The 1M1M Deal Radar 2010: nCourt

nCourt is a provider of judicial e-commerce solutions specifically for pro se litigants (litigants who represent themselves) to interact with lower-level courts. The system enables users to file documents such as small claims and eviction proceedings and pay traffic fines over the Internet with a credit card quickly and cost effectively, 24 hours a day, 7 days a week. The Woodstock, Georgia-based company helps courts to collect more money and spend less money on follow-up collection efforts such as warrants. CEO David Morris came from a transaction industry background and was the director of strategy and planning for Sprint Corporation’s $11 billion consumer division for several years. He, along with founder Bob Levine, who is an attorney, recognized how inconvenient the court system was for general purposes such as filing a small claim or dealing with a traffic citation. The lines were always long, and the 9-to-5 courthouse hours were difficult for people who work full time. Court clerks always seemed overwhelmed and under-supported. The two came up with the idea to introduce the missing e-commerce link to the court system and devised a Web-based payment and filing system that doesn’t cost taxpayers to install. Instead, there’s a convenience fee that is charged to those who use the system, so only the people who take advantage of it are paying, instead of the general public. It’s a “plug and play” system that gets up and running within days. The service can help states to collect more money from traffic tickets. For example, in November 2009 Mississippi announced that it had collected more than double what it normally collects during each reporting period. The company estimates there are 75 million traffic tickets written in the United States each year. That is a hard number to pin down given the number of traffic courts in the country – many sources estimate 40 million to 60 million tickets – but nCourt believes its is a reasonable estimate. It has sourced data from state supreme courts (many publish lists of the traffic courts in their state together with transaction volume) and has also used its experience in the space to determine the relationship between population and the number of tickets written. Of those 75 million tickets, nCourt estimates that at least 25 million are written by courts that do not offer online or over-the-phone payment options and could be served by nCourt. That 25 million is driven by a few factors: first, several states disallow nCourt-style business models owing to existing legislation; second, some states have built their own online payment systems and do not allow courts to partner with private vendors; and third, some large courts (e.g., New York City) that can make such an investment have built their own online payment service. nCourt has estimated the level of competitive presence in each state to determine at a high level how much market is left. It thinks that at least a quarter – and possibly much more – of the market remains completely unserved. Obviously there are also large markets available to nCourt in bail, utility, tax, electronic court filing (e-filing), and other payments that are handled by municipal and county governments. nCourt has not yet sized those markets. nCourt exists to serve as the e-commerce partner for county and municipal governments. Its primary focus is serving traffic courts because those institutions have the greatest need; they are generally understaffed and handle an enormous number of transactions daily. nCourt’s service lightens the burden on those courts, increases their efficiency and efficacy, and improves the end-user experience. Secondary to traffic courts are lower jurisdiction civil courts, property taxes, and the police for bail. nCourt also considers its market by state and by county and city size. There are a number of states (e.g., Louisiana and Mississippi) with significant traffic volume that are underserved in terms of e-commerce. nCourt believes that it has the ability to bring the benefits of technology to those states rapidly. The best targets are “bedroom communities” outside large urban areas. nCourt targets areas such as the Kansas City metropolitan area (Merriam, Shawnee, and Olathe, Kansas, and Grandview, Missouri) or the Pittsburgh area for all Allegheny County traffic courts. nCourt initially began serving the magistrate courts of Georgia with its pro se eFile service. The technology was created by the judge in that state’s Cherokee County; nCourt was able to use that proof concept to add courts throughout Georgia, including Chatham County, where Savannah is located. The success of that service prompted the probate courts (courts having jurisdiction over the estates of decedents, minors, incompetents, and conservatees) in several of the counties nCourt served to inquire about online traffic citation payment services. nCourt quickly grew into those sister courts, giving it a strong beginning in traffic to match its initial footprint in e-filing. Ultimately, nCourt grew its Georgia presence to over 100 courts, giving it the scale and reputation to reach out to other states and begin a much more aggressive growth phase. Additionally, the company installed a customer service call center that significantly diminished the workload for and distraction of court personnel. As of May 2010, nCourt has approximately 700 court partners. This represents a near doubling in the number of courts it partners with in the past year. The traffic courts it serves handle approximately 2 million traffic tickets a year. There is little competition because most e-commerce and filing systems are geared toward probate and superior courts that require lawyers. One competitor is OneLegal, which offers court filing, process serving, and research and document retrieval services in 15 states. nCourt has launched more services since its founding in 2002 and now offers child support collections, bail bonds, and Department of Motor Vehicles (DMV) service, among others. The company just launched these offerings this past year. In its early years the company was funded solely internally, with minimal investment. The two founders forewent compensation for several years and used all business proceeds to invest in ongoing growth. Programming, the most critical cost element, was paid for through a combination of cash, notes, and revenue shares. In 2005 nCourt received a modest (less than $200,000) loan from an individual, which brought the company far enough to secure angel investment in April 2007. A group of angel investors funded nCourt with $750,000 and brought in professional management to drive growth. nCourt secured $600,000 in additional debt financing over several months in 2008–09 from an interested individual and received a final $650,000 equity investment from management in October 2009. nCourt is going to reach cash flow breakeven this year, and revenues will approach $3 million, representing 80% year-over-year revenue growth. The company anticipates maintaining that growth rate. At present, nCourt’s growth is coming from aggressively expanding the number of government agencies it partners with. The growth strategy centers on excellent customer service; the company aims to provide the best service in the industry to the courts it partners with by giving them control over their Web presence, their e-commerce service, and their money and to the citizens who use their service, for example, by allowing them to access a live bilingual staff at a domestic call center. It relies on a direct sales force to gain new customers. The company believes this industry will consolidate: There are strong economies of scale, and government agencies tend to be very loyal once they’ve selected an e-commerce partner. This means that eventually industry players should come together via acquisition. nCourt intends to be an active participant in that consolidation – possibly as both a seller and a buyer. That will likely occur in the next three years. Recommended Readings Deal Radar 2009: Clearwell Systems CIO Priorities: City of Miami

This segment is a part in the series : The 1M1M Deal Radar 2010