Peter Thiel's funding of Hulk Hogan's lawsuit against Gawker showed many Americans, apparently for the first time, that civil lawsuits are sometimes heavily backed by people who aren't personally involved in the cases.
It's actually grown into a $3 billion "industry" that Legalist, a startup in Y Combinator's summer batch, is taking aim at. It isn't the first new company jumping into litigation finance. LexShares, YieldStreet and Trial Funder are three others.
Enlarge
Eva Shang is co-founder of Legalist, a startup she pitched at Y Combinator's Demo Day on… more
PHOTO/CROMWELL SCHUBARTH
But Legalist founders Eva Shang and Christian Haigh — a pair of Harvard undergrads — are applying algorithms to determine which civil lawsuits are the most likely to pay out and which won't.
Shang draws a line between what her young company is doing and what Thiel did with the Gawker case, even though she won a Thiel fellowship this year before pivoting the business to litigation finance. The PayPal co-founder and Facebook board member said his motivation was the fact that the defunct news site outed him as gay.
"We don't back lawsuits by individuals," Shang told me after making her pitch to a packed room of Silicon Valley investors at the Computer History Museum on Tuesday. "Our focus is on commercial and small-business lawsuits."
The current average return on dollar invested in litigation financing is $1.40, she said, "And this is all based on the fact that those involved base their investment decisions on what they call 'expert opinion.' "
Legalist has invested $75,000 in one case so far, with a predicted potential for a $1 million verdict. The amount Shang expects her company will invest in a case is between $50,000 and $500,000. It hopes to get up to 50 percent of any award or settlement.
The company applies 58 variables that are good predictors of how a case will turn out, based on analysis of 15 million cases it studied in 10 states, including Texas, New York and Massachusetts (but not California yet).
"One of the biggest predictors of case outcome is the presiding judge and one of the biggest predictors of length is the number of cases that judge is concurrently working on," Shang said.
Legalist's founders didn't start out thinking they would get into litigation financing. They started their summer at Y Combinator with a business model built around providing case analytics and tracking for lawyers in Massachusetts, Ohio and Maryland.
"The analytics weren't as interesting to lawyers as we thought they would be," Shang said. "People in law often feel they that what they do isn't quantifiable."
When Shang and Haigh turned their attention to litigation financing, they realized they had something valuable in the case data they had assembled.
"We realized what a great opportunity this is to use our data to help small companies and people who otherwise wouldn't be able to afford to litigate their cases," she said.
She offered a call she got from a lawyer in Massachusetts, who called just before she presented at Demo Day. He represents a baker whose business was destroyed when a water pipe burst in his building in 2014. He has been fighting in court with an insurance company and is running out of funds for that.
Legalist gets referrals on its cases from lawyers like that one who were using its original analytics. The data analytics come into play when the company analyses the likely outcome and potential return.
"I think people have the wrong idea about money in litigation," Shang said. "Litigation today is messed up and favors people who have money. Litigation financing levels the playing field."
That's an idea that resonates with Shang, whose interest in law started when she helped to found the Student Alliance for Prison Reform, a nonprofit working to fix the U.S. corrections system.
And Legalist has caught the attention of some of Silicon Valley's top investors. "Now THERE's an idea. Wow," Marc Andreessen said when he retweeted my comment on Twitter about the company's idea during Shang's pitch.
"In an industry where decisions are still being made by guesstimating these types of numbers," Shang said, "our ability to make data-driven decisions allows us to invest smarter for better returns."
http://www.bizjournals.com/sanjose/...nator-startup-uses-big-data-to-invest-in.html
It's actually grown into a $3 billion "industry" that Legalist, a startup in Y Combinator's summer batch, is taking aim at. It isn't the first new company jumping into litigation finance. LexShares, YieldStreet and Trial Funder are three others.
EnlargeEva Shang is co-founder of Legalist, a startup she pitched at Y Combinator's Demo Day on… more
PHOTO/CROMWELL SCHUBARTH
But Legalist founders Eva Shang and Christian Haigh — a pair of Harvard undergrads — are applying algorithms to determine which civil lawsuits are the most likely to pay out and which won't.
Shang draws a line between what her young company is doing and what Thiel did with the Gawker case, even though she won a Thiel fellowship this year before pivoting the business to litigation finance. The PayPal co-founder and Facebook board member said his motivation was the fact that the defunct news site outed him as gay.
"We don't back lawsuits by individuals," Shang told me after making her pitch to a packed room of Silicon Valley investors at the Computer History Museum on Tuesday. "Our focus is on commercial and small-business lawsuits."
The current average return on dollar invested in litigation financing is $1.40, she said, "And this is all based on the fact that those involved base their investment decisions on what they call 'expert opinion.' "
Legalist has invested $75,000 in one case so far, with a predicted potential for a $1 million verdict. The amount Shang expects her company will invest in a case is between $50,000 and $500,000. It hopes to get up to 50 percent of any award or settlement.
The company applies 58 variables that are good predictors of how a case will turn out, based on analysis of 15 million cases it studied in 10 states, including Texas, New York and Massachusetts (but not California yet).
"One of the biggest predictors of case outcome is the presiding judge and one of the biggest predictors of length is the number of cases that judge is concurrently working on," Shang said.
Legalist's founders didn't start out thinking they would get into litigation financing. They started their summer at Y Combinator with a business model built around providing case analytics and tracking for lawyers in Massachusetts, Ohio and Maryland.
"The analytics weren't as interesting to lawyers as we thought they would be," Shang said. "People in law often feel they that what they do isn't quantifiable."
When Shang and Haigh turned their attention to litigation financing, they realized they had something valuable in the case data they had assembled.
"We realized what a great opportunity this is to use our data to help small companies and people who otherwise wouldn't be able to afford to litigate their cases," she said.
She offered a call she got from a lawyer in Massachusetts, who called just before she presented at Demo Day. He represents a baker whose business was destroyed when a water pipe burst in his building in 2014. He has been fighting in court with an insurance company and is running out of funds for that.
Legalist gets referrals on its cases from lawyers like that one who were using its original analytics. The data analytics come into play when the company analyses the likely outcome and potential return.
"I think people have the wrong idea about money in litigation," Shang said. "Litigation today is messed up and favors people who have money. Litigation financing levels the playing field."
That's an idea that resonates with Shang, whose interest in law started when she helped to found the Student Alliance for Prison Reform, a nonprofit working to fix the U.S. corrections system.
And Legalist has caught the attention of some of Silicon Valley's top investors. "Now THERE's an idea. Wow," Marc Andreessen said when he retweeted my comment on Twitter about the company's idea during Shang's pitch.
"In an industry where decisions are still being made by guesstimating these types of numbers," Shang said, "our ability to make data-driven decisions allows us to invest smarter for better returns."
http://www.bizjournals.com/sanjose/...nator-startup-uses-big-data-to-invest-in.html
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