A brief look at Wikipedia tells us that lawsuit funding was born in the U.S. around the turn of the century.
Since then, the industry has boomed. New lawsuit funding companies spring up monthly.
Recently, we’ve seen an interesting new development: crowd-sourced lawsuit funding.
The Birth of Crowd-Funded Lawsuits
While crowd-sourcing capital has centuries old roots (think early stock markets), it reached new heights in the internet age.
Around the turn of the century, JustGiving was founded as a social giving website. Charities, formerly relegated to standard fundraising efforts could now “go to market” for funding.
Founded in 2010, GoFundMe is perhaps the most popular marketplace at present. A search for “legal” “litigation” and “lawsuit” on the platform yields about 45,000 current campaigns.
On most current crowd-sourcing websites, there is no payout to investors. For certain product-driven campaigns, there is often a promise of goods / service delivery for different levels of donation.
With no direct prospect for financial gain, the motives for patrons of crowd-funded legal campaigns appear largely to be altruistic or political.
Recent Crowd-Funded Legal Battles
GoFundMe, recently becoming the poster-boy for futuristic concepts that will never exist, has had an uptick in legal funding campaigns. Searching through, you’ll find a wealth of campaigns to End The Black Bear Hunt, overturn California’s SB 277, or fight back against new immigration policies. A recent campaign even breached into our world of plaintiff funding.
Perhaps the most high profile recent legal crowd-funding is found in the recent Snopes campaign. Snopes, a longstanding fact-checking website founded by David Mikkelson and his wife, is facing substantial infighting. After a divorce, the company was split in two, with the (now ex-)wife’s stake sold to Proper Media.
Proper Media sued Mr. Mikkelson, alleging a conspiracy to take full control of the company. In response to Proper Media’s withholding of advertising revenue from the site, Mikkelson has launched a counter-suit. Given the withheld advertising revenue, Mikkelson has turned to GoFundMe to cover the expensive legal battle, raising $622k of $500k goal in two days.
The funded Snopes battle is an excellent example of altruism in crowd-funding. Over the last decade, millions have flocked to the website to fact check everything from Snapple “Facts” to misinformation propagated by your grandparents endless email chains.
Interestingly enough, Snopes is a for-profit entity. All money raised is from the good-will of patrons who can’t even write-off the “donation.”
Failed Plaintiff Funding Crowd-Sourcing Initiatives
Where others saw a tool to further altruistic or political initiatives, some legal funding companies saw dollar signs. Why not create a personal injury lawsuit funding marketplace?
The fairly simple concept failed in practice. Firstly, the resulting entity fragmentation is challenging. Having a multitude of investors underwrite and fund cases is an operational nightmare. Coupled with the massive ad-spend, it’s credit only to (probably very upset) equity investors that they haven’t closed doors entirely.
As with LendingClub, the “tech company” focus on rate optics led to substandard returns. In contrast to traditional lending, lawsuit funding is largely a-cyclical, however, it is still extremely risky. Compensating investors for this risk and carving out a portion for yourself is tough to balance.
Idealized Plaintiff Lawsuit Funding Involves a Market, But Probably No Crowd
Interestingly, academics have supported marketplace initiatives in legal funding. A 2013 white-paper entitled The Litigation Financing Industry: Regulation to Protect and Inform Consumers by Martin Estevao prescribed the academics’ take on creating a more consumer friendly lawsuit funding market.
In order to preserve the benefits of litigation financing while protecting those who… need it… states should also develop an online litigation financing “marketplace” that would offer updated business information, interest rate data, and customer reviews for each LFC… [Transparency and] access to the industry… would promote consumer choice, expand access to litigation financing, and … stimulate … competition.
Mr. Estevao is right. Plaintiffs deserve more information and competition.
Honest quotes on turnaround time and rate / fee structures are hard to come by in this industry. This writer has personally called an industry-leading lawsuit funding company to inquire about rates, only to be told grossly inaccurate and misleading information by the rep.
Uplift Legal Funding
Uplift advises every plaintiff to seek out any other options before considering legal funding. Frankly, a GoFundMe page is a great idea. If you’d like to learn more, see our How Legal Funding Works page.