Three former employees of the litigation funder Validity Capital, which entered “harvest mode” last year, have announced the formation of Arcadia Finance, a new firm with access to at least $100 million in capital. The ex-Validity trio—Dave Kerstein, Ronit Cohen, and Joshua Libling—plan to focus on investing in U.S.-based commercial and IP litigation, as well as international arbitration. The founders aim to address a broad spectrum of litigation financing needs and have introduced advanced risk modeling tools to find solutions for their clients efficiently.
Arcadia’s target deals will range from $2 million to $25 million, though it will also explore funding opportunities as low as $500,000 on both single-case and portfolio arrangements. They are looking to team up with capital providers who can contribute from their own funds, potentially tackling large portfolio deals in the high eight-figure range. The company aims to commit its capital within 12 to 18 months and deploy those commitments over a period of 36 months.
The formation of Arcadia comes after TowerBrook Capital decided to cease new investments in Validity Capital, leading Validity to lay off half its staff in June 2023. Despite being unable to sell the business, TowerBrook continues to fund around 60 cases it had already committed to fund.
Kerstein, one of Validity’s co-founders, previously served as managing director and senior investment officer. Cohen handled underwriting at Validity before being laid off, and Libling focused on risk analysis and pricing tools as a senior leadership team member. According to Kerstein, lessons from the Validity experience led them to build a platform with multiple investment partners and flexible capital arrangements.
The establishment of Arcadia occurs as the litigation finance industry faces a retrenchment. According to a recent report by Westfleet Advisors, investor commitments in the sector decreased by $500 million from 2022 to 2023, a 14% decline. Despite this, many capital providers remain interested but are cautious, awaiting the maturation of their existing investments before committing new capital, Kerstein noted.
Kerstein emphasized that while there is hesitancy in the market, a comprehensive track record of current investments’ performance has yet to fully develop across the industry, affecting new capital inflow.