Y Combinator Startup Podcast
00:00:07 · Max Junestrand
[00:00:07] S0: This is a much warmer welcome than what we had coming into Y Combinator the first time. Legora's YC journey started with a rejection, but more on that story later. In YC, they teach you something, and it's called the two sentence description. It is describe your company in two sentences. Legora is the agentic operating system for lawyers, and it handles complex legal work from start to finish, so lawyers can achieve more than ever before. And over 3% of all the world's lawyers are now active users of Legora. You will learn more about this when you get accepted into YC. When we started looking at the legal industry, it felt like one of the biggest opportunities to apply large language models to solve real problems. And the software that we were up against looked like it had built in the nineties. As software engineers, we have been incredibly spoiled with great software because we love to build for each other and for ourselves. But in the legal industry, this is what the software used to look like and what we were up against when we started out. Now, Legora has grown into a global brand, putting celebrities like Jude Law at the New York Wall Street. And still, I feel like we are only getting started. My most favorite Slack channel in Legora is customer love. It is where our customers post things that they sort of truly feel like they couldn't have achieved without our system. And we mine many of our sales calls for quotes like these. And I wanted to share just a couple with you because I think at the end of the day, this is what it's all about. A parent asked me at one of the tournaments how I juggle work and all of the golf travel. One word, Legora. Never has the path between an idea and execute have been so short. Never, man. If Legora went away tomorrow, I'd just go back to coaching high school basketball. When Legora went into YC, we were questioned about the idea of even selling and working in the legal industry. It is such a conservative business that had never been sort of lenient to software before. But from the time that we went into GA of October 2024 until the last end of quarter, we've gone from one to 100,000,000 in ARR. And starting from just three engineers in Sweden to a company of over 750 people all over the world, This is awesome.
00:03:16 · Max Junestrand
And the fact that we've gotten to do this starting from Europe, I think just adds another flare in that hat. But the Legora story almost didn't happen, and it actually didn't start with me. In fact, it started almost like the great beginning of a joke. And so a lawyer, a physicist, an engineer, and a psychologist back in 2020, before GPT, before AI was cool, started a company called Judilica. And what they observed was that law school students were going into their internships basically to summarize court cases. And with the early models from Google, called BERT, they started to explore what this space could be and what was possible to build. My story started in the Swedish Archipelago at an island which looks something like this. And I met my two co founders at a volleyball game. I think startup founder stories can come from many different places, and this definitely wasn't one, you know, high odds of a place to start. But when I met August and Siggi, they showed me a demo of the product they had built, and our group chat actually looked exactly like this. They gave me a demo of the project, and with GPT 3.5, they had built a very simple product that could explain what a stock option agreement really meant. And so we started with that, and I said, this is a super cool demo, a super cool project, and my co founder, Sigurd, said, I'm glad you wanna help out. And I ended up helping out a little bit more than just that. When GPT 3.5 came, that was the Internet moment of our generation. I dropped out of college. I never finished my master thesis, because the opportunity cost of not building had become too large. But when we started out, it wasn't obvious that we were going to be a success. And so, to learn about what the legal industry was, what it meant, how lawyers actually worked, we came up with the ingenious plan of cold emailing lawyers on their emails that we could find on their websites, and writing to them on LinkedIn, asking for a lunch, where we could learn more about their different practice areas. And we offered to pay their hourly fee to have lunch with us. And many of them took us up on that offer, but fortunately for us, many of them didn't make us pay for the hour, and many of them even paid for the lunch.
00:06:23 · Max Junestrand
And once we had gotten, you know, our feet under ourselves, we approached one of the largest law firms in The Nordics named Mannheimer Swartling. But just two years before that, their managing partner had gone on TV and said that AI, back when they were starting to use it, was really more artificial than intelligence. And so we had to work really hard to change the perception of what both technology and what AI could be in the area of law. In law, you are not paid when things go right, are punished when things go wrong. And many of the initial AI solutions in the space had required immense amount of training, you had to sort of bring a lot of use cases and examples, just to get very, very little results. And when GPT 3.5 came, that really changed the story. And so with Mannheimer and Swartling, we ended up moving into into their offices and moving... And working really close with them. And as I said in the beginning, the the warm welcome here was quite different from the first time we interacted with YC. We applied in May 2023 with a promise of being able to query all legal documents using large language models. And when we came to our interview, one of the first questions that we got asked was: what type of lawyers are you serving? And not very knowledgeable about the legal space yet, our response was, what do you mean? Are there different type of lawyers? And that did not land very well with the YC partners at the time. And so I actually remember very painfully that Tom Blomfield started laughing in the interview when we gave that response, and we knew that we were cooked. But that also gave us the perseverance and the drive to continue. And so, with a lot of let down, the day after we did not work, but the day after that we got back to building. And two months later, we got accepted under a new name and with a different platform. We had done our homework, we had done the work, and from Sweden, the idea of getting accepted into Y Combinator felt like we were going to Mount Olympus. We were going to dine with the gods, and we were going to, you know, get to work with other startup founders who came from all of the great tech companies that we knew of. And once we got to Y Combinator, we realized that we actually knew a lot more than we thought we did.
