WEBVTT - Eva Shang on Litigation Finance Funds 0:00:02.400 --> 0:00:11.119 Bloomberg Audio Studios, podcasts, radio news. This is Master's in 0:00:11.200 --> 0:00:14.960 Business with Barry rid Hoolts on Bloomberg Radio. 0:00:16.079 --> 0:00:19.520 This week on the podcast What a Fascinating Conversation, Iva 0:00:19.600 --> 0:00:24.240 Shang co founded legal List while she was in Harvard 0:00:24.400 --> 0:00:28.520 and then subsequently dropped out with her co founder to 0:00:28.640 --> 0:00:34.240 launch what essentially became an alternative credit fund that specialized 0:00:34.840 --> 0:00:39.800 in litigation financing along with two other types of credit 0:00:39.920 --> 0:00:46.240 related to litigation outcomes. Really a fascinating combination of legal 0:00:46.320 --> 0:00:51.479 insight and technology. Initially, this began just by scraping the 0:00:51.520 --> 0:00:56.840 State of Massachusetts judicial websites, all the different cases that 0:00:56.880 --> 0:00:59.200 were there, the different motions, who the lawyers were on 0:00:59.240 --> 0:01:02.600 each side, and they had no idea what they were 0:01:02.600 --> 0:01:05.760 going to do with this data until eventually they go 0:01:05.840 --> 0:01:10.160 to Y combinator and general counsel there says no, you 0:01:10.600 --> 0:01:13.039 have a gold mine here, and it's you have to 0:01:13.080 --> 0:01:17.720 focus on financing the litigation cases with a high probability 0:01:17.720 --> 0:01:20.640 of a successful outcome, but where the planiff doesn't have 0:01:20.680 --> 0:01:23.680 the capital to see it through and are up against 0:01:23.720 --> 0:01:26.120 the deep pocketed defendant who could just wait them out. 0:01:26.520 --> 0:01:29.400 I found even to be just very interesting and I'm 0:01:29.520 --> 0:01:33.840 intrigued by the business model. They created really a white 0:01:33.840 --> 0:01:36.720 space that a handful of multistrat funds might have been 0:01:36.720 --> 0:01:40.160 doing something with, but there really wasn't a dedicated old 0:01:40.240 --> 0:01:43.360 credit fund, especially one with nearly a billion dollars in 0:01:43.400 --> 0:01:46.839 client assets, focusing on I found this to be really 0:01:46.840 --> 0:01:50.360 fascinating and I think you will also, with no further 0:01:50.400 --> 0:01:53.040 ado my discussion with Legalists. 0:01:53.520 --> 0:01:56.120 Eva Shang, thank you so much for having me. 0:01:56.560 --> 0:02:00.240 So let's just go to Cambridge and talk about you 0:02:00.320 --> 0:02:03.280 drop out of Harvard at the age of twenty to 0:02:03.400 --> 0:02:08.000 start an alternative investment funds. What were you thinking? 0:02:09.320 --> 0:02:13.600 That's a great question. So back in the day, my 0:02:13.720 --> 0:02:17.400 co founder, Christian was actually the one who came up 0:02:17.440 --> 0:02:20.400 with the first seedlings of the idea to start Legalist. 0:02:21.000 --> 0:02:25.600 And what happened was he was very interested in data scraping, 0:02:25.919 --> 0:02:28.639 and he had taken some classes with a CS professor 0:02:28.720 --> 0:02:32.920 who did data scraping, and one day he decided to 0:02:33.280 --> 0:02:38.400 scrape the Massachusetts State Court record website. Now, this is 0:02:38.440 --> 0:02:41.760 a website that had cost the state seventy million dollars 0:02:41.800 --> 0:02:45.640 to make, and it was extremely janky, and his intent 0:02:45.800 --> 0:02:48.520 was just to download all the information and then see 0:02:48.520 --> 0:02:50.799 what he could do with it. But keep in mind 0:02:50.840 --> 0:02:53.520 he didn't have access to any of the standard web 0:02:53.520 --> 0:02:56.880 scraping equipment. He