There’s a new service in New York that’s angling to let litigants in certain types of cases crowdfund their lawsuits against bigger, better-funded competitors.
Private equity financing of lawsuits in certain corporate cases has existed for several years, although the idea of funding a legal campaign for a return on investment is still in its infancy. The founders of LexShares are looking to change that.
LexShares’ co-founders see the company as opening up a market that had previously only been available to institutional limited partners. The company’s platform connects accredited investors with plaintiffs in commercial lawsuits to make an equity investment in a specific case. If the plaintiff wins (primarily through out-of-court settlements) then the investor receives a portion of the proceeds from the settlement or court judgement (it’s typically a settlement).
While some may argue that the creation of a marketplace for crowdfunding lawsuits may lead to frivolous claims being filed, Chris Lynch, a partner with Atlas Venture, which invested in the company’s first institutional round of funding, says nothing is further from the truth.
“It probably eliminates frivolous lawsuits,” Lynch says. The reason? The curated platform that LexShares is pitching means that all of the cases available for investment have been vetted by co-founders Jay Greenberg and Max Volsky, who literally wrote the book on crowd-funding legal claims.
“LexShares provides a transparent, economically rational and efficient means for connecting plaintiffs with investors to fund their commercial legal claims,” said Greenberg in a statement.
Greenberg, who previously headed Deutsche Bank’s technology investment banking group, connected with Volsky, an attorney who has overseen more than 10,000 investments in legal claims since 1999 and is the founder of litigation finance fund LexStone Capital — an investor in LexShares.
“Financing is key to the success of a lawsuit. Large companies often have an unfair advantage because they have virtually unlimited access to legal resources that individuals or smaller companies do not,” Volsky said.
Companies that are in the middle of a lawsuit can post their case to the site, and if it’s deemed meritorious LexShares will post details of the case online and accredited investors can review the case to decide if they want to invest. The investors are able to track litigation activity related to their investment and cases typically pay out in under 5 years — far less time than the average venture investment.
The company says targets a wide range of commercial claims at all stages of litigation, and has layers of privacy built into the platform so that litigants can reveal as much or as little information as they wish to potential investors.
The company’s offerings are made through WealthForge LLC, a registered broker-dealer affiliated with LexShares. Through its platform, LexShares has already funded a case with a claim value of more than $40 million and currently has multiple other legal claim investment opportunities available for investment, according to a statement from the company.
“This is a multi-billion dollar market but it’s closed to investors. There has to be enough common knowledge around the subject matter of the litigation,” says Atlas’ partner, Lynch.