.

On this day, eight years after UpCounsel's inception, the co-foundersMaurer BlakejMatt Faustmannsent an email to the company's customers to inform them that it will close permanently on March 4.

“It is with a heavy heart that we bring this news and we understand that this abrupt announcement will come as a shock to some of you who rely on UpCounsel,” they wrote.

But then something unexpected happened. two businessmen,Kozinskis FraujXaver Helgesen, came at the last minute and acquired the UpCounsel website. Helgesen was a fan of UpCounsel because he used it for his own business, which he estimates saved thousands of dollars in legal fees.

Kozinsky and Helgesen had just started a small private equity firm calledpermanent company, and saw an opportunity in UpCounsel that fit well with their investment goals.

"My previous companies relied on UpCounsel for legal work," wrote Helgesena blog postAcquisition Announcement. “Saved a lot of money! We were surprised to hear that UpCounsel was closing. Being big fans, we bought UpCounsel to avoid the service being shut down and to focus on growing it.”

Sixteen months later, UpCounsel has revised its business model and says it is profitable and ready to continue to revolutionize the legal technology market. In his first 12 months under new management, he says he doubled his earnings and saved his clients more than $12 million in legal fees.

Now it has launched a regulatory crowdfunding campaign aiming to raise up to $5 million with the mission, says its new chief executive, KJ Erickson, to bring the law to the people. The crowdfunding campaign launched last week for friends and family and will open to the public on July 28th.

[Readers can access the campaign now at:wefunder.com/upcounsel.]

In addition, UpCounsel plans to launch additional products and services and says it will eventually launch its own full-service law firm, branded UpCounsel.

Sixteen months after nearing completion, UpCounsel says it is poised for spectacular growth.

an abrupt closure

The news of UpCounsel's closure came abruptly. On February 3, 2020, founders Blake and Faustmansent an email to customersto inform you that the site will be shutting down on March 4th and to thank you for your support.

“In accordance with a decision approved by our board of directors and shareholders, the UpCounsel website will be permanently closed on March 4, 2020,” they wrote. "At this point, you can no longer log into your account."

It's not exactly clear why they decided to close. I went to see Blake and Faustman. Only Blake responded, saying he was only "partially" involved with the company right now and had no further comment.

However, after this surprising announcement to his clients, Faustman later announced on April 23, 2020 that he and Blake had done so.joined LinkedIn as an employee.

“This new chapter of working with the incredible team at LinkedIn offers limitless opportunities to expand the UpCounsel vision we created so many years ago to new and exciting horizons,” he wrote.

While he didn't provide specific details about what he would do at LinkedIn, he did hint that he would expand UpCounsel's model to multiple industries.

“Building the vertical market model refined by the UpCounsel team on the LinkedIn platform and social graph, and then replicating it across 100 different industries opens up unlimited potential to empower service providers around the world,” wrote Faustman. "Of course, one of the industries that we're going to develop and grow is legal."

had beenreported in the mediathat UpCounsel was struggling to expand its business, and it wasDissident fighting a lawsuit- since resolved - who claimed the company violated California's ethical prohibitions by sharing fees between attorneys and others.

A last minute rescue

When entrepreneurs Xavier Helgesen and Sieva Kozinsky learned of UpCounsel's closure, they saw an opportunity.

Helgesen had been a customer of UpCounsel on previous deals and believed it had saved him thousands of dollars in legal fees.

"My previous companies have relied on UpCounsel for legal work," Helgesen wrote at the time. “Saved a lot of money! We were surprised to hear that UpCounsel was closing. Being big fans, we bought UpCounsel to avoid the service being shut down and to focus on growing it.”

They had recently formed Enuring Ventures, a small private equity firm focused primarily on creating individual SPVs, or special purpose vehicles, investing in a single company. Through Enuring Ventures, they acquired the UpCounsel website. They formed a new company to run it, UpCounsel LLC, and Helgesen took over as interim CEO.

Enuring Ventures did not acquire the former company, which was acquired by LinkedIn. Instead, they acquired the website and its backend to support the service alongside UpCounsel's former user community.

Form a leadership team

Shortly after acquiring UpCounsel, Enuring Ventures hired a new management team led by a serial entrepreneurKJ Ericksonas managing director;Paul Drobot, who previously headed sales at Atrium andLogikcull, as CFO; ANDDanny's page, an operations and growth professional, to VP of Operations.

