3 Reasons Why NFX Is Investing In Court Buddy
by James Currier (@JamesCurrier). James is a Managing Partner at NFX, a seed and series A venture firm based in San Francisco.
This week, Court Buddy announced that NFX led a $6M Series A financing in their company.
Before becoming investors, we were Founders ourselves, and back then , we always wanted to get an inside look at how some of these VC financings happened. Now that we’re on the inside, we want to make the decision process more transparent so the entire Founder community can benefit.
Court Buddy is a San Francisco based B2C marketplace for the 60M+ Americans who go to court each year for legal matters. It allows individuals to buy fixed-price legal services from independent local lawyers.
NFX led Court Buddy’s $6M Series A with co-investors First Round Capital, Kapor Capital, LDR Ventures, LSS Fund, LSVP, and UpHonest Capital.
How did you meet the company?
Cold email, of all things. Another VC told Court Buddy CEO James Jones about NFX while the two were working out at a gym in SF because they knew that we at NFX love marketplaces. Afterwards, James reached out to us with a cold email. It’s not typically how we meet companies, but it worked this time, and over the next couple months this past summer we ended up doing due diligence.
Why did you say yes to lead the investment?
We need a lot of reasons to say yes, and there were many here.
High Score on The NFX Marketplace Scorecard – Court Buddy had 19 out of the 22 characteristics we look for in marketplaces.
Big hidden market, hard to get to – This is not a marketplace that most people in tech know much about. It touches government, it touches legal, and the demand side is a group of typically underserved people. So it’s a hidden market. Yet 60+ million Americans could use it each year. Also, there is no easy channel for growth, like FB ads or Google ads. This makes it a hard market to get to, but will benefit Court Buddy once it becomes an established player because new entrants will face a high barrier of entry. This creates further defensibilities, in addition to the network effects of the marketplace.
It makes the world a better place– Court Buddy’s marketplace provides legal representation to millions of typically underserved people in their time of need. Not only does it provide these services at a lower price, but it operates at a fixed price. It brings work and revenue to small independent lawyers who typically struggle to recruit new clients and collect payment. And it solves real problems for both sides of the marketplace.
Traction – The company has already solved the chicken or egg problem. It has proven both GSV (Gross Service Value) ramp rate and net income ramp rate. This is why we were willing to lead a $6M Series A, which is rare for us (we typically lead $3M seed deals).
Frugality – The Founders got all that traction with just $885K raised.
Diversity – Diversity is important to NFX, and it’s a bonus when we find dynamite Founders who come from diverse backgrounds.
Domain Expertise – Court Buddy CEO James Jones was an independent lawyer himself. He’s served Court Buddy’s customers and has a firsthand understanding of the needs of both sides of the marketplace. He also knows how to speak the civil and legal languages of the community his business serves, particularly the lawyers and judges in the states and counties where Court Buddy’s services are performed and paid for. Domain expertise in this space is critical to success because it gives Court Buddy the blessing of the courts, rather than resistance.
What are the risks you had to get over, and was it a competitive deal?
Court Buddy is in the legal sector, which is always hard and VCs tend to avoid it. It has no obvious scalable growth channels. There isn’t recurring revenue from the demand side. Or, at least, you hope there isn’t: you want individuals to get their legal needs taken care of and be done. So the lack of recurring demand makes it look, at first blush, like a lead gen company. Turns out this isn’t lead gen, and it’s a real marketplace. But we had to look closely to see the real mechanics of the business.
In the end, it was very competitive. The Founders had to balance many conversations for many weeks, and they managed to do so with humility and clear communication. And they had to trust NFX as we pulled together our syndicate of FRC and Kapor Capital. Everyone compromised to make it happen because, in the end, it’s about people. That’s become a cliché for a reason… as a Founder, it’s always more important to surround yourself with the right people, and optimize for significant long-term success (rather than near-term valuation). And as an investor, the same holds true. That’s why when you get the right people around the table, you see a lot of compromise. It’s not a zero-sum game, it’s much more interesting than that.
To see how Court Buddy works, check out their iOS app, Android app, or visit their website.