One of the first commercial litigation funding platforms with over-the-roof ROI and, so far, 100% success rate
|Total Investment Volume||£1.2m+|
|Average Annual Interest||20-30%|
|Investment Fees||7-10% upfront, 20% success fee|
|Who’s eligible to invest||EEA and UK residents|
|Investment Type||Litigation crowdfunding|
|Auto Invest Function||No|
PROS & CONS
- A unique asset class
- Potentially very high returns
- Rigorous case selection
- Short track record
- High investment barriers
- Limited availability of cases
- Investing in legal disputes is not the first thing that comes to mind when thinking about P2P lending or crowdfunding. But litigation crowdfunding is gaining pace and is increasingly seen as a potentially valuable asset in a well-diversified P2P portfolio. First, it is decorrelated to any other financial assets such as shares, bonds, real estate or even direct loans. This is good news, particularly for times of crisis or uncertainty – even if all markets dive down (we don’t have to look long back for an example of such a scenario), the justice system will carry on. Second, it offers all perks of equity investment without one major flaw – lack of foreseeable exit. In the case of, for example, start-up equity, you might have to wait many years (you never know how many) before you see any returns. AxiaFunder estimates the maturity of cases at 12-24 months, and the longest case so far has lasted 15 months.
- One of such equity investment perks is amazingly high returns. The average rate of return on resolved cases currently stands at 68%. Factoring in some likely lost cases in the future, AxiaFunder’s model assumptions indicate an expected return of 20-30% per annum, which is still more than you can hope for investing in literally any other asset.
- Roughly 1 out of 20 pre-vetted cases are offered to the investors. The team reviews the cases based on, among other things, win or settlement probability (at least 65%), expected return (estimated damages at least 5x the estimated costs of pursuing the case to trial and acceptable visibility on costs), maturity (expected time to resolution of fewer than three years), legal merit (a strong case and a skilled counsel) and enforceability (evidence that the defendant has the financial resources to pay the targeted damages).
- AxiaFunder launched its first campaign in January 2019 and has since funded 11 cases. Only three of those have been closed so far – all successfully. Although a 100% success rate might seem impressive, it is extremely unlikely to hold in the long term. More time and cases are needed to assess the realistic default and return rates.
- Litigation funding is not for everyone. First, there are some formal barriers – in the UK, AxiaFunder can only offer investment opportunities to accredited investors. Furthermore, the rules and conditions might seem scary. Relatively high minimum investment, lack of investor protection, practically no early exit options (although there have been attempts to enable asset trading and a secondary market might be an option in the future), and incomparably high fees don’t sound too welcoming and might be just too hard to overcome for many investors.
- As the AxiaFunder team themselves acknowledge, diversification is key – this holds true pretty much always, but possibly even more so in the case of risky assets such as equity in legal cases. Yet, it’s quite difficult to diversify – at the time of writing, there is not a single case open for investment, and in the whole of 2020, there have been only four deals. The available cases get funded really quickly, too – the record being just 7 hours, so you better stay alert if you want in.
Who is behind AxiaFunder?
AxiaFunder is a trading name of Champerty Limited. The company is regulated by the British Financial Conduct Authority (FCA) as an appointed representative of Share In – a company offering FCA umbrella services for crowdfunding platforms.
The company’s business model has already been recognised and praised – in the first year of their operations, AxiaFunder was awarded the Best Commercial Litigation Crowdfunding Platform in the Wealth and Finance magazine’s Fintech Awards. In March 2020, it successfully raised over £250,000 via a crowdfunding campaign on Seedrs.
AxiaFunder’s management team is definitely a strong one. The CEO and the COO both have substantial experience in business incubation and management as well as finance and FinTech, while the case assessment team has a combined 30+ years of litigation experience.
AxiaFunder, although it monitors the selected cases closely, is not involved directly in the litigation process – this is the responsibility of the claimant and their counsel. The main job of AxiaFunder’s legal team is the assessment and selection of cases. These are sourced via litigation brokers, insolvency practitioners and from law firms directly.
What does AxiaFunder offer?
