A NEW crowdfunding platform has launched in the UK that enables investors to fund litigation cases.
AxiaFunder went live earlier this month and has already fully funded its first case, a professional negligence dispute that was looking to raise £12,720. If the case wins, the expected return for investors is 60 per cent per year.
Average returns across all cases are predicted to be in the 20-30 per cent range, which is still very high compared to other alternative finance investments.
Litigation finance providers offer funding for claimants who cannot afford to pay for their legal disputes, in return for a share of the settlement or damages. The finance typically comes from institutions such as hedge funds and private equity houses, but crowdfunding platforms open this sector up to individual investors.
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AxiaFunder chief executive Cormac Leech acknowledged that investors may have initial concerns about the exceptionally high returns on offer, explaining that there is some education to do about the litigation finance sector.
He underlined the rigorous approach AxiaFunder takes to assessing potential deals and said that they only extract five to 10 per cent of cases they come across. Once investors are signed up to the platform and have signed a non-disclosure agreement, they will have access to legal correspondence pertaining to the case which gives them a good level of transparency on their investment.
Leech told Peer2Peer Finance News that there tends to be a 30-35 per cent chance of losing the cases they put on the platform but all cases are insured by an investment-grade insurance company, protecting against adverse cost risk.
Michael Lent, head of case origination and assessment at AxiaFunder, said it could be “quite challenging” to find suitable cases.
“We are trying to find cases we’re very comfortable will be successful and with a sufficient level of damages to make the whole funding viable for both the investor and claimant,” he told Peer2Peer Finance News.
“However, the good thing about litigation is that there will always be a need for it and it’s never going to dry up.”
AxiaFunder will be targeting angel, high-net-worth, sophisticated and restricted investors, requiring potential users 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.
There is currently a minimum investment of £500, with the first two cases looking to raise around £12,000.
Going forward, AxiaFunder will be looking to fund cases that are aiming to raise around £500,000, with a higher minimum investment.
The two main listed litigation funders, Burford and IMF Bentham, tend to fund larger cases and are slower to deploy investors’ funds, Leech said, which gives AxiaFunder an advantage in this market.