Erickson is a veteran businessman nominated by theRolling Stone2017 as one of25 people shape the future- a list of names like Elon Musk and Kamala Harris. She was added to her company Simbi, an online services marketplace with its own currency.

Earlier, at age 20, while volunteering in refugee camps in Botswana her freshman year, she dropped out of Stanford to found FORGE, an international peacebuilding NGO. At age 22, he built it for 200 employees working in four countries.

Erickson, who sat down with me this week with Drobot for an exclusive LawNext interview to be published on Monday, said Enwhile Ventures differs from other investment firms because "it doesn't believe in doing business to grow at any cost to sacrifice." Instead, he said, "They're looking for companies they can run for profit and cash flow."

A new business model

With this new management team, one of the first steps was to overhaul UpCounsel's business model. "The original founders did a great job of setting the stage for success, and there were just a few things that needed to change to really push this business to the edge," Drobot tells me during our interview.

UpCounsel's core business is a marketplace where small businesses in need of legal assistance can post vacancies on the site and lawyers can apply to be selected for these positions.

Prior to the acquisition, UpCounsel generated revenue by charging clients a 30% commission on fees paid to attorneys hired through the site. This meant that UpCounsel's revenue fluctuated unpredictably based on variations in the number of contracts flowing through the system at any given time.

In search of a more stable and predictable source of income, the new management team passed on part of these costs to the lawyers and instituted a monthly subscription that lawyers pay to be part of the service and bid for works published on the site, something UpCounsel calls " Legal-as-a-Service" and aligns UpCounsel more closely with a typical SaaS model.

At the same time, he significantly reduced the commission he charged his clients to 8%, making legal services more affordable for them.

"We had to take a company that was essentially closed, quickly formulate a plan and then launch it," said Drobot. "And the complexity of this plan is necessary to address all the challenges of the old model and also allow us to help this company really realize its potential."

In crafting this plan, Drobot benefited from the fact that the UpCounsel platform has provided detailed data about its users to date. The new management team noticed that attorneys using the site fell into two distinct categories: casual users and power users. These power users were regulars on the platform and have effectively integrated it into their business, Drobot said.

"That was the group that made us part of their business, and we wanted to make them part of our business, so we wanted that commitment to each other," said Drobot. "We realized we could build a model around that."

First, UpCounsel announced that it would limit the number of attorney subscriptions. Sold out in two weeks. "It validated the great work the founding team did to add value to a platform like this, as well as validating the business model," said Drobot.

Since then, UpCounsel has sought to maintain a balance between the number of approved legal signatures and the demand for legal services received on the site. His biggest problem now, says Drobot, is that the lawsuit has gotten so high that he needs to hire more lawyers to handle all matters.

be profitable

According to UpCounsel, this new business model has paid off and allowed the company to create a predictable and recurring revenue stream. "Our new business model has transformed UpCounsel's future with a strong focus on recurring revenue," says UpCounsel on its crowdfunding website.

Erickson said the company doubled its sales, saw its traffic explode and advertised for more jobs than it could cover.

UpCounsel says it has been profitable in the first 12 months of operation since acquiring the company and is operating at a revenue rate of $2.6 million.

Financial reports released as part of the company's crowdfunding website show that the company lost money on a net basis in 2020, reporting a net loss of $147,151 on sales of $1,452,643.

But measured on an EBITDA basis (earnings before revenue, taxes, depreciation and amortization), earnings were $191,000 for 2020 and $274,000 for the 12 months ending May 2021.

"We use EBITDA to determine profitability because we have accounting losses due to how we booked the site assets we acquired last year," Erickson wrote on the crowdfunding page.

New products planned

While UpCounsel has strengthened its core legal market, it plans to launch several new products and eventually establish its own trademark law firm.

While its attorneys' subscriptions were the first of its new products, the company plans to launch another in the next two months, Direct Connect, in which attorneys pay for clients to contact and book directly with them.

As Drobot described it, Direct Connect sounds like a simple button that attorneys can place on their profile page, on social networking sites, in articles they publish, and elsewhere. Potential clients can click one click to connect to the attorney's UpCounsel portal and describe their legal needs, and the attorney can directly contact the client to establish a connection.

UpCounsel also plans to launch a corporate program where new clients will have a concierge service to help them find lawyers who meet their clients' specific needs, as well as a business concierge through which global corporations will leverage in-house legal talent. .

She also plans to expand her core platform into new areas of practice including medical malpractice, personal injury and workers compensation, which will also drive even more traffic to her website.

