LegalPay, India’s first and only third-party litigation funding platform, has launched an alternative investment product for retail investors. Investors can invest and diversify across a basket of cases for as little as ₹25,000 only.
The company has come up with a Special Purpose Vehicle (SPV) to create a pool of 4-8 commercial cases to ensure diversification of investor’s capital to generate lucrative IRRs and minimized risk, even for the smallest fraction of such investment. The first SPV for upper retail investors went live on August 10, 2021, and investors can invest directly on the company’s website (www.legalpay.in) through seamless digital process. The entire investment process is digital and seamless including signing of investor documents, KYC, tracking of the basket of claims, portfolio monitoring and analytics, etc.
This SPV is designed to finance arbitrations (both domestic and international), medium and late-stage litigations, specialized forums and claim buyouts opportunities. These potential claims/cases are disposed of in a time-bound manner and all of such claims/cases have a relatively shorter investment cycle. This SPV has a strong focus on B2B (business-to-business) commercial disputes, in which both parties are businesses fighting over a commercial dispute such as Breach of Contract Disputes, Recovery Claims, Partnership Disputes, Unfair Competition Claim, Term-sheet Disputes, Cross Border Transactions Disputes, Taxation Disputes, Intellectual Property Disputes, etc. The SPV will have a life cycle of 36 months (extendable by 24 months). Still, the distributions will start happening to the investors as and when the invested cases resolve, approximately starting 12 months from the SPV’s closure.
Founded by season investor Kundan Shahi in 2020, LegalPay assists entities/businesses ease the financial burden of litigation cases such as shareholder and IPR related disputes with the help of technology. The New Delhi-based start-up, backed by venture capital firms such as 9Unicorns and LetsVenture and by marquee angels including Ashwini Kakkar, ex-chair via.com, and Ambarish Gupta, ex-founder of Knowlarity, among others . LegalPay focuses on potential late-stage B2B commercial cases that are nearing closure and have a financial requirement of anything ranging from ₹20 lakhs to ₹3.5 crore.
“LegalPay believes in the democratization of investment made via its platform by making it easier for even smaller retail investors to invest. Earlier, only the ultra-rich had access to this asset, but we are making it accessible to anyone and everyone. Anyone can invest with a starting ticket size of ₹25,000. Through our SPV, we intend to ensure that the investors’ money is safe and secure by providing diversification across a basked of lucrative cases” said Kundan Shahi, Founder of LegalPay.
Shahi further added that this kind of alternative investment asset class for investors does not correlate to capital markets or broader macroeconomic factors. However, it still provides an impressive return of 20-25%+ IRR. Litigation finance as an asset class has a moderate investment cycle and has a natural realization event through settlements and adjudications.
“The investments from the pool are structured in such a manner that even if only 1 out of 6 cases is won, the invested capital for the investors will be secure,” Shahi said and added that “With the Covid 19 pandemic adversely impacting businesses, litigation cases are on the rise. The company plans to deploy over ₹100 crore for the next two years in medium to late-stage B2B commercial cases that have a faster realization.”
LegalPay will regularly launch such alternative-investment asset class options based on different investment thesis and give varied investment options to Indian investors.
Litigation finance is a practice where a third party invests capital in a case in return for a portion of the financial recovery from a lawsuit.
LegalPay focuses on B2B commercial cases with solid legal merit, quantifiable damages against the well-capitalized defendant, a high-performing legal team, and clear visibility about the settlement timeline.
It is a non-recourse investment which means that the funder receives its portion from the recovery only when the litigant wins the suit. This is common in developed economies, with several listed entities doing litigation funding and giving IRRs upwards of 60% to their investors.