New Tools for Peer-to-Peer Litigation Financing

As internet-based computing tools have expanded, the ability to “crowdsource” funding has increased. Crowdsourcing involves the use of “peer-to-peer” software that allows numerous investors to amass small contributions into a large fund. That kind of peer-to-peer software is coming to litigation funding.

In the United Kingdom, a new litigation funding entity, AxiaFunder, has recently emerged and funded its first case using a peer-to-peer software platform. In that case, AxiaFunder sought to raise £12,720, and the expected return for investors is 60 per cent per year. While other cases are more likely to produce returns of 20-30 percent per year, such returns are exceptionally high, even for alternative financing arrangements.

The CEO of AxiaFunder, Cormac Leech, acknowledged that such large returns may inspire caution by investors who view them as too good to be true. But a clear understanding of how litigation finance works can alleviate that caution. At its core, litigation finance involves making safe bets with very favorable odds and great opportunities for pay-off.

As Leech pointed out, AxiaFunder, takes a rigorous approach to assessing potential deals. The company only invests in five to 10 per cent of cases they come across. Such cases typically have a 65-70 percent chance of earning a recovery, and the company protects its investments with insurance against adverse cost risk. This approach is typical of other litigation finance companies.

AxiaFunder targets sophisticated investors with a high net-worth. To assure suitability, the company requires potential investors to complete an appropriateness test. The investment opportunities will be a mix of debt and equity, with the debt offerings to come in the form of Innovative Finance ISA-eligible bonds. Undoubtedly, similar investment opportunities will be coming to the United States.

Keywords: litigation finance, third-party litigation funding, peer-to-peer, software

Work Cited:  Suzie Neuwirth, New P2P Platform Launches to Fund Litigation Cases, Peer2Peer Finance News (Jan. 17, 2019) available at http://www.p2pfinancenews.co.uk/2019/01/17/new-p2p-platform-launches-to-fund-litigation-cases/

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