The Concentration Bet: Going All In on Litigation Finance
Why crossing the first million made me abandon diversification — and put more than half my portfolio into lawsuits.
Why I’m Changing Strategy
Crossing $1 million didn’t feel like much at the time — what actually changed my thinking was doing the math on how I’d get to the next one. I got here on savings and job changes. A high savings rate against a rising salary is a reliable machine, and it built the entire first million. But that machine has a ceiling, and I can see it now. At some point what you add from income each year becomes small next to what you already have, and from then on the portfolio’s return is doing the work rather than your paycheck. Stay on this path — saving aggressively and letting the market do the rest — and I get to $3–5 million eventually, in my fifties, on the back of a market I don’t control.
So I went looking for a better return for the risk I was already taking, and I found it in litigation finance: putting up the cash a lawsuit needs while it works its way through court, in exchange for a share of whatever it eventually pays out — and nothing if the case loses. More than half of my portfolio is now tied up in that — bought a slice at a time on two retail platforms, sites that split deals like this into small pieces so people like me can buy in without having millions to commit, the way real-estate crowdfunding sites do for property. None of what I buy this way can be sold once I own it, and the downside cuts just as hard as the upside: one regulatory change, one broken thesis, one platform running into trouble, and it sets me back years instead of moving me ahead. Diversification is the conventional wisdom, and it’s right for anyone who has enough — the priority shifts from chasing more money to protecting what you already have. I’m not there yet.
What makes me willing to take that risk isn’t some strong belief in lawsuits specifically. It’s what the rest of my balance sheet looks like: a stable W-2 income that keeps coming regardless of what these cases do, no dependents, and enough liquidity outside this allocation that I’ll never be forced to sell one of these positions — which is good, because I couldn’t anyway: each position is locked up for three to five years. The real cost of that isn’t the dry powder I won’t have on hand for a market correction. It’s losing the option to change my mind if this turns out to be wrong. The rest of what I own isn’t diversified either — mostly RSUs from one tech employer, so it carries market risk and single-stock risk together. Litigation finance is uncorrelated to both, so even though diversification was never the goal, this bet ends up doing some of that work anyway.
There’s a difference between being able to afford a loss and being able to watch one happen without panicking into a bad decision. I’m confident about the first — it’s just arithmetic on my balance sheet. The second I can’t really know yet, because nothing in this bet has gone wrong so far to test it. That’s exactly why this isn’t advice for most people. Who it’s wrong for: almost everyone. If you have dependents, an unstable income, or need this money within five years, this isn’t for you — and the fact that it works for me is luck, not skill.
What Litigation Finance Is
The pitch is simple enough to fit in a sentence: a plaintiff has a good claim and no money to pursue it, a funder pays the legal bills, and if the case wins the funder takes an agreed cut. If it loses, the plaintiff owes nothing and the funder eats the loss. That last part is what “non-recourse” means, and it’s why the returns have to be large — the funder is absorbing 100% of the downside on an asset with no collateral behind it.
Where the funder sits in the payout order is what actually matters. Its money is first out of any recovery: deployed capital back, then the agreed return, frequently alongside the law firm’s contingency, and the claimant catches up at the end. Being first in line is the whole point of the structure — it’s the only reason anyone would fund a stranger’s lawsuit with nothing but the case itself standing behind the money.
Two things decide whether a win actually pays, and they’re the reason I now read a case budget more carefully than I read a complaint.
The first is the budget. The funder’s entitlement is a multiple of what it deployed, so an expensive case doesn’t merely consume more of the recovery — it raises the bar the recovery has to clear. A $10 million verdict on a case that cost $2 million to try is a good investment. The same verdict on a case that cost $8 million to try is a loss, because twice the deployed capital is more than the case produced. Winning the case and actually getting paid for it are two different questions. The merits decide the first one. The budget decides the second.
The second is the clock, and the contract does try to handle it: funding agreements carry a ratchet, stepping the multiple up by about 0.5x every six to nine months a case stays open, plus another 0.5x if it reaches trial, until it hits a cap — often somewhere around 4.5x — because a claimant who stands to keep nothing has no reason to cooperate. Inside that band, delay is close to neutral. Past the cap, it isn’t: the entitlement is fixed but the clock keeps running, so every extra year is pure decay — a 4.5x cap is a 35% annual return if it arrives in five years and 16% if it arrives in ten, on identical facts and an identical recovery. The ratchet only changes how the recovery gets split, not how big it is.
Those two constraints are why the same handful of claims keep turning up. A fundable case needs damages large enough to dwarf the cost of proving them, a defendant solvent enough to pay, and a legal theory that has already worked somewhere — which in practice means commercial litigation like antitrust, securities fraud, breach of contract, trade secrets, patent infringement, breach of fiduciary duty, and whistleblower actions. In comparison, the consumer side inverts the logic: personal injury, medical malpractice, and motor vehicle claims are individually small and settle against insurers rather than defendants, so volume does the work that size does on the commercial side.
