The Delhi-based startup is a third-party litigation finance platform that helps entities ease the financial burden of litigation cases such as shareholder and Intellectual Property Rights related disputes, domestic and international arbitrations, and other time-bound cases.
“We aim to democratise this alternative asset class where anyone can invest with a starting ticket size of Rs 25,000. Traditionally the asset class is dominated by ultra-high net worth individuals (UHNIs),” said Kundan Shahi, founder of LegalPay. “We will regularly launch such alternative investment asset class options in dispute space, based on different investment thesis and give varied investment options to Indian investors.”
Venture Capital (VC) firms 9Unicorns and Let’sVenture-backed LegalPay will mostly focus on late-stage cases or those that are nearing closure with a financial requirement ranging from Rs 20 lakh to Rs 3.5 crore.
The startup has already created a pool that can support disputes for about Rs 200 crore. It has created a special purpose vehicle (SPV) primarily focusing on portfolio financing. This means the pool will make investments in eight to 12 cases, ensuring diversification of capital.
According to Shahi, investments from the pool will be structured in such a manner that even if only one out of six cases is won, the invested capital will be secure for the investors.
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The pool has a targeted internal rate of return of 20-25% and will have a life cycle of 36 months (extendable by 24 months), but distributions to investors will start happening as and when the invested cases resolve, starting about 12 months from the closure of the pool.
Srishti Ojha, founder of law firm Verist Law said litigation finance as a business model is not unheard of, especially in the US. “However, in India, it will be interesting to see how regulators, particularly the capital markets regulator, Securities & Exchange Board of India, see this, especially the aspect of raising money from the public for funding third-party disputes,” said Ojha.
Last year, Australia-based Omni Bridgeway, UK-based Innsworth Capital and Profile Investment, and UAE-based Phoenix Advisors along with Indian law firm Singularity Legal, created a platform called the Indian Association of Litigation Funders.
“This model can work more particularly in the current scenario wherein we are living in the Covid-19 era, due to which businesses are disrupted, leading to a low flow of cash to fight murky litigations,” said Ankita Singh, founder of boutique law firm Sarvaank Associates. “However, considering that this practice is prevalent outside India, it would be ideal if the government can take proactive measures to regulate the ecosystem based on observations from around the world, an opportunity that is missed with the cryptocurrency ecosystem.”
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