Dispelling Myths and Misconceptions Surrounding Litigation Finance

The following is a transcript of a live panel recorded at the IMN Conference: "Financing, Structuring and Investing in Litigation Finance" in New York City. It was moderated by Marcus Green (Director of Special Investments, Kobre & Kim), and the panel included Jay Greenberg (CEO, LexShares), Bill Evans (CEO, Alexa Capital), Owen Cyrulnik (Managing Principal, Curiam Capital) and Josh Meltzer (Managing Director, Woodsford Litigation Funding).

Marcus Green: My name is Marcus Green and I'm with Kobre & Kim. I'm going to introduce myself and I'm going to allow my co-panelists to introduce themselves. I'm a practicing attorney in the area of judgment enforcement and I also advise parties about collection risk on large arbitration awards and judgments. It was mentioned at the end of the last panel, as an area of potential growth, as an asset class for funding and large awards against sovereigns and large commercial awards and judgments are certainly sought after as funding opportunities.

This panel is on myths and misconceptions and we're not going to focus on the myths and misconceptions that are intentionally spread by some of the opponents of litigation funding—for example, that it contributes to frivolous litigation. Those aren't serious issues, however—there are myths and misconceptions amongst people considering, parties with claims considering financing and non-repeat actors who come and go through a finance case or judgment.

So with that, I'll ask my co-panelists to introduce themselves.

Jay Greenberg: My name is Jay Greenberg, I'm the Co-founder and Chief Executive Officer of the commercial litigation finance firm, LexShares. Prior to founding LexShares in 2014, I was at Deutsche Bank doing technology investment banking, so mainly mergers and acquisitions and debt and equity underwriting for enterprise software companies.

Bill Evans: My name is Bill Evans. I'm the CEO of Alexa Capital, LLP. Alexa is possibly the entity that Bill Strong referred to when he apologized for leaving logos off his slide, but I forgive him because the logo was only created very recently. We're a new funder, which was created originally to deal with conflict cases and out of mandate cases of another funder, but has now developed into a standalone funder particularly focusing on the insolvency space.

At present, we deal with funding on a case-by-case basis, but we're looking to create a fund to manage ourselves. I've been in funding for eight years, I was a founding member of Vannin Capital, I'm a barrister practicing in London, and have been for 40 years or so. I've been dealing with litigation particularly for insurance companies for a very long time.

Owen Cyrulnik: My name is Owen Cyrulnik. I'm a co-founder and managing principal at Curiam Capital, which is a commercial litigation finance firm. We launched in February and before that, I was at Grayson Ellsworth, which is a plaintiff side boutique, where we did RMBS litigation for the better part of a decade, and before that, I did commercial litigation and securities litigation at Cravath, Swaine and Moore.

Josh Meltzer: My name is Josh Meltzer. I head up the U.S. operations for Woodsford Litigation Funding headquartered in London, with an office in Singapore. We fund complex commercial claims, patent disputes. I have an atypical background. I have a finance background--I'm not an attorney. My father was an inventor and I helped him commercialize his patents and it really introduced me personally to the challenges that inventors face in monetizing claims, advancing intellectual property. So we'll talk more about what we do at Woodsford.

Marcus Green: Great, thank you. The first panel dispelled, a misconception about the typical product, which is the impecunious claimant with a righteous claim and no wherewithal to see it through. They explained portfolio products, defense side products. There are CFOs of large going concerns that are now understanding off-balance-sheet, non-recourse financing can be used as a tool.

I agree with the first panel that we haven't seen a lot of consummated commercial portfolio, as opposed to law firm portfolio, but commercial portfolio financing against litigation assets. But I'm aware of conversations where CFOs are looking at modeling and getting close.

So I would throw out to the panel on the notion of products and the idea that there's this typical broke plaintiff case. On the CFOs and on the solvent, claimant use of funding products, what are you folks seeing, if there's any action there, real cases or nearly consummated cases?

Josh, do you have any of those?

Josh Meltzer: I was trying to make it as tangible as possible, so I had a conversation in the last couple weeks with the head of U.S. litigation for a major pharmaceutical company, in North Jersey where a lot of them are located. And one of the challenges that he was facing, you don't think about this intuitively from the outside at least, but he's constantly making resource allocation decisions. He has a litigation budget and he's trying to decide how he wants to allocate it.