didn't have access to Amazon Web Services 0:02:57.000 --> 0:03:00.600 or cloud hosting. So he just bought these two mini's, 0:03:00.600 --> 0:03:03.320 which are like Mac computers that don't have a little rouse, 0:03:04.200 --> 0:03:07.560 yes exactly, and he just set them up and started 0:03:07.600 --> 0:03:11.440 trying to download and scrape all the information. Now, as 0:03:11.440 --> 0:03:14.400 it turns out, he was downloading at too high of 0:03:14.400 --> 0:03:17.680 a pace, and so Harvard caught on to the fact 0:03:17.720 --> 0:03:21.119 that there were just massive gigabytes of information passing through 0:03:21.160 --> 0:03:23.960 to this one dorm room in Dunster, and so he 0:03:24.320 --> 0:03:28.120 came to me and said, Uh, would you mind if 0:03:28.160 --> 0:03:31.600 I just put these computers in your dorm room and 0:03:31.639 --> 0:03:34.200 then they can sit in your corner and then scrape 0:03:34.280 --> 0:03:37.640 using your Internet. And I was like, what's going on here? 0:03:38.160 --> 0:03:40.000 And so that's kind of how I got roped into 0:03:40.200 --> 0:03:45.000 this business where we decided to form a corporation and 0:03:45.160 --> 0:03:48.119 our intent was just to download the data and then 0:03:48.360 --> 0:03:49.640 question mark question mark. 0:03:50.200 --> 0:03:52.080 So so you had no idea where this was going 0:03:52.120 --> 0:03:52.280 to go. 0:03:52.320 --> 0:03:54.160 Initially, we had no idea. 0:03:54.240 --> 0:03:57.839 Let's see what happens. And that's just with the with Massachusetts, right, 0:03:59.360 --> 0:04:02.160 will you also involved in y Combinator while you were 0:04:02.240 --> 0:04:03.200 at Harvard as well? 0:04:03.480 --> 0:04:06.600 Yes, So we got into y Combinator the summer of 0:04:06.680 --> 0:04:10.760 twenty sixteen just off of this legal analytics idea. And 0:04:10.960 --> 0:04:14.200 after we got into y Combinator, basically the very first day, 0:04:14.520 --> 0:04:17.560 the general counsel, who kind of keeps a watch over 0:04:17.600 --> 0:04:21.080 all the legal tech companies, pulls us aside and is like, 0:04:21.720 --> 0:04:25.720 I don't think your business idea is very good. I 0:04:25.880 --> 0:04:28.120 don't think this legal analytics thing is going to work 0:04:28.160 --> 0:04:30.800 out for you. Lawyers hate to pay for things. They 0:04:30.920 --> 0:04:32.840 like to get paid for things. I don't think you 0:04:32.839 --> 0:04:35.120 should be doing this. And we were like, well, we 0:04:35.200 --> 0:04:37.640 just got here, so we're going to do our old idea, 0:04:37.680 --> 0:04:40.920 thank you very much. But throughout the course of the summer, 0:04:40.960 --> 0:04:43.599 he kept on saying to us, you should really consider 0:04:43.640 --> 0:04:48.960 getting into this area called litigation finance. And eventually we 0:04:49.080 --> 0:04:50.719 realize the same thing that he did, which is that 0:04:50.800 --> 0:04:55.080 lawyers don't like to pay for things. And we were like, okay, 0:04:55.200 --> 0:04:58.000 so what should we do. And basically what he said was, 0:04:58.640 --> 0:05:02.560 if you're able to have this real time coverage of 0:05:02.600 --> 0:05:06.560 all these hard to access court dockets, than what you 0:05:06.600 --> 0:05:09.599 could do theoretically is pick out the cases that are 0:05:09.600 --> 0:05:13.479 going really really well and invest in those so you 0:05:13.520 --> 0:05:15.240 can take your own portfolio. 