Additionally, UpCounsel plans to open its own law firm and cites new regulations for lawyers that will make this possible.

"By championing our own trademark law firm, we will be able to dramatically increase the rate of service of current inbound demand at very high margins without impacting current subscribers, resulting in a 4x to 6x increase in revenue," he says. it on the crowdfunding page.

Erickson and Drobot said they would not provide specific details about their plans to sign at this time due to competitive concerns.

"We've done a lot of research on some very creative and interesting ways to not only build UpCousnel in the long term, but to create the digital law firm of the future and what that might look like," said Drobot.

“This can take many different forms, but at the end of the day, for us, North Star is the best way to serve the millions of entrepreneurs and individuals, as well as small business owners who want fast, affordable and transparent access to great juridic services. . .”

crowdfunding campaign

In the midst of all this, UpCounsel launched a regulatory crowdfunding campaign with the goal of raising $50,000 to $5 million, which is the limit allowed for such a campaign under federal securities law.

"We bring justice to the people," reads the administration's thread on the campaign's WeFunder page. “UpCounsel's solution is simple: an online marketplace that connects 1/3 companies to a network of experienced independent lawyers^thirdthe price. We've taken everyone's heartache and annoyance away by bringing you Legal You Can Love.”

"Basically, it gives us the opportunity to share our success with our stakeholders," said Erickson, "and the more people we involve in our mission and vision, the faster we can grow them."

He said it also offers a way to raise capital that avoids many of the disadvantages of traditional venture capital.

In preparation for the campaign, the company recently reconfigured its corporate structure, transitioning from the LLC formed when it acquired UpCounsel to a new entity formed in Delaware in June, UpCounsel Technologies Inc., which... 100% owned by While Ventures .

The offer consists of a form of guarantee called SAFE, or Simple Agreement for Future Equity. A SAFE gives the investor the right to raise capital at a later date if certain triggering events occur, typically when the company sells shares in a futures financing.

The company's SEC Form C is required for regulatory crowdfunding,is available here. Copies of the SAFE and Advance public reserve contracts are attached at the end of this document.

The US Securities and Exchange Commission haturged investors to be cautiousof SAFE on crowdfunding and wrote, "Despite the name, a SAFE may not be 'simple' or 'secure'."

It is important to understand that SAFEs do not grant actual ownership interests in a company. They only become actions when certain triggering events occur.

In UpCounsel's case, these trigger events would be a future equity financing or liquidity event, such as a company sale or an IPO.

The crowdfunding site points out this risk:

“The Company must never receive any future equity financing or elect to convert the Securities into any future equity financing. In addition, the Company may never experience a liquidity event, such as a Company sale or an IPO. With no bond conversion and no liquidity event, buyers can hold the bonds in perpetuity.”

But Erickson said the company is firmly committed to its investors' profitability.

“We are firm believers that companies should only raise money when they are determined to generate returns for their investors,” he wrote in response to a question on the crowdfunding site.

In our conversation with LawNext, Erickson told me that UpCounsel's current goal is to go public within the next 3 to 5 years. That doesn't necessarily have to happen on a US exchange, he said, but it could happen as a non-traditional offering on a smaller exchange like the Canadian stock exchange.

In the crowdfunding site's Q&A section, he also said that "an acquisition is certainly on the table" and that "several potential investors have already reached out."

The money raised in the campaign mainly goes towards sales, marketing and product development.

What UpCounsel is coming

As it stands today, UpCounsel has two functions, Erickson said.

It's about making people nice. "We believe that it shouldn't just be the wealthy who can protect themselves in a contract dispute or start a business that relies on a patent," he said.

The other is to legalize "something to love". Erickson said he's heard testimonials and testimonials from clients about how much they loved hiring a lawyer through UpCounsel and how it allowed their businesses to take off when they otherwise couldn't afford legal assistance.

Looking ahead, UpCounsel believes it is well positioned to benefit from the acceleration in the legal technology market, which is expected to exceed $25 billion in revenue by 2025.

It is forecasting annual growth of over 100%, and Drobot said it expects to at least double its revenue each year, reaching a revenue rate of $44 million by 2025.

All of this leads Erickson to believe that UpCounsel can truly change the paradigm of legal service delivery.

"Basically, we've taken all the overhead and fat out of the old bloated big law firm model and made it easier, faster and more reliable to hire partner-level lawyers at literally one-third the cost of big lawyers."