Changing Investments

I recently found a crowd-sourced lawsuit funding platform called LexShares. LexShares provides corporate litigation finance investments for accredited investors in a variety of products, such as commercial litigation finance, international arbitration, intellectual property, and portfolio financing. Litigation finance is not linked with stock market performance and returns can easily outstrip other investment classes. I see an enormous growth opportunity that I should risk it all and jump in with both feet.

Expected Return

The LexShares team maintains a strong track record in commercial cases with a success rate of little over 90%. The platform posted 32 cases as of April 2017 (102 cases for the underwriting group), and 7 cases reached a finality.

Success Rate Gross Proceeds Net Proceeds IRR
100% $26,000 $16,000 80%
90% $23,400 $13,400 67%
80% $20,800 $10,800 54%
70% $18,200 $8,200 41%
60% $15,600 $5,600 28%
50% $13,000 $3,000 15%
40% $10,400 $400 2%
30% $7,800 ($2,200) (11%)
Assumptions
  • Principal is $10,000.
  • Projected net return is 80%.
  • The case resolution time is 2 years.

Projections

I will start with an initial investment of $1,000,000 in the first 2 years, followed by an additional investment of $80,000 every year. The average case resolution time is 2 years with a 75% target IRR. Profits will be taxed at long-term capital gain rates. All after-tax returns will be reinvested.

Year New Investment Capital Gain Current Investments Tax Rate
2017 $500,000 $0 $500,000 0%
2018 $500,000 $125,000 $1,120,250 3.8%
2019 $80,000 $446,729 $1,630,003 3.8%
2020 $80,000 $1,003,140 $2,675,024 3.8%
2021 $80,000 $1,506,276 $4,204,061 3.8%
2022 $80,000 $2,272,466 $6,470,173 3.8%
2023 $80,000 $3,708,773 $10,118,013 3.8%
2024 $80,000 $5,687,632 $15,669,515 3.8%
2025 $80,000 $8,801,003 $24,216,079 3.8%
2026 $80,000 $13,714,074 $37,489,019 3.8%
Assumptions
  • $500,000 investment in the first and second year, then $80,000 each year thereafter.
  • The target IRR is 75%.
  • The case resolution timing is spread over 3 years.
  • Avoid long-term capital gain tax
  • Avoid state income tax
  • All after tax fund will be reinvested.

Final Thoughts

If all goes well, I’ll reach my retirement net worth target of $5M in 4-5 years. IRR may drop over the next few years as the platform loosen case underwriting standards to meet the demand from investors seeking diversification and long-term capital appreciation. Leveraged investing with credit card balance transfers brings higher investment profits. Higher risk equals greater return.