0:05:15.279 --> 0:05:17.920 That raises the question, if they're going really really well, 0:05:18.720 --> 0:05:21.440 why would anybody want to take outside funding when they 0:05:21.440 --> 0:05:24.640 want to see it through and maximize their returns. Or 0:05:24.720 --> 0:05:28.080 are these so expensive that even the cases that are 0:05:28.160 --> 0:05:30.720 going well need a little outside financial help. 0:05:31.600 --> 0:05:34.760 So I think when people think about litigation, they imagine 0:05:34.760 --> 0:05:36.640 how it is in the movies, where you file a 0:05:36.720 --> 0:05:38.839 case and then you go to trial the next day 0:05:38.920 --> 0:05:41.960 and then judge here's your case. So in reality, what 0:05:42.040 --> 0:05:44.800 happens is, you know, let's just take a prototypical scenario 0:05:44.880 --> 0:05:49.680 where you have a business that gets acquired and I'm 0:05:49.680 --> 0:05:51.640 the founder. I've been working on this business for a 0:05:51.640 --> 0:05:55.680 long time, and after the acquisition, the company that acquired 0:05:55.760 --> 0:05:57.839 us strips away all our resources, so then I don't 0:05:57.880 --> 0:06:00.400 hit my earnout and that's part of the acquisition price. 0:06:01.120 --> 0:06:05.480 And now I file a lawsuit thinking that tomorrow I'm 0:06:05.480 --> 0:06:07.800 going to get my ten million dollar earn out. But 0:06:08.040 --> 0:06:10.080 in the meantime, not only have I not been paid 0:06:10.080 --> 0:06:13.159 my earnout, but I also don't have money to pay 0:06:13.160 --> 0:06:16.200 my lawyer, and so I might screep together some change, 0:06:16.240 --> 0:06:19.120 get the complaint filed, the case is going well, you 0:06:19.160 --> 0:06:22.320 survive some initial motions, but trial is still two years away. 0:06:22.720 --> 0:06:24.840 And so that's really where a litigation funder could come 0:06:24.839 --> 0:06:28.400 in and say, okay, leave the legal fees to us. 0:06:28.760 --> 0:06:30.760 Not only will we pay for it, we'll keep your 0:06:30.839 --> 0:06:33.479 lawyer on a budget, we'll make sure the case stays 0:06:33.520 --> 0:06:36.479 on track, we'll offer our analysis of it compared to 0:06:36.520 --> 0:06:40.560 the thousands of other cases we've evaluated, and we'll make 0:06:40.600 --> 0:06:42.640 sure that we're your partner until the end. 0:06:42.920 --> 0:06:45.360 What does the founder have to give up in exchange 0:06:45.360 --> 0:06:49.120 for all that financial support? What is legalists share of 0:06:49.160 --> 0:06:49.760 the outcome. 0:06:50.360 --> 0:06:54.000 So the way that litigation finance works is that it 0:06:54.080 --> 0:06:56.840 is non recourse, which means that if we invest into 0:06:56.880 --> 0:06:59.679 litigation and it loses, then we don't get repaid. 0:07:00.800 --> 0:07:02.680 All the risk is on you, exactly. 0:07:03.760 --> 0:07:06.400 But if the litigation wins, then we share in the upside. 0:07:06.440 --> 0:07:08.640 So we normally aim to take around thirty or forty 0:07:08.680 --> 0:07:10.800 percent of the case, depending on how long it goes for. 0:07:11.000 --> 0:07:14.480 So it's almost as if it's a lawyer charging a 0:07:14.520 --> 0:07:17.720 contingency fee. Exactly, Hey, you don't have to pay me 0:07:17.760 --> 0:07:20.960 any legal fees for this car accident, but if we win, 0:07:21.160 --> 0:07:23.560 I take a third of the outcome. 