Two other risks sit outside all of that arithmetic entirely. One is a judge: a single adverse ruling can void a case overnight. The other is a legislature: the industry is young enough that its economics could be rewritten by rules nobody has drafted yet. I can discount an optimistic multiple, and I can plan around a longer wait. For a bad ruling or a change in the rules, I don’t have a method — I’m just flagging them as risk I can’t price.
Platform or Fund
The first real decision in this asset class isn’t which case to buy. It’s who you’re allowed to buy from — and that choice isn’t really mine; the securities rules already decided it for me.
Institutional litigation funds are the professional version of this. Full-time underwriters, most of them former litigators; cases large enough to justify weeks of diligence; diversification across dozens of matters and several litigation types; and occasionally a secondary market if a limited partner needs out. They are also, in the plain sense of the word, unreachable.
The gate has two parts, and money is the smaller one. Private funds of this kind sell under Rule 506(b), which forbids general solicitation — no advertising, no public offering, no approaching anyone the manager doesn’t already have a relationship with. A fund that wanted my capital would be breaking securities law by telling me it existed. Placement agents and existing investors do the finding instead, so access depends on already being inside the network they draw from.
The eligibility math closes off what’s left. Funds organized under Section 3(c)(7) can take an unlimited number of investors, but only if every one of them is a Qualified Purchaser — $5 million in investments, not net worth. That bar alone puts these funds out of reach for me, regardless of what any individual fund’s minimum check happens to be, and most serious litigation funds are structured this way. Funds organized under 3(c)(1) can take Accredited Investors instead — $1 million in net worth or $200,000 in income, a much lower bar — but are capped at 100 investors total, which is why their minimums start around $500,000: with only a hundred slots to fill and a fund to raise, nobody wants a small check. So the entire 3(c)(7) universe is closed to me on eligibility alone, and the handful of 3(c)(1) funds I technically qualify for ask for more per check than my entire litigation-finance position.
Retail platforms fill that gap. They take deals that used to be reserved for hedge funds and the ultra-wealthy and break them into $5,000 pieces — small enough for someone saving out of a paycheck, like me, to actually buy. Without them I’d have no access to this at all — not expensive access, none.
That’s still the trade I’m making, and I wouldn’t have chosen retail platforms if a fund had been an option. I pay a bigger cut of the upside than an institutional investor would, for a lot less diligence than an institutional fund would actually do. I see whatever disclosure the platform decides to publish, nothing more. And building the portfolio — deciding how many positions, how spread out, how staggered — is my job instead of a fund manager’s. I’d hand all of it over tomorrow if a fund would take my money.
So there are really two separate questions buried in this bet. Does litigation finance pay what it advertises? That’s a question about lawsuits. Does buying it through retail platforms actually get me those advertised returns? That’s a question about me — and that second question is what most of the rest of this post is about.
Three Ways to Buy It
Advertised returns sort by structure rather than by subject matter, because structure is what decides whether one bad outcome is survivable:
- Credit against a book of cases — law-firm lending, pools of consumer advances: low-to-high teens, paid as interest while the underlying cases run.
- Portfolio funding — a cross-collateralized basket of commercial claims: 2x-3x, usually capped, the tighter multiple being the price of diversification.
- Single-case funding — one claim, non-recourse: 2x-4x on a win, marketed around a 30–35% IRR, and binary.
Sorting by case type instead of structure — appeals are the safe end, patents are where the money is — is marketing rather than pricing: a patent case is usually both expensive to try and slow to resolve, which are the two things that hurt a return, not help it. “Where the money is” describes the size of the verdicts, not what an investor actually keeps.
Two of those three reach retail. Commercial portfolio funding stays behind the institutional gate; single cases and credit don’t — and the credit side arrives in two shapes that resemble each other far less than the shared label suggests. So there are three things I can actually buy, and I own all three.
A single case. This is what LexShares sells: individual commercial disputes — contract, patent, antitrust, fraud, whistleblower claims — at $5,000–$10,000 minimums, targeting 2x-3x+ over two to four years. I read what the platform discloses and choose each one myself, which is the entire appeal and the entire risk. The minimum is only what gets you in the door; I write checks many times that size, and eleven active cases have taken roughly $800,000.
A pool of claims. In December 2017 I put $250,000 into a YieldStreet note backed by a diversified portfolio of those consumer pre-settlement advances, at a 13.0% target rate over an estimated 48 months. The claims are already mature and pre-bundled. I don’t choose them and I can’t see them individually.
A loan to the firm. In April 2018 I put another $250,000 into a YieldStreet note that isn’t a case investment at all: a senior secured first-lien loan to a class-action law firm, at a 12.75% target rate over 36 months, collateralized by that firm’s entire inventory of twenty-two matters. I’m not buying an outcome here, I’m lending against a docket.
