An online marketplace called Mighty that helps people land advance payments on potential legal settlements, and models itself after fintech companies such as Lending Club, launches today with a $5.25 million Series A investment.
The New York company’s funding round was co-led by Tribeca Venture Partners and IA Ventures, along with participation from New York venture firm Daher, FinTech Collective, Vast Ventures, and angel investors. Mighty plans to use the money to further develop its technology—primarily its website, which serves both people who want advances on legal settlements and those who want to invest in the advances, co-founder and CEO Joshua Schwadron says.
The company also plans to make new hires, possibly adding as many as 10 new employees this year to its current staff of 20, Schwadron says.
Plenty of startups have focused on aspects of the legal system, from finding an attorney to creating
contracts. Schwadron—who holds a law degree from Emory University, according to LinkedIn—contends Mighty focuses on a part of the legal world that has been largely untouched by startups: plaintiffs of civil lawsuits. People seeking relief through the legal system sometimes have financial troubles while they wait for a lawsuit to settle, such as a job loss or medical bills, Schwadron says.
It typically takes about two years before the plaintiff gets any money from a lawsuit, so Mighty is offering a service that lets the plaintiff get an advance on the expected settlement—Schwadron is careful not to call it a loan—to help cover living costs. Those advances are typically less than 10 percent of the total value of an expected settlement, and are paid by investors who get a rate of return ranging from 30 to 50 percent, depending on the case and how long it takes to settle, Schwadron says.
If a lawsuit is expected to settle for $100,000, for example, an investor might provide a $10,000 advance with a 25 percent annual rate of return. If that case settles in two years for the $100,000, the plaintiff would pay back $2,500 for each year, or $15,000 total. (The plaintiff would also separately pay the agreed-upon legal fee to his or her attorney.)
“The majority of our investors are either retired or practicing attorneys who do this to leverage their expertise, to get rates of return above market, and to fund cases they believe in,” he says.
Mighty makes its money by charging origination and servicing fees to investors, the amounts of which Schwadron didn’t disclose.
Repayment to investors is also entirely dependent on the success of the suit. If the plaintiff doesn’t win or settle, it’s a nonrecourse investment, which means he or she doesn’t have to repay. That’s why the rate of return is set so high, Schwadron says.
Mighty requires a plaintiff to have an attorney in order to list his or her case on the website. The company works with the attorney to ensure all necessary legal documents are available for investors to review, and uses its algorithms to connect potential investors with cases that may be of interest, Schwadron says. The fact that the investors all have legal expertise helps ensure the best cases get funded, although Mighty also does some internal reviews of cases, he adds.
Part of the work Mighty is doing to improve its technology is to make sure the sometimes thousands of pages of legal documents are structured and processed properly to make it easy for investors to underwrite them, Schwadron says.
Any money they invest can only be used for living costs, not attorney fees. Attorneys are ethically prohibited from providing their own clients any similar advances on settlements for living costs, Schwadron says.
Other companies have traditionally provided similar advancement services on things like non-settled lawsuits, including J.G. Wentworth and Peachtree Financial Solutions. Schwadron says Mighty differentiates itself by creating an online marketplace where investors must bid on providing the advancement, thus potentially driving down the price for the plaintiff.
“Our goal is to lower prices for plaintiffs, and create the transparency and efficiency for plaintiffs,” Schwadron says. “Our platform is about empowering plaintiffs.”
Mighty currently has 50 investors who use its website, and Schwadron is hoping that number will double by the end of 2015. Even though it has been operating in stealth mode, the company has already worked with 750 plaintiffs by providing $6 million in funding, numbers that he likewise hopes to double this year.
