An interesting read from the founder and CEO of one of the nation's oldest lawsuit funders. He describes how the industry has changed over the past two decades, and how to deal with the challenges in dealing with (i) new players that are entering the industry with little or no experience, and (ii) the increasingly aggressive US Chamber of Commerce.
As you are no doubt aware, the credit-monitoring firm Equifax recently lost the social security numbers and other sensitive personal information of 143 million Americans. Now Legalist, a San Fran-based startup, is mailing checks (covering small claims filing fees) and pre-filled legal complaints to victims here in exchange for 30% of the judgment. Legalist claims to be the first "algorithmic litigation finance firm" and normally uses machine learning and A.I. to predict which plaintiffs are worth financing, but in this there is no need as it's a "slam dunk."
Fintech platform LexShares recently launched a marketplace fund that allows for bundled litigation funding on a smaller scale than had been available previously - rhe new fund will allow investors to put their money into bundled small and midsized commercial litigation matters, a departure from the traditionally large cases in litigation finance funds. They are hoping to draw $25 million for a managed fund that will invest in a broad portfolio of lawsuits across the U.S., with a minimum investment size per investor is $75,000. They use a complex algorithm the company claims helps identify valuable lawsuits to invest in. For more on Lexshares:
Good news for funders: the popularity of litigation finance appears to be on the rise according to a new survey. The 2017 Litigation Finance Survey by Burford Capital found that a whopping 37% of companies or law firms across the UK, the US and Australia had already used litigation finance, and of those who hadn't, 57% of law firms and 49% of in-house law departments said they would consider its use in the next two years. The UK was the region which had used litigation finance the most. In the U.S., the use of litigation finance grew by 28% from last year, to 36%, and has grown 414% (!) since 2013.
As litigation finance is booming, some law firm profits (buoyed up by a rising tide of contingency fee revenue) are also on the rise, but many firms aren't equipped to assume significant financial risk. Many law firms of all sizes remain highly conservative in their approach to contingency fees, and in general are not able to make significant investments in litigation. At the same time, when presented with a good case by a client looking for alternative financing, firms often turn immediately to third-party funders, potentially agreeing to steep discounts to their hourly rates in exchange for modest upsides to get the deal done. The emergence of contingency fee insurance may help more firms get in the game. This insurance essentially guarantees the law firm some minimum fee income (usually at a discounted hourly rate), regardless of the outcome of the litigation.
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