The three fail in different ways, which is the whole reason to hold more than one. A single case is close to binary — it wins or it doesn’t, decided by a judge, a jury, or a settlement conference. A pool absorbs bad outcomes: the returns are cross-collateralized, so aggregate performance is what matters and no individual claim can hurt me much. The firm loan converts case risk into credit risk, which sounds like an improvement and is really a substitution — twenty-two matters stand behind it, but a single borrower stands in front of them.
The other difference is when I hear anything. Both YieldStreet notes distribute periodically as the underlying cases perform, rather than paying out all at once, and that cash flow itself is the ongoing signal. LexShares isn’t blind either: it posts updates as things develop, and between those, I can check the public court record myself using each case’s docket number. The exception is arbitration or a settlement negotiation happening behind closed doors — neither is public, so in those cases I’m relying entirely on whatever LexShares chooses to tell me.
Where the Book Stands
LexShares Performance Tracking (November 2018)
Portfolio snapshot:
- Capital at work: $799,409 across 11 active positions
- Accrued value if the cases land inside their recovery ranges: ~$1.7 million
- Unrealized gain that implies: ~$900,000
- Realized: 3 earlier cases settled, averaging 2.4x
Most of that is a mark rather than a result. The $900,000 is derived from the same projections that convinced me to fund each case, so if they run generous, my capital and my valuation of it are wrong in the same direction at the same time — and I have no independent way to catch it.
The settled cases are even thinner evidence. Three wins out of three sounds great, but in an asset class where a real share of cases return zero, a 100% hit rate on three tries doesn’t prove much. It could mean I’m good at this. It could also mean the easy, obvious wins settle fast, while the harder cases — most of the eleven still open — take longer. If that’s what’s happening, my three wins aren’t a random sample; they’re just the cases that were always going to work out. That’s the same trick that makes industry-wide averages look better than they are: young portfolios show their wins first and their losses later. So the 2.4x is probably the least trustworthy number in this post — and it’s also the number that’s made me comfortable sizing up.
There’s a bigger problem hiding in that count of eleven. Holding eleven cases only diversifies me if they’re actually independent of each other, but all of them were screened by the same underwriter, using the same standards. If the underwriting itself just isn’t very good, that weakness runs through the whole book at once, and spreading my money across different case types or courts wouldn’t catch it. In that scenario, I don’t own eleven separate bets — I own one bet on LexShares’s judgment, placed eleven times. That’s the one failure mode that could sink the whole book, and I have no way to check for it from where I sit.
So here’s a real test, with a date attached. The earliest of these went in around March 2017, twenty months into a two-to-four-year window. By spring 2021 they’ll hit four years old — the outer edge of that window — and two things get tested at once: whether they’ve actually resolved by then, and whether the win rate holds up once all eleven have gone through, not just the three that happened to go well first. If most of the eleven have resolved near their advertised win rate, the premium was real and I was early to something. If half are still open, or the win rate has dropped, I won’t actually know whether the asset class itself is the problem or just the platform’s execution of it — everything I have so far comes from this one platform, and I have nothing else to compare it against.
$5 Million by 2025
The target: $5 million by 2025, seven years after crossing the first million — with $3 million as the floor I’d still call a win if the top end doesn’t happen. Getting to the top of that range needs roughly 25–30% annual returns, which requires continued high W-2 income at a 50%+ savings rate, the case book delivering its 2x-3x multiples, my equity compensation continuing to appreciate, and no major setbacks — no health crisis, no job loss, no market crash.
That 25–30% is reverse-engineered. It is what the book would have to compound at to land inside the range on schedule, which is not the same thing as what I expect it to do. Continued savings cover part of the distance, so the return I strictly need is lower than the headline figure suggests; but savings are also the thing I have already been doing for fourteen years, and the premise of this whole post is that they no longer move the number fast enough on their own.
Written out as a list, it is three things going right simultaneously for seven years plus nothing going wrong, and I am aware of how that reads. There is no slack anywhere in it. A target that needs everything to go right at once isn’t really a plan. It’s a hope, and the math attached to it is just what makes the hope feel more solid than it is.
As the book grows I intend to de-risk on a ladder: at $3M, start reaching out to institutional litigation finance funds directly — most want $5M checks, but the ones worth talking to will take $1–3M from the right investor rather than nothing; past $5M, once I’ve actually crossed the Qualified Purchaser line, spread that money across several funds running different strategies instead of one.
The obvious flaw: this ladder only works if the concentration bet is already paying off. If litigation finance underperforms instead, I don’t reach $3M, and the option to switch to institutional funds never opens up. I end up below that number, later than planned, and still holding retail positions I can’t sell. At that point, following this ladder wouldn’t make sense; the real answer would be to step back and reevaluate the whole strategy — but that’s the failure case. For now, I’m willing to take on substantial risk for aggressive growth. Concentration is the path to get rich; diversification is the path to stay rich — and I’m not trying to stay rich yet.
Commentary and personal experience — not investment, legal, or tax advice. Investing carries risk, including total loss of capital. Always do your own due diligence.
