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Why NFX Invested in TermScout: The LegalTech Contracts Network

James Currier · @jamescurrier · May 2022

Why NFX Invested In TermScout

People don’t really review and understand the contracts they sign. Most legal documents are too long, use complex language, and intentionally bury key clauses. This causes friction for businesses.

TermScout is looking to reduce that friction. To do so, they’ve built a network of contract makers and signers, starting with SaaS software companies and their customers. The platform uses AI to analyze its users’ contracts, compare them to thousands of others, and then provide insights, ratings, and recommendations.

TermScout is helping companies including NetApp, Freshworks, and Automox reduce contract negotiations time by up to 30%.

Today, they announced a $5M Seed co-led by NFX and Ground Up Ventures.

Here’s why we’re backing them:

1. Data network effects

The more users of the network, the more contracts in the system, the more data to drive the AI and the quality of the recommendations. Further, as contract language changes, TermScout can keep up to date more easily than smaller competitors that might try to come up behind them. 

As more trusted companies join the network, the system develops more trust in each of the participants, and transactional friction is reduced. Everyone gets more value from the network, the core sign of a network effect.

Termscout

2. This is what AI was built for – literally

One of the most developed applications of artificial intelligence is understanding human language. While tasks like reading facial expressions and navigating busy roadways are much more complex and require millions of emotional or analytical decisions, written language is much more straightforward and accessible to us in 2022, not 2032. 

Human language is a series of math equations with values (words) being organized into equations (sentences and paragraphs), to create a specific outcome (meaning). While legal language has thus far proven to be more challenging than day-to-day human language, the TermScout team is led by deep subject matter experts (lawyers) who understand the complex language and have found innovative ways to simplify it into structured data.

Once they convert contracts into structured data, contracts become machine-readable and processable, enabling users to organize, analyze, review, benchmark and compare to others in unprecedented ways.

3. Founder-Market-Fit

TermScout’s founding team has been playing around in this sector for a combined 25 years.  

Co-founder Otto Hanson realized the industry’s problems when he was working at a corporate law firm and had a client ask him to make their contracts as aggressive as possible after realizing nobody read or asked questions about them.  

It was because of this perverse incentive that he teamed up with Bill Mooz, a legal industry veteran, and Peter Fatianow, a 2x tech founder with more than $300M in exits, to create TermScout. 

Otto sums it up perfectly when he says “We started this company because we were tired of seeing businesses take advantage of their customers through “gotcha” provisions in the fine print. We knew that businesses wouldn’t make their contracts better until there was a good reason, so we created that reason”

TermScout is hiring and is open to new clients in the B2B IT space. Visit termscout.com.


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