This Entrepreneur Raised $1 Billion To Invest In Litigation With AI

In the ever-evolving landscape of business and finance, there are tales that stand out as truly unique, and the story of Legalist and its co-founder and CEO, Eva Shang, is one such narrative. This entrepreneur had a unique approach, distinctly characterized by innovation and strategic thinking.

With a focus on a robust team, Eva carved a path in financing litigation, raising a substantial billion-dollar investment. She talks about her intriguing journey leading an underdog team that initially diverged from the traditional asset management profile, embracing a tech-centric strategy.

Beyond mere financial prowess, the team has ventured into diverse avenues, launching funds, securing government contracts, and navigating various financing landscapes.

Listen to the full podcast episode and review the transcript here.

Harvard and the Thiel Fellowship: A Pivotal Turning Point

Eva Shang’s journey began in the suburbs of Philadelphia, where she grew up. But it was her entrance into Harvard in 2013 that marked a pivotal turning point.

The contrast between her suburban roots and the diverse, global community at Harvard opened her eyes to the vast realm of possibilities in the world.

The Thiel Fellowship, sponsored by Peter Thiel, provided her with the support to step off the traditional path and explore entrepreneurship in 2016. The program sponsors young people who drop out of school with $100K over 2 years to do anything basically.

Designed for people who don’t think like the rest of the world, it helps them go off the grid and become super successful at what they do, essentially bifurcating promising individuals into whether they want to compete in the commercial world or do their own thing.

As a rule, people who pass through Harvard move on to applying for internships at companies like Goldman Sachs or the Big Three like McKinsey & Company, Boston Consulting Group (BCG), and Bain & Company.

However, the Thiel Fellowship gave Eva the opportunity to explore all the possibilities available in the world.

Entering Y Combinator

Eva and her co-founder, Christian Haigh, applied to Y Combinator in 2016 with a legal analytics product in mind.

Despite some mishaps during the interview process, their unique approach to leveraging a database to reach attorneys before they were aware of case developments intrigued the Y Combinator partners. This secured their spot and transformed their trajectory.

When the duo initially entered Y Combinator, they brought a legal analytics product, an idea they had been working on back at Harvard. They had scraped all the data from the Massachusetts state court system and intended to package that data. And then sell it to attorneys.

Once at Y Combinator, the General Counsel, Jon Levy, steered them towards a new direction – litigation finance. As Levy pointed out, attorneys working by the billable hour may not be open to paying for legal products to make them more efficient.

Instead, he advised them to look into the asset class called third-party litigation financing, through which they could take their technology and apply it to investments instead.

Eva and her co-founder realized that they could take this tech they had built to find cases that have passed major dispositive motion hurdles and are well-poised to win.

The Strategic Leap: From Fund 1 to Fund 2

Raising the first $10M litigation finance fund was a significant challenge but proved to be a game changer. In around 2018-2019, many fintech origination companies that originated novel assets like Legalist were taking a completely different approach.

Legalist decided to raise managed LP funds and run a vertically integrated path whereby they would originate the deal; they would underwrite and service the deal and then raise money to manage all aspects of the transaction. However, most fintech origination firms raised venture capital and obtained a debt facility.

The debt facility would then require increasingly large rounds of venture funding, which would then lead to significant dilution and an expected growth rate in origination that many firms could not keep up with without sacrificing underwriting standards.

By contrast, Legalist chose a slow and steady path. Their success in deploying the initial $10M fund laid the groundwork for their second fund, a massive $100M institutional fund.

Unlike venture-backed fintech originators, managed funds helped them avoid the pitfalls associated with debt facilities and helped them maintain control over their own underwriting and operations.

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The Multi-Strat Investment Firm Vision

Legalist’s success continued to grow, managing just under a billion dollars across three distinct strategies. Eva and her co-founder believe in making the best possible investments, generating the best possible returns, and then allowing the money they raise to follow.

As Eva points out, hedge funds and private equity funds have a variety of strategies. Having a multi-strat firm allows toggling between strategies as asset classes rise and fall. Litigation finance generates significant alpha today.

However, the Legalist technology platform has the ability to generate alpha in any number of strategies and allows them to find government-run comprehensive data sources and then pick out the investments that they are specifically looking for according to underwriting criteria.

Their focus on litigation finance, government receivables, and other strategies showcases their commitment to adaptability and sustainable growth.

The Role of Technology in Legalist’s Success

Central to Legalist’s success is their innovative use of technology, allowing them to make smaller, high-return investments that set them apart in the litigation finance space.

Their commitment per single litigation case is only $250K, which is significantly smaller than almost any competitor in the market. Further, the average deal size for an entire law firm is only around $1M.

Eva reveals that when they came into the litigation finance space seven years ago, their tech and IP advantages were definitely core features but not the only ones.

She emphasizes the importance of recognizing repeated human-driven tasks that AI can replace rather than adopting technology for the sake of marketing. AI has allowed them to make investments at a scale in the market that competitors have been unable to.

Legalist has around $1B in assets under management with strong returns across the board. It has more than 120 realizations on litigation finance investments that have fully concluded.

The newest government receivables product has been around for 18 months and has around $230M worth of assets, including several university endowments and many other family offices and foundations.

Conclusion

Legalist’s journey, from the halls of Harvard to the forefront of legal finance innovation, serves as a testament to the power of unconventional thinking and the strategic use of technology.

Eva Shang’s story inspires aspiring entrepreneurs to trust their instincts, navigate challenges with resilience, and embrace opportunities for innovation in the ever-evolving world of finance.

Listen to the full podcast episode to know more, including:

• Eva Shang’s journey from a suburban background to a Harvard dropout showcases the transformative power of unconventional paths in the entrepreneurial world.
• Legalist’s shift from legal analytics to litigation finance, under the guidance of Y Combinator, highlights the importance of adaptability and seizing new opportunities.
• Legalist’s decision to raise institutional funds rather than rely on debt facilities demonstrates a strategic approach, avoiding the pitfalls of debt-driven growth.
• Legalist aims to be the next-gen multi-strategy investment firm, leveraging its technology platform for alpha generation across diverse markets.
• Legalist’s success is attributed to their innovative use of technology, allowing them to make smaller, high-return investments and stand out in the legal finance space.
• Eva Shang’s advice emphasizes the importance of trusting oneself and recognizing that advice, even from successful individuals, may not directly apply to every unique entrepreneurial journey.
• The rise of legal finance as a common form of financing, coupled with the relaxing of rules around law firm ownership, signals a broader trend that could drive down legal service costs for the benefit of both clients and businesses.

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Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.