And one of the things he has explored is bringing in a litigation funder and in this case, us, and bringing in his current law firms to rethink their fee arrangements to see if there's a way to align everybody's interest, particularly on the defense side, which could free up capital to invest in some of the offensive litigation, the plaintiff-oriented litigation that gives him and his firm a higher ROI.

So we're actively seeing that. I don't think it would catch on if it was initiated by funders. I think the fact that we're seeing it initiated by clients, which instantly gets the law firms interested, if they want to expand or continue and deepen their relationship with their clients. I think the key is the clients driving it, and I think that's what's going to get the snowball rolling. But it definitely is happening.

Owen Cyrulnik: I'll say that, this is when I was back in private practice a couple years ago, we had a client who was using my firm for litigation on the plaintiff side, and we were charging in part by the hour and he told us, and this was assistant general counsel at a very large financial services company, that they would never again use our based law firms for litigation on the plaintiff side.

Because, as opposed to the defense side, where you really don't have a choice, on the plaintiff side, he's constantly having to submit budgets and pay expenses for a case where the payoff is going to be three years down the road, five years down the road. And what he said was, we're only ever going to use contingency fee firms for this kind of litigation in the future, which led to a discussion about the potential use of litigation finance. And we're seeing this a lot, to sort of simulate from the clients' perspective what a contingency fee arrangement might look like, but allow him to use whatever firm he wants to use to do the litigation.

So there are a lot of Fortune 500, Fortune 100 companies where although they have giant defense side litigation budgets, they have no interest in funding plaintiff side litigation on that same basis. There's supposed to be a profit center, they want plaintiff litigation that they're going to bring to be a profit center in its entirety. They don't want to have three years of managing a cost center only to promise people that three years down the road, five years down the road, if all works out, we'll see the profit. It doesn't work out for them from a budgeting, accounting perspective and they're increasingly looking to litigation finance as a way to preserve choice, in terms of who they're going to hire for counsel but take it off of their books.

Jay Greenberg: It's interesting. I think sort of what Josh and Owen are alluding to is different clients have different priorities. Some clients are looking to manage their litigation budget, other clients are looking to offlay litigation risk. So I really do think it's client dependent, but we certainly do see inbound inquiries from corporates that are really beginning to understand that it can be used to, like you said, Marcus, manage their balance sheet from a non-recourse aspect.

Josh Meltzer: It's a very customized product. If plaintiff side litigation funding is customized, defense side litigation is orders of magnitude more customized.

Bill Evans: I also agree with all the comments so far, but one of the things we're seeing in the UK and I presume this occurs over here as well is increasingly, people offering services, particularly to corporates to manage or advise them on how they should manage their litigation. And that's another driver to encourage corporates to look for other ways of funding their litigation, not simply paying hourly rates.

And increasingly, when I started in this business in 2010 with Vannin, we went round all the city of London firms and a lot of them said, well, why would we be interested in litigation funding because our clients just pay us, so who cares? Now there's a lot more evidence of clients going to those firms saying, why are we paying you? We hear there are alternatives and there's a lot more pressure from that, which will increasingly change the funding business.

Marcus Green: One area that is raised commonly by consumers or would-be consumers is the underwriting process. In my business, I get involved in cases where there is known collection risk, so that's the point of it, so these are judgments or awards that are distressed for one reason or another.

Ordinarily, if there's collection risk, for most of the panel and people in this room, that is regarded as underwriting failure, because the solvency of the defendants, obviously, is where you start. From the client standpoint, many folks assume that the underwriting process is going to be long and tortured, and they're going to have to disclose everything about their case. If the underlying litigation involves sensitive trade secrets, if it's a trade secret case, what does that mean for sharing the information with funders? Many people think that if they turn over information during the diligence process, that's going to be subject to disclosure by their adversaries or a court somewhere in the world, down the line.

I would be interested to hear from, starting with Jay, about how LexShares does underwriting, particularly given their role as sort of a platform for claimants and investors and doing your own work, how quickly can you make an investment decision and what do you hear about the risk of disclosure from claimants?