0:07:23.440 --> 0:07:27.880 Exactly exactly, And there are types of cases that lawyers 0:07:27.920 --> 0:07:32.800 take on contingency. Frequently contingency lawyers are the original litigation funders, 0:07:33.120 --> 0:07:36.480 but in order to put together a diversified portfolio, they 0:07:36.720 --> 0:07:39.480 only have so much time, and so they usually do 0:07:39.560 --> 0:07:43.920 things like personal injury, employment, class action, things that are 0:07:44.040 --> 0:07:46.280 predictable in which where they have a lot of control 0:07:46.480 --> 0:07:49.880 and cases settle quickly an earnout case or a commercial 0:07:49.920 --> 0:07:53.040 case or a breach of contract case. Those costs hundreds 0:07:53.080 --> 0:07:55.600 of thousands, if not millions of dollars, and lawyers don't 0:07:55.640 --> 0:07:57.760 really want to put in all that time for free. 0:07:58.320 --> 0:08:02.200 So you're y combinator over the summer, when do you decide, Hey, 0:08:02.240 --> 0:08:04.080 this is a real business and I think I should 0:08:04.120 --> 0:08:05.560 drop out of Harvard to do this. 0:08:06.680 --> 0:08:11.640 Yeah. So, after we decided to switch to doing litigation funding, 0:08:12.800 --> 0:08:16.320 we went to John Levey, who's the general counsel at YC, 0:08:16.640 --> 0:08:18.440 and we were like, Okay, what do you know about 0:08:18.480 --> 0:08:22.320 litigation funding? And he said, the only reason I know 0:08:22.440 --> 0:08:24.640 about it is because I have friends who work in 0:08:24.640 --> 0:08:29.160 insurance and insurance is the mirror image of litigation funding, 0:08:29.240 --> 0:08:32.880 except for the defense side. They keep the lawyers on track, 0:08:33.000 --> 0:08:35.560 they pay the defense costs, and they really don't like 0:08:35.840 --> 0:08:39.240 that litigation funding now exists for the plaintiffs. 0:08:38.840 --> 0:08:41.480 Right because they have a giant financial advantage being part 0:08:41.520 --> 0:08:46.439 of a exactly big perpetual insurance company versus lawyers come and. 0:08:46.400 --> 0:08:50.520 Go exactly So that was pretty much all we needed 0:08:50.559 --> 0:08:54.559 to hear to actually make the switch. But then once 0:08:54.600 --> 0:08:57.200 we made the switch, it was a lot more challenging 0:08:57.280 --> 0:09:01.400 than we initially expected to actually raise a fund. There's 0:09:01.480 --> 0:09:05.240 that John F. Kennedy quote where he says, you know, 0:09:05.280 --> 0:09:06.800 we go to the moon. We choose to go to 0:09:06.880 --> 0:09:09.400 the moon not because it is easy, but because it 0:09:09.440 --> 0:09:12.000 is hard. I think a lot of startup founders are 0:09:12.000 --> 0:09:14.480 actually the opposite, where it's like, we choose to go 0:09:14.520 --> 0:09:16.880 to the moon not because it's easy, but because we 0:09:16.880 --> 0:09:19.800 think it's going to be easy. I think if we 0:09:19.880 --> 0:09:23.880 had known how difficult they would be for two twenty 0:09:23.920 --> 0:09:27.560 year olds to raise a fund to invest in litigation, 0:09:27.760 --> 0:09:30.480 it was just such a crazy idea at the time 0:09:31.040 --> 0:09:34.280 that we would have been like, yeah, no, thank you, 0:09:34.320 --> 0:09:35.120 we'll do something else. 0:09:35.280 --> 0:09:37.880 So when you launched, there aren't a whole lot of 0:09:38.000 --> 0:09:43.200 dedicated litigation finance funds. But you've become successful, are you 0:09:43.280 --> 0:09:47.080 attracting competition or other people saying, Hey, we didn't realize 0:09:47.080 --> 0:09:49.720 this was so doable. What's it look like out there? 0:09:50.640 --> 0:09:53.199 So at the time that we launched, there were already 0:09:53.200 --> 0:09:58.520 public companies that were doing litigation finance. One of our 0:09:58.679 --> 0:10:01.000 LPs likes to say he likes to say that he 0:10:01.559 --> 0:10:06.880 invests in managers where it's so time consuming and difficult 0:10:07.120 --> 0:10:09.280 to do what they've done that no one in their 0:10:09.360 --> 0:10:12.040 right mind would do it, And if they could go 0:10:12.120 --> 0:10:15.360 back in time and redo it, even the founders wouldn't 0:10:15.360 --> 0:10:19.080 do it over again. And I