Inside LegalZoom’s S-1 IPO Filing

On Friday online legal services provider LegalZoom filed for a $120m Initial Public Offering. For those unfamiliar with LegalZoom (likely only our Canadian readers, shielded from the ubiquitous LegalZoom advertising in the US), Richard Granat has authored an excellent series of posts on his eLawyering Redux blog.

As with Facebook’s S-1 filing from a few months ago, LegalZoom’s S-1 filing offers up a wealth of information on the company’s progress to date:

  • LegalZoom has served approximately two million customers over the last 10 years;
  • In 2011 consumers placed 490,000 orders on the site;
  • 2011 revenues were $156m, up 50% from 2009;
  • The company turned a profit in 2011, posting a $12m profit (as compared to a $4m loss in 2010);
  • In 2011 the company spent $42m, or 27% of its revenues, on sales and marketing;
  • The company employs nearly 500 people;
  • The company has developed its own tools for online interviews, document automation, CRM and fulfillment with an in-house technical team of approximately 60 staff;
  • More than 20 percent of new California limited liability companies were created using LegalZoom;
  • By 2011Q4 nearly 25% of the company’s revenues were derived from subscription services as opposed to transactional fees. LegalZoom’s subscription services “consist primarily of our legal plans, registered agent services and unlimited access to our forms library, and can range in duration from 30 days to two years;”
  • The company aims to shift its revenue base from a transaction-based model to a mix of transactions and subscriptions;

The Risk Factors section of the company’s S-1 Filing outlines the wide range of risks the company is exposed to; as much as LegalZoom is aiming to disrupt the legal services market, there is no shortage of elements both within and outside of the company’s control that could have a significant and negative impact on the company’s growth objectives. Chief among those risks is the company being accused of unauthorized practice of law (UPL):

Our business model includes the provision of services that represent an alternative to traditional legal services, which subjects us to allegations of UPL. UPL generally refers to an entity or person giving legal advice who is not licensed to practice law. However, laws and regulations defining UPL, and the governing bodies that enforce UPL rules, differ among the various jurisdictions in which we operate. We are unable to acquire a license to practice law in the United States, or employ licensed attorneys to provide legal advice to our customers, because we do not meet the regulatory requirement of being exclusively owned by licensed attorneys. We are also subject to laws and regulations that govern business transactions between attorneys and non-attorneys, including those related to the ethics of attorney fee-splitting and the corporate practice of law.

The company is explicit in its desire to disrupt the existing legal services delivery model:

Despite the enormous amount spent on legal services, we believe that small businesses and consumers have not been adequately served by the options traditionally available to them. Every year, small businesses enter into legal contracts and become entangled in disputes, many of which require legal services to address. Consumers experience important life events that affect their families, including the birth of a child, marriage, divorce and death, all of which can also give rise to diverse needs for legal services. Small businesses and consumers often do not understand their legal needs or know where to start looking for an attorney. The high and unpredictable cost of traditional legal services also presents challenges.

Much has been written about LegalZoom and the impact it will have on lawyers – especially solos and small firms – and with an extra $120m in the bank the company will be able to accelerate its efforts to reshape the legal services landscape.

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