Jay Greenberg: That's a great question, so as Marcus just alluded to, LexShares really has two primary components of our business, one is a private funds business where we invest a pool of discretionary capital into litigation assets, just like the other folks up here. The second component of our business is our online, two-sided marketplace. We believe we are the world's only electronic two-sided marketplace for investment in commercial legal claims.

Our team is responsible for obviously originating these deals and underwriting them. And so from an underwriting perspective, we have a staff of in-house litigators who are, first looking at the merits of each claim, how well does the fact pattern align with prevailing law? Two, we're looking at track record of plaintiff's counsel, so how successful has counsel been in litigating similar types of cases before? And three, the world that Marcus is in, is defendant creditworthiness. If we have a great case, and we have really strong counsel, so if we win, will recovery be able to be paid? So that's really the third pillar of our underwriting process.

That entire process for us is run in-house, it does not have to be an arduous process, from time of receiving that first inbound call, to actually time of deploying capital, I'd say the fastest we've ever done it is 10 days. I'd say that is anomalous, that's an extremely quick process. I'd say typically for us, it's receiving the information that we need from the client or the attorney, to be able to make an effective underwriting decision. I think that's really the bottleneck for us there, from a timing perspective.

Marcus Green: And Josh, when clients come to you, what do you tell them if they're concerned about the effect of sharing information with you on work product protection, attorney-client protection?

Josh Meltzer: So we're cautious, it's an emerging area, there aren't a lot of certainties and any funder that kind of gives client certainty is probably not giving them the best input or guidance. So we are extremely cautious, there are things we recognize we won't be able to see, and plan our diligence around it. Ultimately, we're trying to fill in pieces of the puzzle and if we can fill in enough pieces to get comfortable with the investment decision, the risks and returns and the trade-offs, we'll make it.

Diligence is one of the largest investments we make in our business, so we're constantly trying to learn from it, make it more efficient. We try and front-load the feedback process, so we don't want to get ... it's a very bad practice in general to get deep into the diligence process or late at the end and decide not to fund something. There's tremendous costs to you as the funder, there's tremendous relationship costs to the client and the law firm.

So what we try and do is from the time we have a first contact, we can provide early feedback in a couple of days. We'll request some additional information, typically under an NDA, and we can provide a meaningful proposal inside of two weeks, 10 days to two weeks, terms on which we would close, and that the term sheet is subject to further diligence, which typically unfolds on a 30 day period.

And assuming that the documents are in order, assuming our basic questions can be answered, we can close on that timeframe. Ultimately, if we're doing our job, we're not asking them questions that they haven't already thought about. And if we're coming up with basic questions they haven't thought about, then maybe it's a good indicator it's not a good fit for us to fund. But we're not asking a law firm to create anything, we don't want memos written to us. In particular with Woodsford, we're happy to get involved early, not everything has to be figured out.

I have a theory, if you will, that the attractiveness of an investment is inversely proportional to the pitch format. So the better it's formatted, the less likely that we're going to be excited about it. If it comes in from a trusted contact and it's a rough email, we'll take that call. So it's not about pitch books, it's not about having everything figured out, false precision is everywhere in this business, but true insight is still pretty hard to come by.

Marcus Green: And the false precision reminds me of one of the final comments on the first panel about the use of data in underwriting. And I'm sure that there's someone selling algorithms of every sort that is getting inputs from all of the dockets, at least in the United States, in the federal system.

My personal take on data is that it's good for process issues, so time to motion to dismiss, time to summary judgment, in certain classes of cases, but not outcome. It's not going to help you, in my view, to understand. And in the enforcement space, we use data similarly for process-type issues on understanding the appellate risk and the review elements for arbitration awards. And those are pretty reliable.

Owen, do you rely on analytics or are you sort of a case-by-case traditional approach?

Owen Cyrulnik: I think our business at least, we focus on relatively high value commercial cases, which by and large, each is its own snowflake. So we do rely on data and I think everyone will increasingly be relying on data for the kinds of things, the kinds of process things that you're talking about, particularly how long ... there's increasing data available on judges, for example, how long a judge takes to decide a motion, how long the judge takes to decide a motion in a particular area of law, on average, how long particular courts tend to take before you get to trial, how long it takes to get to appeal, to assess duration, to assess certain kinds of risks.

But for now at least, the idea of taking a $15 million financing of a $500 million potential seneschal commercial case or patent case and applying data analytics to tell you where you want to price it, it just doesn't work. It doesn't mean that it's never going to get there, but it doesn't work for now.

