Zlien's big month: Legal win joins new funding

by ROB McMANAMY | August 1, 2016

For a tech firm focused on the unglamorous life of managing mechanics lien rights, the definition of "excitement" may not quite be the same as everyone else's take on the word. By any measure, though, New Orleans-based zlien, the cloud-based platform developed to modernize the antiquated construction payment process, just had one heckuva month.

On July 18, zlien announced that it had raised $5 million in growth equity via a funding round led by Altos Ventures of Menlo Park CA. Three days later in Ohio, it signed an agreement with the Cleveland Metropolitan Bar Association (CMBA), settling a 2012 dispute over whether zlien's legal self-help for contractors, subcontractors, and suppliers constitutes the "unauthorized practice of law." The agreement concludes that it does not, and permits zlien to operate in Ohio. Other states no doubt have taken note.

zlien founder Wolfe — **zlien founder** Wolfe

"Great news," said zlien’s founder and CEO Scott Wolfe Jr., who spoke with us last month about both positive developments. An attorney, himself, Wolfe is clearly pleased with the trajectory the firm he started in 2008 is now following. "I had thought then that I was disrupting the legal process," he explained. "But the lien process is the glue to every other process."

However, Wolfe also discovered that most contractors, subs, and suppliers were so uncomfortable with the process and intimidated by it that they prefer to ignore it and hope they can avoid it. "We remind them that it's not going away, so they can't just put their head in the sand," he added.

In fact, ignoring the problem often is the problem. Suppliers file liens three to four times more than subcontractors do, and most are resolved within 10 days. But that still represents a passive act of avoidance by the subcontractor who would rather have the supplier file a lien than go to the general contractor directly to ask for payment. That GC-sub dynamic is "a tricky layer, a sensitive relationship," explained Wolfe. "But you don't want to use a lien as a communication tool. Every time one is filed and paid so quickly, that means it never should have been filed in the first place."

Persuasive arguments

The funds from Altos Ventures come on the heels of an earlier investment in March, when zlien received $1.3 million in a funding round led by Brick & Mortar Ventures, a San Francisco-based VC firm founded by Darren Bechtel. In fact, Brick & Mortar joined this second round, as well, adding to its initial funding after just three-plus months of closer inspection.

Explained Bechtel, "zlien is doing more than helping companies manage lien rights. They’re making it easier for companies to communicate and to trust one another, so that they can talk with each other about getting projects completed, and not have to worry about complex document exchanges.”

“We were impressed with zlien’s vision to unify the entire chain... and to build a more trusting environment that facilitates successful projects and payments”

— Ho Nam, Managing Diretor, Altos ventures

Altos Ventures’ Managing Director Ho Nam is even more impressed. Now joining the zlien board of directors, he noted, "zlien is innovating in an area — lien and bond claim security — that is saddled with manual processes and antiquated service providers. We were impressed with zlien’s vision to unify the entire chain of construction participants, and to build a more trusting environment that facilitates successful projects and payments.”

Joining Altos Ventures in this round were VC investors from Knollwood Investment Advisory, Operating Venture Capital, and Cajun Kiwi Investments.

According to zlien's press release announcing: "Recent activity confirms that the construction technology space is heating up. CB Insights, the business analysis platform, in June reported that construction tech funding grew 5x in 2015, and listed zlien as one of 31 leading tech startups in the industry."

back at the bar

In Ohio, the litigation that eventually led to the settlement had arisen after zlien received a complaint from CMBA in which the group alleged that zlien, and several associated individuals, had engaged in the "unauthorized practice of law" when a mechanics lien was prepared through the use of zlien’s software and was entered into the record in Cuyahoga County OH in 2012. In response to the complaint, zlien filed a federal suit that cited a 2015 U.S. Supreme Court case, North Carolina State Board of Dental Examiners v. U.S. Federal Trade Commission, that subjects certain boards and regulators to antitrust legal exposure.

The new consent agreement dismisses both the federal litigation and the regulatory complaint.

“Technology has advanced to the point where it can put groups that change at a slower pace — like bar associations — in unfamiliar and potentially uncomfortable situations,” said Nate Budde, zlien’s chief counsel. “Software can’t practice law, and people still need lawyers for certain tasks, but things that technology can do are not the things for which lawyers are required.”

So, are lawyers not fans of zlien? Hardly.

"We've had a good reception from attorneys," noted Wolfe. "In fact, a lot of our customers are attorneys."

Indeed, there is so much litigation in every state, that most legal observers have trouble seeing any real downside to empowering remedies such as zlien, which can help reduce courts' workloads.

"Millions of Americans — both individuals and small businesses — are priced out of our legal system," said Tom Gordon, executive director of Responsive Law, a national nonprofit working to make the legal system more accessible and affordable. "Although some complex legal matters may be best handled by a lawyer, many legal matters are more routine. For routine matters like a mechanics lien, software can provide competent assistance that doesn't cost $250 per hour. This settlement agreement will let people in the construction industry continue to affordably protect their legal rights."

Want to hear more? Tune into our episode of Venture
on September 13, featuring zlien and Traverse.

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