Legalist Closes $415 Million Legal Fund, Stays ‘True to Mission’

Legalist closed a $415 million fund dedicated to backing lawsuits, the tech-powered litigation funder said Tuesday.

California-based Legalist’s fourth and largest fund deepens its investment in commercial legal assets, continuing to focus on single cases and portfolios. The funder also nearly doubled its assets under management in the past year, now managing $2 billion across all of its strategies.

“When we launched in litigation finance, we were very much a niche underdog, and I like to think that we have preserved that status over the years, even though we’ve grown and our strategy has grown as well,” said Legalist co-founder and general partner Eva Shang.

The company, which has around 40 full-time employees and also operates a $500 million government receivables fund aimed at contractors, is celebrating 10 years in the litigation finance space. After dropping out of Harvard, Shang co-founded Legalist in 2016 with the help of a $100,000 grant from billionaire Peter Thiel’s foundation. She passed the bar exam following four years of an apprentice-style legal education—called “reading the law"—and is now also a licensed attorney.

Legalist specializes in funding low- to mid-range value cases ranging from $50,000 to $5 million in investment, which Shang says have fewer issues with lengthy case durations. Its prior fund was $300 million and had more than 250 positions in single and portfolio cases. The company’s book right now is nearly a 50/50 split between single cases and portfolios.

The ‘Truffle Sniffer’

Legalist has always been an avid user of technology for case origination. Its has a proprietary algorithm, known as the “truffle sniffer,” used to locate commercial plaintiff cases for investment.

“The truffle sniffer does identify single cases, but it’s important to know that that sparks a conversation with our team,” said David Jang, litigation finance portfolio manager. “Sometimes that conversation will lead to a single case investment, sometimes to a portfolio investment and portfolios are becoming a bigger part of our business in recent years.”

David Jang

Legalist

Legalist has been using the truffle sniffer since its inception but it is under a process of continuous refinement. The latest developments in generative AI have helped the company unlock a lot of value from a decade of its own proprietary data. The tool uses data from realized cases to better assess outcomes and underwriting of potential candidates.

It’s also led Legalist away from patent infringement cases, which are high cost and have more binary outcomes, and toward funding more class action cases.

‘Tight Niche’

Despite a difficult market for capital in illiquid private investments including litigation finance, Shang says Legalist had success fundraising.

Legalist’s investors don’t invest with other litigation funders and there are lot of repeat investors in the fourth fund from prior funds, she said. Those investors were interested in Legalist specifically, not litigation finance as a whole. Though she couldn’t name the investors, they include endowments, foundations, hospitals, and universities.

“Because we have such a tight niche within litigation finance and we have a track record of doing exactly what we’ve been doing for the last 10 years, investors really saw our product offering as distinct from whatever else is going on in the market,” she said.

Legalist has had 248 realizations across its four litigation finance funds, with two thirds resulting in wins.

Shang said the funder has stayed away from alternative business structures, which allow non-lawyer ownership in law firms, because they seem complicated and don’t fit the company’s mandate of small commercial litigation finance investments. Management service organizations have become another popular structure for non lawyer investment, but Shang said she needs to look into it more before investing.

“One thing that has helped us to fundraise and has helped us to garner investor interest over the years is that we are very true and consistent to our mission,” she said. “If we just keep the current thing going in another 10 years, there will likely be a different batch of trendy players and hopefully we’ll still be around.”