Cormac Leech, founder and chief executive of litigation funding platform AxiaFunder, explains how the company vetted and launched its first international case
Litigation funding platform AxiaFunder is in the process of funding its first international case – a software copyright infringement being heard in the Barcelona commercial court.
This marks the first case which AxiaFunder has taken on outside of the UK, and reflects the growing capabilities of the platform.
Since it launched in 2018, AxiaFunder has attracted almost 1,000 high-net-worth and sophisticated investors, successfully funding three cases to date with no losses and an IRR to date of 70 per cent. The long run average IRR is expected to be circa 20 to 30 per cent, allowing for future losses.
The Barcelona case represents the next stage of AxiaFunder’s scale-up plans, with more international cases set to follow.
But funding overseas litigation cases requires a rigorous process. The team spent six months performing due diligence on the case before agreeing to finance it.
Cormac Leech – AxiaFunder’s founder and chief executive – has more than a decade of experience in large-cap equity research and structuring, while case origination and assessment expert Michael Lent has decades of experience in commercial litigation. Noor Kadhim, a recent addition, is an international arbitration lawyer, with 12 years of experience.
“AxiaFunder benefits from specialist skills in case assessment but equally importantly in financial modelling and structuring.” says Leech.
“This mix of in-depth experience, acquired over decades, is probably the key enabler for the platform.
“The process is bespoke and time-intensive,” he adds.
“For every case, we build a financial model and negotiate terms with the claimant. We then rigorously underwrite the case against circa ten key criteria (including merits, enforceability, financials, etc).
“The rejection rate is 90-95 per cent. For cases that survive filtering, we finalise the funding agreement with the claimant and write a detailed 40+ page offer document which needs to be approved before distribution to investors.
“Investors also get access, under NDA, to a data room with supporting information and a video of the legal team describing the case. We then raise the capital via a dedicated special purpose vehicle (SPV). Investors get the benefit of picking and choosing which cases they want exposure to. ”
On the current case, as well as conducting their own analysis, the AxiaFunder team engaged a Spanish law firm to provide an independent opinion on the case, adding another layer of vital due diligence.
“They gave us a detailed independent report,” says Leech. “In addition, the supporting evidence for the case is encouragingly extensive.”
A local Spanish litigation consultant was also engaged to manage the local specifics of the case.
Leech notes that, in general, there are many benefits to funding litigation cases in Spain.
“The cost to litigate is considerably lower,” he explains. “That makes it easier to execute fund litigation. Also, funders are not exposed to adverse cost risk in Spain which simplifies the process.
“We are planning a live Q&A webinar with the claimants lawyers in the coming weeks.”
At the same time, Leech’s priority is introducing more liquidity for investors.
“In the second quarter we hope to launch our automated resale market (currently being finalised by our fintech solution provider ShareIn) which will enable our investors to offer their case investments for sale,” reveals Leech.
At present, investors can be waiting for on average two years for an exit on their investments. However, the secondary market will give investors more flexibility to manage liquidity and risk.
With double-digit returns, emerging liquidity and a rolling roster of upcoming cases to choose from, AxiaFunder seems to offer an interesting proposition to investors.
Past performance is not indicative of future results. Projected results may not be realised. Capital at risk and returns not guaranteed.