‘Cryptocurrency is there to create new opportunities,” says Andy Christen, co-founder and chief executive of Swiss-based litigation financier Liti Capital. “We’re a real company with a real product for all investors.”

Christen set up Liti Capital just over a year ago, and the firm is billing itself as providing “litigation funding on the blockchain”, writes Andy Thomson. Through what Christen describes as “a non-traditional fundraising route”, the firm allows retail investors to buy tokens in its equity on the firm’s website. In doing so, these investors buy legal shares in the company with typical shareholder rights such as voting privileges and dividend eligibility.

Liti’s innovative approach is part of a broader trend by which many asset managers are looking to tap into the potentially huge retail investor base. But educating investors is tough, says Christen, because his firm’s approach combines litigation finance with blockchain. What he’s found is that people are often well versed in one, but not the other. That is why a big part of his job is providing educational material.

Christen says he’s keen to ensure that retail investors are not taking too much risk. This is why the firm decided to tokenise its own equity, effectively giving investors access to the firm’s entire portfolio. “Portfolio exposure is key because, in litigation cases, you either win big and make great returns or you lose – case outcomes are very binary. We want our investors to win big but also limit their risks.”

Innovative fundraising

The firm’s innovative fundraising method is, Christen believes, a way of bringing liquidity to what was an illiquid asset class. Although he says that the firm tends to raise capital as and when needed for its cases under management, it is also open to raising capital in more traditional ways from institutions. The firm is therefore setting up a traditional close-ended fund structure domiciled in Liechtenstein.

Litigation finance is a niche part of the private debt universe, well established in the US but much less so in Europe. Christen thinks it can appeal to investors at the current time because it is not correlated to global fluctuations. It may even benefit from a potential increase in litigation cases, as companies that struggled through the global pandemic may find it increasingly difficult to meet payments and contractual obligations. There has been talk of the market doubling in size by 2027.

There are, however, high bars to entry – one of which is related to cutting-edge technology. Liti is working on a machine learning/artificial intelligence prototype that predicts the outcomes of cases before the firm takes them on. “It can extract a huge number of variables from past cases and assess how likely we are to be successful with the case in question,” says Christen.

What is litigation finance?

Litigation funding involves a third party providing the finance that enables costly litigation cases to proceed.

If the case is won, the funder receives a pre-agreed share of the claim’s proceeds. If the case is lost, the funder loses its money and is owed nothing by the litigant. Liti Capital estimates that the market is currently worth around $50 billion and is capable of generating private equity-like returns of between three times and 10 times the amount invested for each case under management.