Litigation financer LexShares has abandoned plans to launch a new fund and significantly reduced its workforce, attributing these decisions to ongoing pandemic-related delays in its case pipeline. Max Schmidt, the company’s managing director of investments, stated that LexShares is currently in “harvest mode,” focusing on managing its existing portfolio while awaiting the resolution of backed cases.
Schmidt explained, “The pandemic caused tremendous delays and many cases that we thought would settle or just at least be resolved through the middle and end of 2024 haven’t resolved yet, they’re still in litigation.”
The company experienced leadership changes, with CEO Max Doyle departing in June after approximately one year. Schmidt now leads a downsized team of five employees, compared to ten at the year’s start. Schmidt cited unfavorable market conditions for attracting investors as another challenge, with plans to resume fundraising potentially at the end of 2025 or the beginning of 2026.
LexShares, established in 2014, was one of the early adopters of tech-driven litigation finance, allowing individual investors to purchase stakes in lawsuits. The firm launched proprietary software, Diamond Mine, in 2016 to analyze and score recently filed lawsuits based on their investment potential. Schmidt confirmed that all the capital from the company’s second $100 million fund has been committed and largely deployed.
Industry challenges, such as those faced by Validity Capital and Augusta Ventures, are not unique to LexShares. According to Schmidt, “Everyone in the industry is having to come to terms a little bit with the fact that duration in these investments is unpredictable and for many funds has been longer than originally expected.”
Macroeconomic trends, including interest rate changes and a pullback from private credit and private equity assets, contributed to a 14% reduction in capital commitments to new litigation finance deals last year, according to a report by Westfleet Advisors.
Despite these setbacks, Schmidt remains optimistic. “We are still planning to resume our funding efforts when the company can demonstrate sufficient data, when more cases in our portfolio will resolve and when the commercial litigation finance market climate improves.”
More details are available on Bloomberg Law.