Think Again Before Investing in This Company: How to Detect Legal Issues with NLP

Startup companies are regular customers of the law, often including a legal counselor on their team to protect their rights. As entities that disrupt incumbents in a hyper-competitive and chaotic environment, startup companies are frequently suing – or being sued – for patent infringement, labor issues, founders’ rights, and more.

A startup engaged in legal procedures is not necessarily something investors should be worried about or run away from. Take Airbnb as a great example of a company that has disrupted the travel industry –  and caught legal fire from hotel chains, users, and regulatory authorities. As Airbnb’s management can testify, the more successful the company became, the more lawsuits it saw.

Not all legal issues are a sign of thriving business. Uber suffered from sexual harassment scandals and later from a legal battle inside its board of directors. Zenefits faced a hefty regulatory penalty on its insurance brokerage after selling health insurance with no proper licensing.

Investors shouldn’t be afraid of legal issues before jumping into a new investment. However, it’s important they’re aware of these issues as early as possible, much earlier than the due diligence process. This is where AI and NLP technology can help with insights based on continuous monitoring of companies’ behavior and performance on the web.

To learn more about startups and their possible legal issues, let’s use Zirra’s company analysis platform. Zirra has built an automated system that delivers insightful outputs on private companies creating high-level analysis within seconds. Zirra collects and aggregates data from a myriad of public sources and then utilizes Natural Language Processing (NLP) techniques to process this large volume of unstructured text and data.

Search a Company and Get Instant Legal Alerts

Using Zirra’s technology you can now search for any startup company and instantly learn about a possible legal quarrel from the world wide web. Let’s test this on a random list of unicorns in the search line. Searches for Magic Leap, SpaceX, Stitch Fix, and SoFi produced evidence of legal battles regarding sexual harassment and discrimination.

Latest Events module alerts about Magic Leap’slegal problems

Using Zirra’s Latest Events module, we instantly learned about a lawsuit against Magic Leap, filed last February by a former employee accusing him of sex discrimination.  It was settled and officially dismissed by June. Searching for information about SoFi (Social Finance) resulted in an article detailing how its CEO stepped down following a lawsuit over claims of sexual harassment.

A few more companies were also mentioned in the context of legal problems due to the fact that their investors were caught in sexual misconduct. SpaceX’s board member Steve Jurvetson is now on leave following an investigation conducted by his VC, DFJ, into allegations of sexual misconduct. Fashion e-commerce service Stitch Fix, now on the way to an IPO, was also caught in the eye of the storm of sexual harassment claims against Justin Caldbeck from Binary Capital. While Caldbeck was an associate at Lightspeed, one of Stitch’s investors, founder Katrina Lake, accused him of sexual harassment.

By all means, we don’t claim that a company is having a serious legal problem when an investor has to leave the table following allegations of sexual misconduct. However, we do think that investors, employees or basically everyone that is engaging with the company have the right to know and to be able to find that information very quickly.

A Great Way to Track ICOs that Went Wrong

The thriving ICO industry is attracting a growing number of investors into blockchain financial adventures. Nevertheless, it is a still unregulated industry in its infancy, which creates a large potential for fraud and misconduct.  

Searching for the startups conducting some of the biggest ICOs has helped us detect quite a few quarrels and disputes. One dispute involves Tezos, a newly decentralized blockchain that governs itself by establishing a true digital commonwealth, and which raised $232 million last summer.

Tezos’ profile on referred us to articles describing the legal battle between the founders and the chairman of a Swiss foundation tasked with managing funds raised during the ICO.

We also noticed R3, a blockchain-based operating system for financial services funded by a consortium of banks, that’s suffering from legal problems. The fintech startup has engaged in a new legal battle against another blockchain company, distributed ledger Ripple (the company behind XRP cryptocurrency). Ripple alleged that R3 failed to honor an agreement that included an option to purchase $5 billion XRP.

Every Company has its Issues

Searching for legal problems through Zirra’s Latest Events module can be so simple that you could spend all day just exploring them. This feature will prove to you that even the most trendy, fast-growing, and promising startup can be deeply engaged in a legal battle. Hyperloop One, one of the two largest companies behind the futuristic vision of a train moving at airline speed, faced a lawsuit by former company execs who accused the company of favoring friends and family in hiring and contracting decisions. The company denied the allegations and accused the former employees in return of staging a failed coup, stealing company secrets and planning to set up a competing company.

Houzz, an online platform for home remodeling valued recently at $4 billion, filed a trademark complaint against a competitor with a similar name, Houzify. Later, Facebook pulled the plug on its page.

Zirra’s advanced capabilities in identifying meaningful events in a company’s lifetime is still in beta. However, it is the first and only service capable of categorizing forgotten or lesser known events and putting them in the right context and chronological order, thus helping investors, analysts, entrepreneurs, and business development managers track a company’s behavior both historically and in real time.

Assaf Gilad

An ex-journalist from Calcalist, a leading business and tech news outlet in Israel, I'm now writing about startups for