LFP121 – Litigation Crowdfunding w/Cormac Leech CEO Axiafunder

Creativity springs eternal. Here is yet another new topic, one that no one could have imagined even a couple of decades ago. Litigation crowdfunding gives litigants a new source of funding and investors a totally new investable asset with non-correlated returns. Cormac Leech CEO and co-founder of Axiafunder walks us through this complex landscape.

Litigation Crowdfunding investment is definitely not for the unsophisticated. Barristers rarely assess even the best of cases as having more than ~75% chance of success such are the vagaries of the legal process. Vice versa though, for reasons we shall come onto, investment returns are super-normal and a portfolio of well-managed litigation crowdfunding loans has the possibility of very high returns indeed.

Cormac was last on the show some three years ago, appropriately talking about innovating in P2P. Well here he is having done that big-time.

Topics discussed include:

  • The Making Of The Atomic Bomb, Richard Rhodes, per se and its relevance to starting challenging projects
  • getting to MVP
  • Feynman (and Surely You Are Joking My Feynman)
  • Cormac’s career journey
  • the motivation to set up litigation crowdfunding
  • existing players – LexShares in the US as a prime example
  • 20-40% pa potential returns (!!)
  • what is litigation crowdfunding?
  • why it exists
  • Axiafunder provide funding to strong cases with a good chance of winning; upon winning returns are divided up between litigant and Axiafunder’s lenders
  • commercial cases only
  • the usual journey is you take your case to a lawyer, he assesses whether the case is viable; very often he will agree to work on contingency basis (“no win no fee”)
  • then one needs after the event insurance to cover the risk of not just losing the case but in the UK you can have costs awarded against you (ie you have to pay the other sides costs); several providers;
  • schedule of premia to be paid at various stages
  • lawyer reaches out to said insurers who will want to see a barristers opinion
  • “good cases” range from 60-75% tops probability of winning
  • never anything like 90% due to uncertainties around “disclosure”, witness performance and the judge you get on any given day
  • Axiafunder step in after all this process has taken place, do their own further due diligence if they feel it necessary, potentially send it to their own barrister and potentially offer litigation funding
  • existing providers – LexShares in the US for around 3-5 years – for profit
  • CrowdJustice exists in the UK but as a non-profit (and eg was involved in crowdfunding the case for a meaningful vote on Brexit)
  • relevance of Legal Aid in the UK – the UK government were the first folks to fund litigation
  • the advantages of crowdfunding in re
  • the majority of cases will be UK cases
  • their team re assessing cases
  • initially you can submit as few as five lines of description of your case (though NB it is commercial litigation); in the end cases submissions can be as much as 100pp
  • aiming initially at cases of under £500k, thence £1m cases
  • anticipated length of cases is 2-3yrs, or on the outside 1-5yrs
  • Cormac’s own analysis of available returns in a world without the usual data rich environment of FS (eg fx rates etc etc)
  • existing players – Burford Capital, IMF Bentham – been around 10-20yrs as litigation funders
  • IMF/B in most recent results reported simple return over the lifetime of a case (~2 or 3 years) of 150% (!) – IRRs around ~50%
  • knowledge from lawyers in the market who have been doing this for a long time
  • why super-normal returns exist
  • has been illegal since 1275 (&reasons therefor)
  • the government was the first ever provider of litigation funding with its legal aid
  • 1967 criminal law act stopped “no win no fee” from being a crime
  • various funding arrangements slowly crept into existence but market only really developed since around ~2005-2010 with Burford Capital founding
  • thus supply and demand have not yet had time to reach equilibrium hence the super-normal returns
  • more complex risk around payment of fees if insurance does not pay out – ie invest £1k if insurance doesn’t pay out you have to potentially pay another £1k if you lose
  • need to be a sophisticated investor to put your money in this
  • how AxiaFunder will scale – case assessment portal (&equity financing thereof)
  • launching an IFISA eligible case, a bond
  • typically have a 30-40 pp offer document for their deals
  • “evangelical selling” for original propositions
  • litigation crowdfunding is socially useful as it helps people get justice even if they cant afford it themselves

And much much more!

Share and enjoy 🙂