kind of think that 0:10:19.240 --> 0:10:22.280 our business is a lot like that. If you were 0:10:22.320 --> 0:10:25.720 to go into litigation finance at the outset, you would 0:10:25.720 --> 0:10:30.400 not want to raise a really small litigation finance fund, 0:10:30.640 --> 0:10:34.360 hire an engineering team, build an algorithm, scrape millions of 0:10:34.400 --> 0:10:38.440 court records, do hundreds of investments in a given fund. 0:10:38.480 --> 0:10:40.600 You would do what all the other litigation funders do, 0:10:40.920 --> 0:10:43.959 which is invest in ten big cases with law firms 0:10:43.960 --> 0:10:44.800 that you're familiar with. 0:10:44.880 --> 0:10:48.480 Huh, really interesting, So you drop out of Harvard is 0:10:48.520 --> 0:10:49.520 that twenty seventeen. 0:10:50.240 --> 0:10:52.680 We drop out of Harvard in twenty sixteen, and it 0:10:52.760 --> 0:10:55.319 takes us a full year to raise our first ten 0:10:55.360 --> 0:10:57.120 million dollar fund in twenty seventeen. 0:10:57.240 --> 0:11:01.280 Wow, So stay with dropping out of college. First of all, 0:11:01.360 --> 0:11:05.720 what did your parents say? They must have been bereft. 0:11:06.160 --> 0:11:12.440 My parents are immigrants, and so they feel like playing 0:11:12.480 --> 0:11:15.640 it safe is always the way to go. But while 0:11:15.640 --> 0:11:18.240 I was at Harvard, it quickly became apparent to me 0:11:18.480 --> 0:11:21.360 that nothing you do plays it safe. Like you can 0:11:21.400 --> 0:11:24.400 either be in lockstep with everyone else and do the 0:11:24.440 --> 0:11:27.840 whole recruiting for a consulting firm and then working at 0:11:27.880 --> 0:11:30.240 a consulting firm and then going to business school and 0:11:30.280 --> 0:11:34.160 then you know, ascending the ladder and not take any chances, 0:11:34.679 --> 0:11:37.679 or you can choose to do something else. And for 0:11:37.720 --> 0:11:39.720 a long time I didn't know what that something else 0:11:39.880 --> 0:11:42.280 would be. And when it presented itself to me, it 0:11:42.280 --> 0:11:45.640 became very obvious that this is the direction the universe 0:11:45.720 --> 0:11:46.800 was calling for me to go in. 0:11:46.960 --> 0:11:51.120 Huh. So you raised ten million in your first year? 0:11:51.760 --> 0:11:52.640 Ten million? Is that right? 0:11:52.720 --> 0:11:53.040 That's right? 0:11:53.040 --> 0:11:56.400 The first year? And then you are involved with the 0:11:56.440 --> 0:12:02.000 Field Fellowship. Peter Thield's award to young people who he's 0:12:02.080 --> 0:12:04.319 looking to, Hey, get out in the real world. You 0:12:04.360 --> 0:12:07.480 don't need to go to school. Was how helpful was 0:12:07.520 --> 0:12:09.640 Peter Teel's capital? 0:12:10.200 --> 0:12:13.200 So the Teal Fellowship is a one hundred thousand dollars 0:12:13.240 --> 0:12:16.880 grant that's given to people who drop out of school. 0:12:19.040 --> 0:12:22.240 It's given to the individual rather than to the company. 0:12:22.920 --> 0:12:26.000 But it did create a little bit of a problematic 0:12:26.040 --> 0:12:28.640 situation for us early on because he was known for 0:12:28.679 --> 0:12:30.640 his own litigation funding situation. 0:12:30.840 --> 0:12:33.680 Well, the whole thing with what took place with Crocker 0:12:33.800 --> 0:12:37.920 and Paul Cogan. There even was a book, right and 0:12:37.920 --> 0:12:40.360 if that was actually quite fascinating. 