AxiaFunder Investment Approach
AxiaFunder identifies cases that it believes are suitable for investment and then makes each case individually available for investment through a bond or equity investment offered on the website. Some of these cases may have already been pre-funded before reaching the platform, in which case the purpose of the investment on the platform will be to refinance this pre-funding. After deducting AxiaFunder’s upfront fee, the net funds raised are held in a Special Purpose Vehicle (SPV) and used to finance the litigation (, or used to refinance the SPV for cases that have already been pre-funded, via a bridge loan or otherwise). If the claimant wins the case (or resolves the case favourably), the SPV receives a contractual return which is typically either a share of the damages received or a fixed return per annum and, after deducting AxiaFunder’s share of the return, the remainder is available for bond or equity holders (depending on how the SPV is funded). In the case of an SPV funded by bond issuance, any remaining profits in the SPV after paying the agreed bond coupon, (likely to be relatively small) will be paid to a nominated charity. If the claimant loses the case, the bond or equity investors are likely to lose the majority of their invested principal. Industry data suggests that the investments are likely to mature within 24-36 months but may take longer.
Sourcing and assessing cases
Cases will be sourced via litigation brokers, insolvency practitioners and from law firms directly. AxiaFunder targets a win or settlement probability of at least 65% for cases that are funded via the platform. AxiaFunder seeks to ensure that cases available for funding on the platform satisfy the following criteria:
- Legal merit: The legal merits of the claimant’s case must be strong – typically independent legal counsel will have endorsed the case with a high probability of success.
- ATE insurance in place: AxiaFunder will only fund cases that already have ATE insurance lined up. This protects AxiaFunder’s investors from adverse cost risk and also serves to filter out cases which ATE providers do not believe to be sufficiently attractive to insure, thereby tending to improve the quality of the pool of cases being assessed.
- Viable economics & timing: The estimated damages normally must be at least 5x the estimated costs of pursuing the case to trial, with an expected time to resolution of typically less than 3 years, and acceptable visibility on costs.
- Enforceability: There must be clear evidence that the defendant has the financial resources to pay the targeted damages and/or that any court judgement can be enforced.
- Quality counsel: AxiaFunder will only fund cases for which the claimant’s legal counsel are clearly capable. Weak or inexperienced counsel can prevent an otherwise strong case from succeeding.
- Alignment of interest: The claimant should have some downside risk if the case is lost. Equally the claimant’s own counsel should have ‘skin in the game’, consistent with a conviction that the case is likely to win.
Case monitoring and resolution
During the life of the case, AxiaFunder will monitor progress and provide updates to investors on a quarterly basis. On resolution of the case, the investment will be wound up with available principal and contractual return paid to investors, depending on the outcome. Main risks when investing via AxiaFunder Litigation funding involves taking a high level of risk in the hope of receiving a high level of return.
Investors should refer to the offer document for each case for a more detailed risk disclosure.
- It is possible that the litigant may lose the case. It is also possible that the defendant will not have the money to pay the damages awarded against them in a judgement. If so, the SPV would be unable to repay any of the capital and interest potentially recoverable under a bond. Similarly, in this scenario, equity investors would lose their entire investment.
- Alternatively, the litigant may settle the case on terms that do not enable all of the interest and/or capital to be recoverable under a bond or that the defendant has insufficient funds to pay damages sufficient to enable all of the interest and/or capital under a bond to be recovered. Similarly in this scenario equity investors could experience significant losses. Therefore, investors should diversify their portfolio of investments and not commit a large portion of their investments to any one investment of this nature.
- This is a long-term investment and investors should recognise that any returns are likely to take several years to materialise.
- The failure of the Issuer to repay an investor is not covered by the Financial Services Compensation Scheme.
- This investment does not cover the costs of the other party to the litigation (“adverse costs”). AxiaFunder has taken out ATE insurance from an insurer that is investment grade or that has a Solvency Capital Ratio of at least 110% to cover the adverse costs risk. However, it is still possible that a court could require an investor to cover adverse costs in the unlikely situation that the insurer became insolvent. In that scenario an investor could lose up to double the amount they have invested.