Litigation finance platform gaining traction
Not a week has gone by recently without us hearing about another firm joining the Lexolent network. We caught up with Lexolent’s Nick Wood to find out more about this new litigation funding network and how it works.
Can you explain briefly what the Lexolent platform is? What gap in the litigation finance market did you see?
We are very happy with the pace at which our network is growing. But many of our members do not want publicity so what you see publicly is only the tip of the iceberg.
What is Lexolent? The starting point is that we are the world’s first globally coordinated network of legal finance professionals. We have a global broker network referring their origination onto our platform, creating a marketplace for capital to meet origination.
This will be closely followed, in 30 to 60 days, by the first close of our own $100m fund providing a facility to speed up the funding process, effectively allowing us to ‘option’ quickly any deal we like and then syndicate the investment using our fund, or holding onto them. Why is it needed and why is it different? Access to legal finance and investment is almost exclusively through a handful of ‘retail’ litigation or legal finance companies. These firms typically come from a default position of ‘no’ and are not set up to solve problems. We operate strict service levels on timing and from a default position of ‘yes’. Gaining access to legal finance can be time consuming, expensive and frustrating for those looking to fund their cases, whether they are professionals or clients.
In one place, we combine the key elements of litigation finance - capital and origination.
What type of professionals are on the platform?
Originators - anyone who has a need for their cases to be funded or who can refer cases to be funded, for example, a lawyer, a law firm, an insolvency practice or a broker. These are members who know how litigation finance works and understand what is needed for a case to meet the standard requirements. Execution fees and profit share mean that these members are rewarded for referring their cases.
Investors - those with capital looking for cases to fund. Fund managers, hedge funds or traditional litigation funders who are looking for inventory.
Introducers - these are a large part of the global network membership. They are accountants, retired lawyers, legal recruiters, digital marketers, insurance brokers – in fact, anyone who knows someone who may need a case funded.
What are the benefits to members and why would they join?
Originators - a simple route to funding. A uniform approach with defined timelines and service levels allows members to put cases into the system to be funded. Unparalleled access in one place to the key capital markets for the asset class, including investors that do not otherwise deal directly with clients or originators. Origination fees and profit share which are higher than the market rates.
Investors - investors need deal flow. Origination is always the most difficult part of the legal finance process. In any event, even those funders with good deal flow always want access to more. Traditional LP investors don’t have origination teams – and now do not need them with access to the network.
Introducers - their incentive is to refer their contacts onto the network to receive a fee for making a referral. Previously they would have received no benefit whatsoever.
How do you make your money?
In just the few months we have been trialling the platform, we have seen opportunities with investment value totalling over £2bn. We make our money in three ways:
Currently our main revenue is generated by taking a share of the fees paid by investor members on execution of a transaction.
We also receive a proportion of the profit share or carried interest on successful conclusion of investments.
Investor members also pay an advance annual fee to be on the platform, with a rebate from fees payable each time they execute a deal.
Our revenue streams will obviously change with the addition of our own fund and other products and services being added to the platform for the benefit of our members.
Are there any ways that you work with existing funders?
We should not be seen as a competitor to other funders – quite the opposite. Our network is now larger in number than most of the other funders’ staff combined globally. So, our reach from a business development perspective is far greater. That means we see many cases from around the globe that are in need of investment. We will invest in what we can but our pipeline is simply too large for us to invest in everything, and of course different investors have different appetites – so a case that doesn’t suit us is likely to suit one of investor members.
Additionally, for every case that we invest in, we place on our platform for our investor members to have the opportunity to be part of a syndication or secondary trade. We have many opportunities for other funders to benefit from our huge global network.
You launched officially in January, 2023. What has the market’s reaction been to date and where have you found the most traction?
The response to our launch has been incredible. We have been delighted with the interest shown in what we are doing to disrupt the legal finance industry just a little bit.
We have seen considerable traction from the UK and the USA but have been most surprised by the level of interest and number of cases we have seen from Europe. There is no specific sector that has been more popular than others and the variety of opportunities has been remarkable.
Speaking on the litigation finance market more generally, are there any specific trends you’ve been noticing this year, and what evolution do you see taking place in the market in the next few years?
The litigation finance industry has been slow to evolve but we are beginning to see a better use of technology and AI. Whilst there are many more funders than there used to be, we do not really see fierce competition – it is a myth that there is far more capital than there are opportunities to invest. In terms of evolution, we believe our platform can only assist in developing the secondary market – given that it is a genuine marketplace. That said, it is evident that different types of investors are and will continue to find this asset class and drive that development rather than secondary trading between the existing funders.
Nick can be reached via email at [email protected].