00:09:32 · Max Junestrand
And this is one of my favorite pictures, and it is the screenshot I took after we did the video call after our second YC interview, when we knew that things had gone a lot better than the first time. So after we got accepted into Y Combinator, we moved into this law firm I mentioned earlier, Mannheimer Swartling. It was the biggest law firm in The Nordics, but they had very sort of no real clue about how to work with software and how to work with technology. And we ended up getting a conference room with no real windows, where the AC would turn off at about 5PM, but it was really close to the coke fridge. And so, at about 6PM every day, one of the engineers would go up, grab the door, and start waving it back and forth to get more oxygen into the room. And those conference chairs still made an imprint on all of our backs, I think three years later. Me in the car there with two more screens is when we make the move from the conference room of a law firm to our first real office. And I think one of the key takeaways from this entire experience is that first off, we quickly learned not to take no for an answer, but also the power of simply reaching out and asking for help. I think one big lesson from these first three years of building Legora has been that it is very powerful to be a person and to be a company that others want to see succeed, and that others want to help. And so we came to San Francisco. We got a room at an Airbnb up in Bernal Heights, and we started building. And during YC, we grew from zero to a million dollars in ARR. And we also learned the hard way that working across San Francisco and Europe took a big toll on the team. I couldn't find a picture of this, but I bought a influencer ring light that I put on my laptop. And the reason I had that ring light was because I was doing sales calls between 1AM in the morning to 10AM in the morning, every single day in San Francisco to Europe. Because that was where our initial customer base was. And after a rocket trajectory during YC, which now two years later is slow compared to what some of the companies are doing, we set off to fundraise. And this was my first time fundraising.
00:12:33 · Max Junestrand
I had no idea what to expect, but we had lined up 80 investor meetings in a week and a half, and we had European investors, American investors, and the main takeaway from that experience for me was that you need to become a really good storyteller in order to drive interest and to get people on your team. It was also a very different experience talking to some of the European investors versus some of the American investors. I feel like in The US, we think more about what can go right, rather than what could possibly go wrong. And we ended up working with a venture firm called Benchmark. This is a picture of Chetan, our partner, when we had signed the term sheet. And I remember negotiating that term sheet on that... On his desk with a computer opened, going on decimals in the Excel to determine the exact number of shares. And they ended up investing $9,510,000. Now, following that investment, Redpoint pre led our series a just three weeks later, and we started to run into a challenge. We had about $35,000,000 on the bank. We were 10 people in the team. And there was actually a month following that, that we made more money from interest rates on those 35,000,000 than we did from customers. And that is not a very good sign when you have become a bank. And going into our first board meeting, we had Chetan, and we had Redpoint, and it was me and my co founders. And we made a very hard decision, which was to freeze our sales motion. Because when you work with lawyers, you only really get one chance to get it right. If you show up, and the product doesn't work, or if the, you know, sort of lag in the system is too high, or if the system goes down when there's too much traffic on your Azure instance, you are toast. And after that six month sales sales freeze was when we really started ripping, and that's where you see that curve from 1,000,000 to a 100,000,000 really starting. And what happened at the start of that was turning from a small startup looking for PMF, to really establishing what our business and what our product was going to be. In the very very early days at Leya, so even pre Legora, the way that we would decide what to build was by voting. We would make democratic votes in the entire team. And for anyone who has built software before, you know that if you have too many chefs in the kitchen, that typically does not make one very good dish.
00:15:50 · Max Junestrand
And that was exactly what was going on. We were working on too many features. We had to rebuild everything for the product launch that we were going to have after the summer, after the sales freeze. And we had to build a platform where it was adaptable to foundations that were constantly changing, both with the underlying models, but also with the frameworks that we were using to build agentic workflows like LangChain, etcetera. And so in October 2024, we wrote down what we would call the Layup Product Manifesto. This was basically gathering everything we had learnt, putting it into one very simple document that we shared with the entire 25 strong person team back then, and that we would rally the troops around. At the time, we were doing about $1,300,000 in annual recurring revenue, and many of our competitors were doing 10 times that, with products that only had one of these features. And I also think that's a function of having started in Sweden. The market is not big enough to house a real unicorn, or a decahorn, or something even bigger than that. And so one of the earliest questions we got from YC was, when will you move to The United States? When will you make the jump? And it was off the back of this product refocus, that we were able to not only compete out the competition on product, but build enough momentum to make the jump over to The US and start to compete for the biggest logos in our markets. And I think as engineers and as tech people, we often overemphasize the reliance on product and on the tech. But if there's anything I've learned in these past three years, it's that it's all about the people. And building product is one thing, but building a company is a very different thing. And we made many early mistakes around this. One of the hiring patterns that we had to unlearn was looking for fancy logos on resumes, or what we like to call, like why intercept? If you think about somebody's skill curve, it might start out really high, but if they don't have a good trajectory upwards, they are going to have a really hard time working in a company that is scaling exponentially. And so instead, we started to look for people like us, who wanted to work insanely hard, with a very high growth potential, and we doubled down on that talent over and over again. Our top seller today is 23 years old, and he sold over more than $10,000,000 worth of Legora.