I remember before being in this business, watching series The Good Wife and they would have a litigation funder who had a computer and a data person with them and they would speak, and they would adjust the model and spit out a number each time the guy would talk. And it would be really cool if that worked and maybe 15 years from now, Google will figure out how to read everyone's email and tell you how the judge is going to rule, because they've read theirs.

But for now, I think it's for us at least, it's a very case specific, kind of bespoke underwriting and evaluation process aided by whatever data there is that can feed into questions like duration and process and the like.

Jay Greenberg: Owen, I really have to agree with you there. I think we're a very far ways off from the Good Wife and artificial intelligence being effective at actually underwriting claims themselves and making decisions. I think for us at least, where we've sort of harnessed and used data to enhance our practice is on the origination side. So less so making decisions about investing in actual claims, more so about originating new claims that could potentially be fundable. So using data feeds and analytics to really understand which claims are out there in the market, which claims were recently filed, and which claims may fit the profile for investment.

For the first two years of our business, so 2014 to 2016, we really relied on strictly inbound deal flow. Relationship based, plaintiffs and attorneys picking up the phone and calling us and seeing if their case could potentially be a fit for financing. Instead of being reactive, we really decided to be proactive using a data-driven process and create a piece of proprietary software that we call the Diamond Mine, which is really helpful for originating new investment opportunities.

I do think like you said, we're sort of a far ways off from actually being able to use technology to effectively underwrite claims, end to end.

Bill Evans: In the U.S., you've got all this data, all the data you've been talking about, which is process data, is available. In the UK, there's no way you could work out how long on average a judge takes to produce a judgment because it's simply not available, which is a problem obviously in other jurisdictions.

But for another purpose, I've been looking recently at the use of AI to assess risk in this sort of case, and of course AI depends on learning what humans have already learnt. So this decision to fund a litigation is multifaceted, even the merits of the case is not win, lose, it hides several different risks of different sorts, some of which are catastrophic, some of which might make a difference to the outcome, some of which might make a difference to length of time, all of which are relevant investment risks.

And when I think of the way that I look at all these things and make my decision about different causes of action, different fact scenarios, and so on, I think, well, how on Earth can you, without 100 years of a computer looking at thousands of people actually doing it, can you give a computer sufficient learning to do the same thing? I think that's a long way off, I agree.

Josh Meltzer: I think it's a fascinating area. I think now is the time. I think smart funders will be well advised to build those data sets, now is the time to build those data sets because you can't turn the switch and assemble them overnight. So I completely agree that origination is a key source of competitive advantage where analytics can make a difference.

Just to give you a practical example, because a lot of this sounds theoretical. I was at a conference, I met an attorney who had a great bio, a nice business card, had a good pitch and then later, I went back and looked at his litigation history. He hadn't won any cases, he hadn't lost any cases, he hadn't been in a courtroom.

So being able to understand that quickly and systematically, it allows you to ... it greatly informs your early diligence, it allows you to approach attorneys. The law firm concept is not even that relevant in a lot of cases, it's really the attorney that you want to understand. So it allows you to approach attorneys with a level of professionalism and knowledge that differentiates you. It accelerates the trust building process, which is critical, because it's really important to emphasize, we're passive funders. So most litigation funding business models are passive. So we're very reliant on the information that's given to us, the information that's withheld from us, so it's critical.

So every aspect of our operations, in terms of healthy practices is to encourage people to share the truth, share the bad news as well as the good news. That's critical because we're in the passenger seat of that car being driven at high speed and it comes across in how your diligence matters, it comes across in your pricing. One of the misperceptions, we'll get to this, but one of the misperceptions is that our goal is to get the best terms possible. We can talk more about that, but that's not really the goal. The goal is to create a balanced structure in which everyone can thrive. We could have a whole panel on that topic about risks and pricing.

Marcus Green: I think passivity of funders, involvement post-investment from the claimant's side, there's a definite concern that there's going to be control exerted or influence exerted by the funder, that the funders interest and the law firm or the lawyer's interests are going to align to the disadvantage of the claimant, depending on how the incentives work for the lawyers.

