SAN FRANCISCO — Litigation finance startup Legalist made a splash in the industry last year when it claimed it could estimate the likelihood of a case succeeding using a cutting-edge algorithm, no lawyers involved. It was quintessential Silicon Valley: just couple of young Harvard dropouts with some business savvy and software know-how.
Now, after launching a fund of $10.25 million—and with an eye on bankrolling about a hundred cases in the next year—it’s decided it might want someone with a legal degree on board after all.
Curtis Smolar, an all-round business litigator with expertise in copyright and trademark law, joined Legalist as its general counsel late last month from Palo Alto IP boutique de la Pena & Holiday, becoming the company’s first lawyer. In addition to steering Legalist through regulatory requirements, Smolar will also be helping vet potential investments and assess their value.
In the first 13 cases that Legalist funded—without the aid of a lawyer—”we had to be really conservative in terms of assessing damages,” Eva Shang, the company’s co-founder, said in an interview. “We would usually wait until there was already a damages report [with] some very strong credibility, whereas Curtis can come in and say, ‘This is, in my experience, what something like this would be worth.’ So that’s really helpful for us.”
“I did a lot of collections work for a while,” added Smolar, who also previously was a partner at Fox Rothschild. That, he said, helped him learn how to size up the value of a case and whether the money was actually collectable. “I think that that, from my perspective, is my big value-add.”
Legalist is hoping to carve its niche in the commercial litigation finance industry by investing in smaller-dollar business disputes, but at a much higher volume than the likes of Bentham IMF or Burford Capital—which have a minimum cutoff of about $1 million per deal. By contrast, Legalist is eyeing investments in the $100,000 range.
The privately held company had previously invested off of its own balance sheet, but launched a separate $10.25 million fund last month primarily with venture capitalist backing. (Not long before that, Legalist also moved out of its digs at the offices of Vy Capital—one of its original investors—in San Francisco’s financial district. It’s now operating out of a co-work space in SoMa, arguably the center of the city’s startup scene.)
But Legalist also seems to be following a larger industry trend of funding portfolios of cases, rather than just one at a time. Shang said Legalist has launched an invite-only web portal where small law firms can upload information about dozens of cases at a time—each of which need a little cash—without having to fill out a funding application for each one.
“I think what really is Legalist’s core value proposition is that we are so friendly to the 70 percent of lawyers in America who work at small law firms,” Shang said. “We’re trying to really be on the same level as those people and be responsive to their needs, rather than the needs of the traditional white-shoe law industry.”
Smolar is the latest in a line of one-time Big Law attorneys who have defected to the litigation finance industry. He said he was attracted by the excitement of doing something very different with his law degree, but that Legalist’s goal of empowering small businesses to enforce their legal rights also resonated.
Recalling a long and complicated Ponzi scheme case that he litigated, Smolar said: “It was a really big, messy, horrible case. … That’s a case where I think if we had the resources that are available today, it would have been really, really helpful.”