Clio co-founder Jack Newton on tackling a trillion-dollar opportunity

Clio's CEO reflects on a decade of growth and his goal to transform the legal industry

Clio co-founder and CEO Jack Newton | Rob Kruyt

This article was originally published in BIV Magazine's February 2020 issue.

Like many culture-focused technology companies, Clio has its values plastered on the walls of its Burnaby-based headquarters.

Live a learning mindset. No doors, only windows. Play to win.

And draw the owl.

“Point of correction, it’s actually draw the fucking owl. You need the profanity in there,” explains Jack Newton, CEO and co-founder of Themis Solutions Inc., a legal technology company better known as Clio.

For the uninitiated, drawing an owl is a two-step process, as popularized by a viral internet meme. The first step is to draw a small circle that overlaps with a larger oval. Step 2 is a beautifully realized owl with immaculate plumage.

“It looks like it’s a drawing out of an encyclopedia, and Step 2 just says: draw the rest of the fucking owl,” laughs Newton.

“It was a great encapsulation of what we’re looking for in people that work in Clio,” he explains. “We’re not going to micromanage you. We’re not going to step you through every little detail. We need people that are comfortable with that ambiguity and the open-endedness of some of the problems you’ll be set against at the company.”

The line made its way into Clio’s values. And despite some internal controversy about it, the profanity was ultimately included – as it is in this article – because it’s an important part of it.

“My position has always been: if you’re too easily offended by a little bit of profanity, it’s probably a good indication that Clio might not be the best place for you.”

A decade of growth

Back in the nuclear winter of finance – when capital froze in the fallout of the U.S. financial crisis – Newton and his co-founder, Rian Gauvreau, were pitching their newly minted startup to angel investors throughout Western Canada.

There was interest in their idea – software to help lawyers manage their practice – but no funding. That is, except for one expression of interest from investment angel and venture capitalist Christoph Janz, founder of Berlin-based Point Nine Capital.

His email sat unanswered in Clio’s spam folder for two weeks. It only increased Janz’s interest.

Fast-forward one decade later, and a much bigger and savvier Clio secured the largest growth-stage transaction in Canadian history with a US$250 million investment (approximately C$330 million) from U.S. investment firms TCV and JMI Equity, which have served as investment partners to companies including Airbnb, Expedia, Netflix and Spotify.

TCV has invested more than $12 billion in software and technology companies, including Alarm.com, OpenText and LegalZoom. It has also guided chief executives through more than 120 initial public offerings (IPOs) and acquisitions. JMI has invested in more than 145 businesses and completed more than 95 exits.

Clio’s US$250 million Series D round was nearly 10 times what the company had previously raised from investors in its first 10 years – US$26 million across two funding rounds.

Not needing outside capital – and not seeking it out – only increased investors’ interest in the legal tech company, which today offers a suite of software services for law firms of all sizes.

“We didn’t need the money,” says Newton. The company was on solid financial footing, had lots of cash on the balance sheet, was growing nicely and “simply didn’t have use for external capital,” he says.

But Clio’s vision evolved. And with a mission to transform the practice of law for good, Newton realized that the company actually could put that kind of capital to work. So after an “unbelievable” amount of inbound interest, Clio chose two strategic partners that Newton believes will help the company shape the future of the legal industry.

“We want Clio to be the operating system for legal. We want Clio to be the technology that finally fundamentally transforms how lawyers work,” he says.

And even with a historic capital raise under its belt and in its coffers, Newton wants the nearly 500-employee company to tackle the challenge of transforming an industry with the hungry, draw-the-owl work ethic of a scrappy startup.

“I often caution the team that the thing that would be fatal for us as a company would be becoming complacent and feeling like we’ve won in any sense,” he explains.

“There’s a sense of urgency and a sense that the stakes are high and our mission isn’t accomplished yet. We don’t get to rest on our laurels. We haven’t accomplished our mission to transform the practice of law for good.”

Tackling a trillion-dollar opportunity

“There’s really the practice of law and the business of law,” explains Newton, who holds a master of science in computing science from the University of Alberta.

Law school, he says, does a great job of preparing lawyers to practise law, but does little to nothing to prepare lawyers for the realities of running a business.

“Some lawyers even take offence to the concept that their law practice is a business. That it’s this kind of higher institution. But the reality is, every law office is a business and every lawyer needs to be equipped to run a successful business,” he says.

At an access-to-justice-focused event last summer, Newton used a basic business school concept to describe the challenge lawyers face in attracting business, and the issues consumers face in accessing legal services.

“I do think it is as simple as thinking about a product-market fit problem,” he explained, adding that in the United States alone, some $350 billion is spent on legal services annually.

“This data is telling us that only represents 23% of the opportunity that’s out there. There’s essentially a trillion-dollar opportunity sitting out there for lawyers to figure out, if they can figure out: how do we better build product-market fit?”

In a boardroom at Clio’s head offices in in Burnaby, Newton told BIV Magazine that research in Clio’s annual Legal Trends Report has found that 77% of legal needs go unmet by lawyers. At the same time, he says, more than 80% of lawyers say the No. 1 thing they need to run a successful law firm is more clients.

“There’s this really almost paradoxical asymmetry in the market right now where you have this enormous amount of demand and this enormous amount of supply,” explains Newton, who was named one of Business in Vancouver’s top Forty under 40 in 2017.

“I think technology is a huge part of how we’re going to connect those two halves and allow lawyers to better meet the needs of consumers.”

The next 10 years

“One of the disheartening things to see in the startup ecosystem is this bias to only talking about success stories,” reflects Newton. He talks a lot about helping entrepreneurs and startup-scale founders navigate “avoidable scar tissue.”

After all, there’s no single startup playbook, and society often lauds the “overnight success story” that skips over near failures, full failures, tough decisions and painful – scarring – lessons.

“There’s a lot of lessons you accumulate over 10-plus years that I’ve been trying to engage with some of these earlier-stage founders and convey some of that hard-earned knowledge. There’s no course at school that teaches you this stuff,” says Newton.

Deal terms – what you want, what you don’t, what bad terms look like – have been a big area of learning for Newton, who does what he can to offer insight to founders raising their first round from investors who have made dozens of such deals.

Newton’s also adjusting to the realities of leading a nearly 500-person company with multiple offices around the world. It comes with an element of ambiguity.

“I meet somebody for the first time in the lunchroom and I may not know if they’re a new employee or here for an interview,” he says. “The company’s only going to survive and thrive if you get comfortable with being uncomfortable about a lot of things being done without you being directly connected to them.”

Fuelled by its recent massive funding round, Clio is on the trajectory to get to a level of IPO revenue scale, profitability and growth. Newton is careful with his words. The caveat, he says, is that level of scale could come at a time when an IPO is not the right decision for the company.  

“I look at 2019 as a really pivotal year for Clio. There are so many things to celebrate. I think a really exciting bookend to our first 10 years, and a really exciting platform for the next 10 years of growth.”

This article was originally published in the February 2020 issue of BIV Magazine.

hwoodin@biv.com

@hayleywoodin