Following our series of investment interviews during this worldwide Covid-19 crisis, today we would like to introduce a very interesting platform which brings a new asset class to our blog and might be a solution to take into account for those of you interested in finding potentially profitable investments with literally 0 correlation to the stock markets.
We are talking about Axiafunder, the first litigation crowdfunding platform in Europe. Today we have Cormac Leech, the CEO of AxiaFunder to answer our questions. Thanks for coming to TodoCrowdlending.com!
1 – First of all, for those who still are not familiar with litigation investments and have not heard about Axiafunder… Could you briefly explain the concept of litigation funding and why it can be an interesting option for investment?
(CL – AxiaFunder) Litigation funding – where third-party financing is used to pay for legal action – has been around for many years now. Although successfully applied to a certain segment of the legal market, until now it has generally been restricted to hedge funds and private equity firms generating attractive returns from large cases. That seems to be about to change with potentially positive implications for social inclusion. Litigation funding can be seen as a response to a growing need for finance by claimants – particularly given the growth in both the number of cases and the cost of litigation. However, rising costs of litigation have made access to justice extremely expensive – and in many cases inaccessible – for many individuals and businesses.
AxiaFunder is an online funding platform that connects investors with carefully vetted commercial litigation opportunities that we believe have strong legal merits, a high likelihood of succeeding, and the potential to generate attractive risk-adjusted returns to our investors. Specifically, we are targeting those cases in the UK and overseas requiring a commitment of £25k to £1m as we believe this part of the market has been relatively underserved by existing litigation funders despite a high number of many clearly viable cases. AxiaFunder’s team have a combined 40+ years of financial experience and a combined 30+ years of litigation experience.
To the best of our knowledge, we are the first litigation crowdfunding platform in Europe.
For our investor clients, the 3 USPs we offer are:
- No cash drag
- Better risk-spreading (via AxiaFunder a larger number of end investors can invest in a case compared to with via other funders)
- More flexibility
2 – How do you choose / filter the projects you publish in the platform?
(CL – AxiaFunder) Cases will be sourced via litigation brokers, insolvency practitioners and from law firms directly. AxiaFunder targets a win or settlement probability of at least 65% for cases that are funded via the platform. AxiaFunder seeks to ensure that cases available for funding on the platform satisfy the following criteria:
- Legal merit: The legal merits of the claimant’s case must be strong – typically independent legal counsel will have endorsed the case with a high probability of success.
- ATE (After the Event) insurance in place: AxiaFunder will only fund cases that already have ATE insurance lined up. This protects AxiaFunder’s investors from adverse cost risk (adverse cost is the potential liability of third-party funders for opponent’s costs if the Claimant’s case fails and the Claimant lacks the financial resources to pay these adverse costs) and also serves to filter out cases which ATE providers do not believe to be sufficiently attractive to insure, thereby tending to improve the quality of the pool of cases being assessed.
- Viable economics & timing: The estimated damages normally must be at least 5x the estimated costs of pursuing the case to trial, with an expected time to resolution of typically less than 3 years, and acceptable visibility on costs.
- Enforceability: There must be clear evidence that the defendant has the financial resources to pay the targeted damages and/or that any court judgement can be enforced.
- Quality counsel: AxiaFunder will only fund cases for which the claimant’s legal counsel are clearly capable. Weak or inexperienced counsel can prevent an otherwise strong case from succeeding.
- Alignment of interest: The claimant should have some downside risk if the case is lost. Equally the claimant’s own counsel should have ‘skin in the game’, consistent with a conviction that the case is likely to win.
To date, we have reviewed over 150 cases of which only 14 have been approved for funding.
3 – What is your track record so far and what returns can we expect in the long term?
(CL – AxiaFunder) 6 case investments have been fully funded via our platform, of which two have been successfully resolved, generating a 43% return to investors in 8 months and another generating 94% after 15 months. 6 cases are still ongoing. Additionally, we are due to close the capital raise for the 9th case in the beginning of June that requires a funding amount of £192,000 to £225,000. The minimum funding amount of £192,000 has been fully underwritten. Of course, past performance is not a guarantee of future results.
Currently, we have a case pipeline of £2-3m, and we hope to start funding 2 cases a month (each, on average, requiring a funding amount of £0.5m) in the near future.
4 – Are you a regulated company? what are the mechanisms in place to protect the funds of your investors?
(CL – AxiaFunder) AxiaFunder is an appointed representative of Share In Ltd, which is authorised and regulated by the Financial Conduct Authority. Share In Ltd holds clients’ monies in segregated accounts. ShareIn monitors everything we do from a regulatory perspective and also provides the technology and operational infrastructure for our website.
5 – How does coronavirus crisis impact the litigation business? have you seen any effects in Axiafunder?
(CL – AxiaFunder) The COVID-19 pandemic has caused huge uncertainty and disruption. As such, we expect the litigation funding investment market to experience significant growth as insolvency litigations increase as an unfortunate result of the recession. Additionally, claimants are more likely to be under more financial pressure than ever before, thereby increasing the demand for litigation funding.
Despite the economic downturn caused by COVID-19, we believe there is still a role for litigation finance, and for investors to access this alternative asset class. Unlike equities, litigation finance is uncorrelated to the financial markets and may thrive during times when many other asset classes are underperforming.
6 – What are your goals for 2020 in terms of volume invested / investors count? are you planning any changes or new functionality this year?
(CL – AxiaFunder) We are anticipating to have funded £4m in case volume by the end of the year. Our investor network has already grown from 350 to 515 since January 2020 and we anticipate further growth – we are aiming to reach around 900 investors by the end of this year.
Future plans also include expanding the company by building an in-house case assessment team, launching a Python-based simulator to help investors understand the potential returns under different investment scenarios, developing a resale (secondary) market that would allow investors to buy or sell shares of the SPVs used to fund the cases, and building a portal that would enable us to collaborate better with case assessment lawyers.
7 – OK, I am sure after reading this post some of us may be already interested in joining Axiafunder… which countries do you accept investment from and what are the requirements for the investors to join?
(CL – AxiaFunder) We accept investors from all countries in EEA and most countries globally (excluding US and Canada). To get involved, investors have to register on our platform, pass the risk questionnaire to understand the risks involved in litigation funding and complete the KYC process.
It is important to note that while the projected returns are high, returns are not guaranteed, capital is at risk and losses may exceed the amount invested in some scenarios. This investment is only suitable for well informed investors who can afford to invest for the full length of the investment term. While risk can be greatly reduced by diversifying across a number of different cases, the risk on each individual case is relatively high, and investors should view an investment in the cases available on the AxiaFunder platform as part of a wider diversified portfolio.