Note from Editors
Individuals are funding lawsuits and earning money from it. LexShares is THE electronic marketplace that matches #investors with cases, and getting higher returns. It is the first electronic marketplace that matches investors with cases.
by Daniel Fisher
The #business of betting on other peoples’ lawsuits is heating up. I had lunch recently with 30 Under 30 honoree Jay Greenberg and his partner Max Volsky of LexShares, a legal-funding #platform they launched last November. Their target for the first year was to average $100,000 in funding per month through the electronic marketplace that matches up investors with lawyers and plaintiffs who need money to pursue their cases.
They’re already beating that goal. Since November, Greenberg told me, LexShares has drawn $26 million in requests for funding. Roughly 4% of the cases made it onto the platform after vetting by Volsky and other staff lawyers at LexShares. Logging on today, an observer would see six cases on the menu, all fully funded for $85,000 to $400,000 per case. LexShares is working on getting more cases up on the platform, as it draws inquiries from hedge funds and other large investors in addition to the so-called “qualified investors” – individuals with more than $1 million in liquid assets – it originally saw as its market.
Other litigation-finance outfits are seeing a similar increase in investor interest. Burford Capital shares are up more than 30% this year on the London exchange as the company has reported sharply increasing #investments and earnings. Late last month, Burford said earnings increased 48% in the first half of this year over the year-earlier period to $40.6 million, driven by returns on litigation of $30.7 million, up 64% from the first half of 2014.
In his note to investors, Burford Chief Executive Christopher Bogart said the firm pulled in its largest recovery so far, $61 million on a $25 million investment. Burford also placed $81 million in new investments in the first half of 2015, up 33% from last year. Burford has also expanded into the judgement-enforcement business, taking in $2 million in fee income by tracking down deadbeat defendants and collecting a contingency fee if they recover money from them.
In his letter, Bogart said Burford welcomed the increase in litigation funders:
“We believe that multiple players will increase demand overall, simply through the vehicle of having more voices speaking in the market and educating lawyers and clients about the possibilities associated with litigation finance, and the structure and dynamics of the legal market provides insulation from damaging price competition.”
LexShares is financed with more than $1 million in capital from a team at Atlas Venture – since spun off as Accomplice — who were drawn by both the crowdsourcing model similar to another Atlas venture, AngelList, and the historic 50% returns.
Litigation finance is an investor’s dream, on paper anyway: A high-yielding investment that is completely uncorrelated with anything else. While hedge funds have been backing litigation for years and there are well-established firms doing this, including Burford, Gerchen Keller Capital and Australia’s IMF Bentham. LexShares is the first electronic marketplace for matching investors with cases, however, and could provide a test of broader interest in litigation as a source of returns.
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