In my experience, there are funders who are more passive than others, post-investment. And I'd like to talk about the control or influence issues. I think later on today, there's going to be a panel that is going to be speaking about the ethical prohibitions on ceding authority from a client. Attorneys are not allowed to let another party get in between them and their client's interest. Settlement authority is like a third rail, but I've seen funding agreements that have extremely liberal termination and withdrawal provisions, which can be held over a claimant. And although there's no facial power or control, certainly the ability to walk halfway through a case is a real issue.

So I guess, Owen, why don't you tell me about your post-investment involvement in cases and the issue of influence, for lack of a better term?

Owen Cyrulnik: From a structural perspective, we have almost no post-funding involvement, for the reasons that you identified, we're very careful about avoiding any formal control over the litigation. Our contracts are very much keep us out of the settlement process and we'll be advised about what's going on in the settlement process but have no specific rights, obviously, no control over settlement.

Really, the only way that we will ever have any sort of control is exactly what you're pointing to, which is, is an investment done in tranches say or an investment done in installments, where the funder has the opportunity to walk at any given point, either for an identifiable cause or for no reason. The funder could just say, sorry, we're no longer interested.

The thing is from my perspective, it's a little bit of an illusion of control, if it's there at all, because it's very unusual and it's almost as bad as getting say, two months into a diligence process and deciding that you are no longer interested and telling the potential recipient at the very end, sorry, we don't like it. Maybe even worse is funding $3 million of an investment and then deciding you don't want to do the next tranche, even though the client very much wants to proceed. It should happen almost never. I'm not aware of a case, it certainly never happened to us, but I'm not aware of any cases where it's happened.

And the reason is because first of all it's bad form, it's certainly not going to be good for you in the market to be known as the funder that funds the first tranche and then walks away from a good case before you fund the second. But from your own perspective, if we put a bunch of money into a case, and then we decide to walk, it's entirely possible that that client will have a lot of trouble finding financing from somebody else, and we've basically put money into this case that we're never going to see a return on, because effectively, we're taking a serious chance that the case is never going to be able to proceed because the financing won't be there.

So it may look like you're retaining some potential influence and control by having a provision that allows termination, but from a practical perspective, it very much isn't. It's very much sort of an escape hatch or a parachute for a case that's really going down the tubes, and you're almost 100% sure it's not going to pay off and for whatever reason, you're not able to get the client or the law firm to see the same thing that you're seeing.

Jay Greenberg: It's hard to do in practice.

Bill Evans: I agree generally with what Owen says but I take a different view on monitoring. I think actually monitoring the case as it progresses, particularly the way that money is drawn down as against the budget is very important. There is obviously a balance between monitoring and trying to direct or control and clearly directing or controlling has real problems in all jurisdictions, I think, for getting very close to being considered champerty, which will make the agreement unenforceable.

So you've got to be very careful about that and an agreement that allows a funder just to walk away are bad agreements, and there's no question about it. But an agreement that allows a funder to stop funding if there's a fundamental change in the risk with a provision that has an agreed means of, if there's a disagreement about the fundamental change of deciding whether that is the case, an arbitration agreement or an expert determination agreement, an independent lawyer that both parties agree they will ... whose decision, both parties agree they will abide by, that sort of thing seems to me to be perfectly acceptable.

I agree. Once you're in, it's got to be such a fundamental ... it's almost 100% going to fail. It might depend on when it is. I have had a case where I was monitoring it, I was asking the lawyers and our agreements say that the lawyers have to be given irrevocable instructions by the client to cooperate, so provide information, ask lawyers, what's happening, we're waiting for an expert report, what's happening? The answer to which was, I can't tell you.

The reason for that was the client had actually instructed them to stop talking to us, which was a breach of the funding agreement. The remedy for that was I telephoned the client and said you're in breach of the funding agreement, you can't have any more money, unless you change your instructions. Because once you get to that stage, you're obviously in trouble. And the reason he told them not to speak to me was because the expert was going to say, this case has no hope whatsoever. And he was trying to influence the expert to change his opinion. Needless to say, that case went very little further.

Josh Meltzer: We're totally passive and I think in practice that's ... it's a bias, if you will. I think it's a personal bias of mine. I think in practice, there are reasons why it's not permissible or proper, some of them are arcane, some of them are quite current.

