Upcounsel Deal Memo (Closing Date: 2021-09-30)

Muhan Zhang -

Deal Abstract

Invest in UpCounsel: Leading legal services marketplace cutting the fat out of the old law firm model | Wefunder
Leading legal services marketplace cutting the fat out of the old law firm model
UpCounsel on Wefunder

Former YC founder and VP of Revenue from Atrium are teaming up from micro-PE investors to reboot a subscription law firm.

Financials (VRB)

Question Notes
1. Fundraising Target? $5000000
2. Fundraised So Far? $2351934
3. Pre-Money Valuation? $24000000
4. Previous Year's Annual Revenue $1450000
5. Previous Year's Annual Net Income (+ Profitable, - Burning Cash) ~$-147151
Source

The 6 Calacanis Characteristics ("Sow Passion, Not easy mediocrity", or S2 P6 N18)

Criteria Yes/No
1. A startup that is based in SV? True: San Francisco, CA
2. Has at least 2 founders? True: Two
3. Has product in the market? True: Revenue generating
4. 6 months of continuous user growth or 6 months of revenue? True: Went from bankrupt to profitable
5. Notable investors? True: No famous investors from what I can see, going the bootstrap route
6. Post-funding, will have 18 months of runway? True: Profitable!

The 7 Thiel Questions (Every Time Man Profits, Don't Dismiss Serendipity)

Question Score Notes
1. Engineering? 2 Business model innovation but solid
2. Timing? 2 More freelance gig economy
3. Monopoly? 3 Very good revenue and turned profitable within a year of formation
4. People? 4 Insanely overpowered team, one is a former YC founder and the other is a VP of Revenue from Atrium (YC/Justin Kan backed legal tech firm)
5. Distribution? 3 All subscription for online delivered legal services
6. Durability? 3 Building a legaltech company is really tough (see Atrium) so if they can build it to last, it will be hard to compete
7. Secret? 3 By choosing clients and providers who are providing value with outcomes instead of busy work, Upcounsel can make a money cultivating a marketplace of more efficient legal services

What has to go right for the startup to return money on investment:

1. As the customer base scales, customers who waste lawyers time cannot go up; 2. Besides just a marketplace play, UpCounsel has to have sticky SaaS that makes legalwork more efficient; 3. Learn from the mistakes of Atrium

What the Risks Are

1. Legal services is heavily nepotism and fear based, so it is resistant to adopting new technology; 2. Recurring revenue and keeping lawyers/clients on the platform; 3. Keeping quality of unit economics as marketplace scales

Bonus Muhan's Notes

Exclusive: As UpCounsel Launches Crowdfunding Campaign, the Phoenix-like Story Of Its Rise from Near Shutdown
On Feb. 3, 2020, the death knell sounded for lawyer marketplace UpCounsel. On that day, eight years after UpCounsel launched, cofounders Mason Blake and
LawSitesBob Ambrogi

Really interesting in that this is a dream team to solve this problem, but will they be able to avoid Atrium's fate.

Updates

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Other thoughts, questions, comments, or concerns? Write me at mail@muhanzhang.com and let me know.