It's been a record-setting year for investments in legal tech, with the industry reaching the $1.2 billion threshold this year for the first time, according to LawSites.

As more capital enters the industry, legal tech companies stress the importance of discussing the legal market's needs and championing their solution as universal when speaking to investors. Unlike other industries, however, legal tech startups must combat a lingering concern that lawyers aren't tech adopters when attempting to persuade potential funders.

Litify chief revenue officer Terry Dohrmann, whose law firm management software company raised $2.5 million in 2018 and $50 million last June, noted that there are differences in pitching legal tech to investors. 

"The short answer is yes, there is a difference," Dohrmann said. "A lot of that is driven by the universal acceptance that law firms are a little behind in adoption of technology." 

Dohrmann said legal tech companies must explain lawyers' challenges and how the company's tech will alleviate that problem or inefficiency. Unlike most consumer-facing products, legal tech investors need assurance that the company's solution addresses real needs in the niche market and tech-averse lawyers will actually use the software.

The concern may stem from a now-outdated perception that the technology available isn't up to par.

"The problem is until now the technology available to them was kind of crappy," said Concord co-founder and CEO Matt Lhoumeau, whose company raised $25 million in October 2018. "The technology was not really solving problems, the technology required more work from them. That's why they weren't buying software."

Easing such tech adoption concerns is easier when pitching to investors with a background in law, but a funder with a law degree isn't necessary. Instead, an investor with experience in the legal tech industry is valuable, legal tech companies said. 

"If all you are seeking is quiet money, they don't have to understand legal tech at all," said Rick Merrill, CEO of Gavelytics, which closed a $3.2 million funding round in March 2018. Merrill described "quiet money" as funding from an investor that isn't involved in the company's operations outside of providing money.

However, "most of the time you would want some type of expertise, if that's the type of investor you are looking for," he added. To be sure, investor expertise in the legal tech space is growing, albeit slowly. 

Kristina Jones co-founded CourtBuddy, a platform that connects clients with lawyers, which acquired $6 million during a Series A funding round in October 2018. She said additional legal tech acquisitions and initial public offerings would allow more investors to grasp legal tech's true worth. "There isn't much history to go by," she said. "It's hard for investors to understand the value of legal tech."

As legal tech attracts more outside funding, Luminance CEO Emily Foges advised budding startups and investors to carefully understand the market to which they are selling. Specifically, understanding the legal profession's billing model is tied to how many hours a lawyer worked on a matter, which could be slashed by technology's speed and efficiency.

"The fact that most lawyers consider themselves to be measured on the amount of time they work, it's very different from most commercial environments," Foges said. She added, "By embarking on a business venture, which is about pushing technology into law firms, you are challenging that and that underpins their entire business model."