But it's hard in practice as a passive funder, as a funder I should say, you have an opportunity, a window of time to evaluate the case, then the case moves, and if you're going to add value in one of those active discussions, you have to rediligence the case, you have to reacquaint yourself with what's happened. Things may be under protective orders that you'll never see, you're not going to have all the same information. There's a huge asymmetry that exists at various points in time in the case.

The last thing I'll say on that is, in terms of post-investment, I mentioned building data sets. One of the challenges that funders face is sample size problems, there just aren't enough data points to extract sufficient insights, in order to change your behavior. So one of the things we do along the line of building those data sets is we track cases that we evaluate and don't fund and we see how they end up. And we compare that back to the reasons on which we declined them.

So we see a large number of cases, we fund a small number, the good cases we believe in, but we have a much larger data set of valuable points that we can evaluate so we can calibrate our diligence. We bring in lunch and we have whiteboards here and there, here's what we thought six months ago or 18 months ago and here's what happened in the case. So we're constantly feeding that back into our diligence process. To try and address that sample size problem.

Jay Greenberg: So access to information and asymmetric information, I think it's interesting from one, an underwriting perspective and making decisions to fund cases, but two, from a servicing perspective and sort of ... what William was talking about before in the UK, there's no public electronically available information, there's no publicly filed information with regards to these claims. So from a servicing perspective in the UK, that's going to be very different than servicing investments in singular claims in the U.S., where you can check the public docket. That's a bit different.

Marcus Green: And another common misconception I think is that there's uniformity of price for certain types of products. So 3x, 4x, and I guess firstly, what are some of the pricing models in general terms, that you guys use that deviate from sort of that model? And also, with all of the funds sort of launching every day, what kind of competitive pressure, if any, is there on price? Because obviously, the value adds, the monitoring, the underwriting that experience folks are non-price competitive advantages. What's going on with actual pressure on returns?

Bill Evans: Some years ago, I thought that competition was going to drive price down very significantly. There is more competition, there many more funders generally, and particularly in the UK. There is some pressure on price, but it's nowhere near what I expected and the reason may well be as was mentioned on a previous panel, that actually the market is increasing almost at the same rate as the competition that's increasing.

But also, clients are a bit more sophisticated and negotiate a bit more quite often and lawyers do as well, because they know what may have been achieved in other areas. Personally, it's risk that's the thing which I think should really drive the price, but we have a target, overall target, IRR to achieve, and you've got to take that into account. But of course that's over the portfolio, so that allows some leeway in different cases.

And it's quite easy to go to a client and say, well, actually, in terms of the risk we're prepared to take, this is near the top end, so I'm afraid you're going to have to pay for it. And people generally accept that sort of thing. There's a range of pricing, but it really ought to be driven by risk.

Jay Greenberg: I think there's a common misconception that litigation finance is very expensive. It's very expensive for the client. But it doesn't necessarily have to be. I think from a pricing perspective the idea, in all these transactions is creating a win-win-win situation. Incentives are aligned, it's a win for the investor, a win for the plaintiff and it's a win for the law firm. And I think at least in our experience, we've been able to structure these deals where this might be the cheapest option for that client.

So it's really bespoke on a case by case basis with regards to pricing, but I think a misconception is that it's always the most expensive option for the client, which a lot of the times, that's not truly the case.

Owen Cyrulnik: I think it's also a misconception that there is sort of a set price for litigation finance, that the people who aren't in the market don't really appreciate that there is and it's not like you go to a litigation finance firm and they say, you're doing commercial litigation, it's 3x and here's our standard term sheet, just sign it.

There can be cases where a case has gotten past summary judgment, people need funding to sort of do the run-up to trial, but it's likely to settle and we could look at multiples that are way lower than that, multiples that are 1x or even less than that. If it's a short duration and the risk is relatively low because the case is mature and there's funding needed just to get to a specific point, and it's likely not to go forever, or there are other things that reduce risk or certainly portfolio deals like the panel before talked about where there are cross-collateralized multiple cases that substantially reduce risk.

So there really isn't a, oh, if you're going to go to a litigation funder, you're going to end up paying X. There's a lot of different potential price points depending exactly on what financing is needed, how much it is, how long it's likely to be out for, what the other potential cases that could be cross-collateralized. So there's a very wide range and the notion that it's going to cost too much really should be explored before you think that litigation funding is inappropriate for a particular case.