The investments available on the platform are structured as equity. You buy shares in a special purpose vehicle (SPV) – a private limited company set up to invest in a particular case. Once the case is settled, the SPV is disbanded and the capital along with the accrued profits returned to shareholders. Any periodic dividends or repayments aren’t foreseen – you receive the principal and interest only upon successful resolution of the case. The good news is that, in general, AxiaFunder and its investors receive their return first, following payments of the claimant’s liabilities, including legal fees, and only then the claimant retains the remaining amounts (although this might vary in some cases).
In the past, some investment opportunities were also structured as IFISA eligible bonds, which in practice means that UK investors could have invested tax-free. However, according to information provided to us by AxiaFunder, bonds are no longer offered.
Okay, but what exactly are you investing in? The litigation objects include:
- Breach of contract. For instance, one of the cases pertains to the non-payment of commission entitlements by the employer on a high-value employment contract.
- Professional negligence. Cases involve a claim against a firm of solicitors as well as a planning consultant who failed in the process of application to install wind turbines on land in Northern England and a claim against a firm of solicitors who ill-advised a pension scheme trustees on a property sale.
- Shareholder dispute. One case relates to a dispute where the majority shareholder has diverted economic value from a minority shareholder.
- Commercial fraud. This involves the highest-value case on AxiaFunder so far. It involves misappropriation of a property development opportunity for his own gains and to the detriment of the company.
How much can you earn (and lose)?
You can use AxiaFunder’s handy Case Return Simulator to calculate the expected performance of a particular investment. So far, out of three completed and won cases, one generated 43% return in 8 months, another 94% in 15 months after the fees, while stats for the third is unavailable yet as it was funded in a batch of three cases – the return will be calculated once all three are resolved.
Sixty-eight per cent average return sounds good, right? Well, there obviously is a catch. If the case is lost, you are likely to lose the majority, if not all, of your investment (although some cases have a sort of principal insurance). But that’s not the end of the story. Under UK law, the losing side in litigation is required to pay the legal costs of the other side, and a litigation funder can be liable up to twice the amount invested to cover these costs. This means that if you invest, say, £1,000 and the case is lost, your principal will be used to pay for the claimant’s legal expenses, while you could be asked to contribute up to another £1,000 to the costs of the defendant. Such a scenario is very unlikely – all the investment opportunities are covered with the “After the Event” insurance to offset this risk. Therefore, you would be liable to pay more than you invested only if the insurance company were to refuse to pay or had become insolvent. You can read more about the risks involved here.
Overall, weighing the risks and expected returns, AxiaFunder suggests that investors should expect between 20 and 30% annual ROI. Whether this is an accurate estimation remains to be seen.
Who is AxiaFunder best for?
AxiaFunder is best for investors who are looking for extraordinary returns and are prepared to lose a big share of their investments in this pursuit.
How to invest on AxiaFunder
Upon registration, you will need to verify your identity and complete an investor readiness test. AxiaFunder will then review your profile before granting access to the case details (this should only take 30 minutes or so). Once you select the case, you will be asked to review and agree to a Non-Disclosure Agreement for the case. You will then gain access to the details of the case, including legal documents and an offer document for your review. By this point, you can invest in the case with one click and a money transfer. Throughout the case duration, you will receive quarterly updates.
Hopefully, with time, litigation will become more widespread, offering an atypical and attractive asset class to larger masses of P2P investors. At the moment, the very low quantity and volumes of available investment opportunities pose a serious diversification problem, making investing in legal cases even riskier. However, if you’re a savvy investor fishing for a high-risk, high-return game, AxiaFunder is the place to go. Competent team, good (although very short) track record and the trust and recognition from investors and award-givers are among its strongest selling points.
At P2PMarketData we are dedicated to providing unbiased reviews of peer-to-peer lending, real estate crowdfunding and crypto lending platforms. Among other, in our mission to bring more transparency to the market we closely monitor and track over 70 platforms funding volumes.
When reviewing an alternative investment platform, we consider a variety of factors such as:
- Number of investors
- Minimum investment requirement
- Historical annual returns
- Diversification opportunities
- Reinvestment opportunities
- Educational and informational offerings
- Platform fees
- Total capital invested
- Features (such as secondary market and automatic investing)
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- Management team
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