LexShares Scraps New Litigation Finance Fund, Sees Staff Exits

Litigation financer LexShares has ditched plans to launch a new fund and cut its payroll in half, citing lingering effects of the pandemic on its case pipeline.

The company is in harvest mode, according to Max Schmidt, its managing director of investments. LexShares is focusing on managing its current portfolio as it waits for cases it’s backing to be resolved.

“The pandemic caused tremendous delays and many cases that we thought would settle or just at least be resolved through the middle and end of 2024 haven’t resolved yet, they’re still in litigation,” Schmidt said.

CEO Max Doyle left LexShares in June after about a year on the job. Schmidt is now leading the company, which is down to five employees from 10 at the beginning of the year.

The tech-focused funder was one of the earlier players in litigation finance, now a $15.2 billion industry. It started in 2014 with a focus on crowdfunding—individual investors could purchase stakes in lawsuits for as little as $5,000—and was one of the first funders to make algorithms part of its origination model.

LexShares has seen frequent turnover in recent years, as the litigation finance market has expanded.

Cayse Llorens became CEO in 2021 after Brockhurst Capital Partners, his Chicago-based private equity firm, took a controlling stake. Llorens stepped down in 2022 and was later replaced by Doyle, who previously led North America operations at funder Augusta Ventures.

“Everyone in the industry is having to come to terms a little bit with the fact that duration in these investments is unpredictable and for many funds has been longer than originally expected,” said Rebecca Berrebi, a litigation finance broker and consultant.

Capital commitments to new litigation finance deals shrunk by 14% last year, according to a report by Westfleet Advisors. The retraction stemmed from macro trends like interest rate environment and pullback from private credit and private equity asset classes, resulting in less capital available for legal finance, Westfleet said.

Schmidt says the company’s research and analysis indicated that current market conditions were unfavorable for soliciting investors. LexShares hopes to restart fundraising at the end of 2025 or the beginning of 2026.

“We are still planning to resume our funding efforts when the company can demonstrate sufficient data, when more cases in our portfolio will resolve and when the commercial litigation finance market climate improves,” said Schmidt.

Brockhurst still has a controlling interest in the company. Schmidt said he could not answer questions related to Brockhurst because it is a separate company. Llorens did not respond to requests for comment.

Growing Pains

The business model of investing in single cases or a portfolio of lawsuits in exchange for a portion of an award or judgment has caught on for investors, law firms, and clients.

It’s seen as a benefit to those who are looking for an uncorrelated asset class, a way for clients to not have to spend from the bottom line, and an option for law firms to hedge risk in their cases.

But the industry has also hit growing pains.

Last year Validity Capital laid off employees after its backer cut investments to the firm. UK funder Augusta Ventures lost five employees from its investment team to Omni Bridgeway after significant layoffs.

“Many companies and the business itself is going through certain changes, which is normal,” Schmidt said. “I don’t see anything unusual or anything that may jeopardize the business or the asset class in the near future.”

LexShares closed on a $25 million fund in 2018 and completed its second fund in 2022, raising $100 million. The lead contributor was Titan Advisors, an alternative investor in Stamford, Connecticut, with more than $4 billion in assets.

Schmidt said 100% of the second fund has been committed and the majority of it has been deployed. Between both of its funds, the company has financed patent cases, commercial disputes, and law firm portfolios in the mass tort space.

LexShares established its brand by launching proprietary software Diamond Mine in 2016. The product forages through recently filed lawsuits and scores cases on how well they’d do as investments.

Diamond Mine has been a “battering ram” that has given the small company a large amount of case leads, Doyle said in a 2023 interview with Bloomberg Law.

LexShares specializes in funding small to medium size investments and has an average ticket size between $1 and $3 million. It funded Solve Together LLC, a company that supplied personal protective equipment during the pandemic, in its breach of contract case against Fedex. The litigation is still pending.

It also funded Personal Audio LLC’s case against Alphabet Inc.'s Google for infringing on its audio player patents. A federal judge threw out a $15.1 million jury award for Personal Audio, a decision now on appeal.