Josh Meltzer: I would agree. I think that the market is too opaque and remains largely inefficient at this point, where it just isn't the case, it's not the type of market where you're buying an Acura from five local dealers. It's just not that market. And it won't be that market for a long time.

And I think brokers that approach the market in that sense, often may not end up with anything at the end. It depends, and they may not end up with the best terms, because ultimately, I think a lot of these pricing differences and some of these operational differences come from an understanding that these funders are not alike. And what I mean by that is they're funded differently, they're structured differently, they're public versus private, and all of these have serious implications for how they operate, what they're trying to accomplish, what terms they're comfortable putting out.

And I think if I was investing in the sector or if I was on the other side and presenting claims to be funded, I think a lot of the differences between funders come back to how they're funded and how they're structured. And ultimately, it comes out in the end in a proposal, but there's a reason why certain funders make certain types of proposals. And ultimately, ironically actually, the closer you can match as a claimant or as a law firm, the closer you can match the claim to the expertise of the funder, the more accurate they can evaluate it, and the better their pricing should be.

Because one of the things, I mentioned the passenger in the car, and one of the problems we're always trying to solve, that's really a foundational risk to our business is adverse selection. What I mean by that is, there is a risk, there's always a risk that sophisticated law firms will withhold the good claims and find some way to fund themselves and they'll bring us, the dogs. And when you're in that vacuum, you really lost. You're not in that business very long. If people are systematically showing you lower value claims, you're not going to be very successful and you may not know it until it's too late.

So the way you get around that or the way you mitigate that is fair pricing. So if you overprice, it ramps up the adverse selection risks. I'm only going to come to you if it's ... you're the lender of last resort. If I can find 10 other options at lower cost, I'm going to do that. So the way to get the good claims and secure proprietary, valuable relationships is to be very fair in your pricing.

Marcus Green: If we're going to take as an assumption that the growth of the market is going to be attributable to the tools for the CFO type of funding versus the single case or the law firm portfolio case, the risk profile on that type of product is presumably going to be much different than the single case or a handful of cases. If that's where the growth is going to be, do to the funders who are pursuing those types of products need to adjust their return expectations accordingly?

Bill Evans: The answer is, I expect they do, we certainly do. If you're negotiating with a CFO, you can't just get away with saying we want 3x across the board. You've got to look at the profile and the degree of cross-collateralization and the degree of risk. As I said, it comes back to price and risk and I think as you mentioned, those will be, should be a lower price.

Owen Cyrulnik: And people who are sophisticated and understand how this works, do take that into account when they're thinking about their returns and when they're talking to investors and when they're setting up funds. The idea that nobody goes into this thinking, we're going to tell our investors that we're getting a 3x return across the board and certainly nobody goes in even saying we're going to get an IRR that approximates a single case return for every single dollar we're going to put in. People assume we're going to balance a portfolio, we're going to have some portfolio deals that are going to be slightly lower in return, but much less risky, and we'll have some individual case deals that will probably get a better return, but may have longer duration, maybe more risk. People factor that into what they're telling investors and what they're assuming internally.

Josh Meltzer: I think one of the reasons and I've been doing this a while and I've seen the growth of the industry and it's been fascinating to watch, kind of in a front row seat, and I think one of the reasons it's caught on so successfully, if you will, with asset managers, with investors is because on the front end, you're evaluating an asset litigation and it's a combination of litigation expertise, financial expertise in the case of patent litigation, technology expertise. So it's a unique skill set that typically wasn't under one roof.

But on the back end of the business, if you will, from a portfolio perspective, it's backed by 60 years of settled science. It's like portfolio construction theory and it's nothing that's ... the key is to originate enough good deals that get through your process, and do that in an efficient way, so that you can start to construct that portfolio. Because there's no riskless case, for sure, there's no way to mitigate the risk of any one particular case.

The key is to ... there's a lot of keys, but one of the keys is to construct that portfolio in a way that you're insulated from shocks to the portfolio, and then when there is a shock, you fail cheaply and quickly, as opposed to at the end, when you've expended the capital and it's this hit to the return profile.

Marcus Green: Our time is up, so I'd like to thank Josh, Owen, Bill and Jay, and thank you all for having us.