0:12:39.880 --> 0:12:42.720 But it's not actually litigation funding, that's right. That case 0:12:42.800 --> 0:12:44.760 is not that a grudge, yes. 0:12:44.880 --> 0:12:48.520 As a personal grudge, and it just goes to show 0:12:48.559 --> 0:12:51.959 you even when only two people know a secret, it 0:12:52.080 --> 0:12:55.000 still eventually comes out, which which is was my big 0:12:55.040 --> 0:12:59.520 takeaway from that book. But back to the fellowship, did 0:12:59.559 --> 0:13:02.880 it help you raise other assets that people say, oh, 0:13:02.920 --> 0:13:07.080 Peter Teel is successful if he's putting money into EVA, 0:13:07.120 --> 0:13:08.600 well he must see something there. 0:13:09.559 --> 0:13:11.560 Not really, but we did get a lot of questions 0:13:11.600 --> 0:13:14.040 about whether we were going to be suing media companies, 0:13:14.160 --> 0:13:17.120 and the answer was always no, media companies are. 0:13:17.040 --> 0:13:21.479 Not usually very That wasn't especially profitable, It just that 0:13:21.200 --> 0:13:23.760 was that was you know, when you sue a small 0:13:24.000 --> 0:13:27.599 website into oblivion, there's not a lot of cash to 0:13:28.000 --> 0:13:30.680 pay back. That was just I'm going to spend what 0:13:30.840 --> 0:13:33.720 it takes because I'm not happy with these people. You 0:13:33.760 --> 0:13:36.640 guys are in business looking for an economic outcome, that's right, 0:13:36.920 --> 0:13:40.000 not a personal outcome. So sounds like the first year 0:13:40.040 --> 0:13:45.600 of raising capital for Legalist was very challenging. At any point, 0:13:45.600 --> 0:13:48.720 were you thinking, hey, maybe I should go back to college, 0:13:48.720 --> 0:13:50.800 maybe I should go to law school, and were you 0:13:50.880 --> 0:13:53.520 Were you ever thinking about taking the bar or going 0:13:53.559 --> 0:13:54.160 to law school. 0:13:54.800 --> 0:13:57.240 So I was thinking of going to law school. But 0:13:57.400 --> 0:14:01.120 what ended up happening was that in California there is 0:14:01.320 --> 0:14:06.200 a Law Office study program where you can apprentice under 0:14:06.200 --> 0:14:08.960 a lawyer and you have to study for a certain 0:14:09.040 --> 0:14:13.320 number of hours per week. And Christian and I ended 0:14:13.400 --> 0:14:16.520 up doing the Law Office apprenticeship program starting in twenty 0:14:16.559 --> 0:14:20.800 eighteen with our general counsel at the time, Curtis. 0:14:20.520 --> 0:14:23.800 And YC or Legalist GC. 0:14:24.320 --> 0:14:30.200 LEGALISTGC, and that took us almost five years and then 0:14:30.240 --> 0:14:33.240 We ended up taking the bar exam last year and 0:14:33.280 --> 0:14:36.280 we both passed. Oh that's so now we actually are lawyers. 0:14:36.600 --> 0:14:39.560 That's amazing that you went that route instead of going 0:14:39.600 --> 0:14:42.160 to finishing college and going to law school. Tell us 0:14:42.160 --> 0:14:44.840 a little bit about your partner, Christian hay Am I 0:14:44.840 --> 0:14:45.360 pronouncing that. 0:14:45.360 --> 0:14:47.600 Right now, Christian hag Haigu. 0:14:47.760 --> 0:14:50.120 So he's your co founder. He's the person who was 0:14:50.600 --> 0:14:55.960 initially scraping all the data off of the Massachusetts court 0:14:56.000 --> 0:15:00.200 system websites. He sounds more like a computer science che 0:15:00.200 --> 0:15:04.240 then a legal geek. What was his background and tell 0:15:04.320 --> 0:15:05.880 us a little bit about how you guys met. 0:15:06.600 --> 0:15:13.240 So Christian was studying economics and computer science and I 0:15:13.240 --> 0:15:18.120 actually think he's incredibly operationally minded and just one of 0:15:18.120 --> 0:15:21.160 the smartest people I've ever met. And the crazy thing 0:15:21.240 --> 0:15:23.600 is that we've known each other for over ten years 0:15:23.640 --> 0:15:27.000 at this point, and it's definitely one of the most 0:15:27.000 --> 0:15:29.880 important relationships in my life. And when there's a fire 0:15:29.920 --> 0:15:32.200 at the company, when the two of us leap into 0:15:32.240 --> 0:15:35.320 action to solve it, there's really nothing like it. It's 0:15:35.360 --> 0:15:37.200 like when you have someone that you've worked with for 0:15:37.240 --> 0:15:40.880 so long and you basically know what they're going to say. 0:15:41.000 --> 0:15:44.920 Or think before they actually say it. And over the years, 0:15:44.960 --> 0:15:48.680 a lot of people that I've talked to disparage these 0:15:48.720 --> 0:15:51.280 fifty to fifty partnerships because I think they think it's 0:15:51.520 --> 0:15:55.640 riskier if you can't come to an agreement. And what 0:15:55.680 --> 0:15:59.360 I actually think is that anything that's so worth doing 0:15:59.760 --> 0:16:02.480 has a lot of inherent risk, and so if you 0:16:02.680 --> 0:16:07.760 make a partnership work, it can actually work much better 0:16:07.840 --> 0:16:10.920 than just having one person be in charge. So I'll 0:16:10.920 --> 0:16:13.680 tell a story about why I think it's so difficult 0:16:13.800 --> 0:16:16.040 to do what we do, or to even just start 0:16:16.040 --> 0:16:19.600 a business so young alone. So I mean, for the record, 0:16:19.600 --> 0:16:23.920 today we have over four hundred investments and seventy five 0:16:23.920 --> 0:16:28.160 percent success rate, hundreds of realizations. But back in the 0:16:28.240 --> 0:16:31.120 day when we had our very first case lose, it 0:16:31.120 --> 0:16:33.600 was only one hundred and fifty thousand dollars investment, but 0:16:33.640 --> 0:16:36.320 it was our very first loss, and it meant a 0:16:36.360 --> 0:16:39.080 lot to us because it threw into question our entire 0:16:39.120 --> 0:16:39.760 business model. 0:16:40.080 --> 0:16:43.080 Was that your first investment, or was that your first 0:16:43.160 --> 0:16:46.400 loss then you had subsequent you had previous winners to that. 0:16:47.160 --> 0:16:49.160 It was one of the early cases and it was 0:16:49.160 --> 0:16:53.640 our first loss. So I just remember feeling like the 0:16:53.760 --> 0:16:57.080 entire world was falling, and we were also so young 0:16:57.120 --> 0:16:59.680 that we hadn't been through a lot of bad things 0:16:59.680 --> 0:17:03.440 happen in our life. And so Christian and I we 0:17:03.480 --> 0:17:06.640 snuck into the back of a Costco because we didn't 0:17:06.640 --> 0:17:09.000 have a Costco membership, and then we bought those one 0:17:09.040 --> 0:17:11.919 dollar fifty hot dogs that they sell at Costco, and 0:17:11.920 --> 0:17:14.000 then we ate it for dinner more roastly, and we 0:17:14.000 --> 0:17:17.080 were like, this is the dinner we deserve. And I 0:17:17.160 --> 0:17:19.520 can't imagine what I would have done if I had 0:17:19.520 --> 0:17:22.240 been doing this alone. So that's why I think a 0:17:22.280 --> 0:17:25.160 lot of people warn't against partnerships because of the two 0:17:25.200 --> 0:17:27.399 sigma problem where you can't get along with your partner, 0:17:27.440 --> 0:17:30.119 then the whole firm collapses. But to us, I think 0:17:30.119 --> 0:17:31.760 it's one of our major superpowers. 0:17:31.920 --> 0:17:36.960 Huh. Really interesting. So the initial strategy of litigation finance 0:17:37.000 --> 0:17:42.200 comes from the general council at Y Combinator. Why did 0:17:42.400 --> 0:17:44.760 do you think it took so long to convince you 0:17:45.400 --> 0:17:48.719 that that was the way to monetize the tech that 0:17:48.760 --> 0:17:54.760 you guys had developed scraping state judicial records. 0:17:55.680 --> 0:18:00.200 Litigation finance is a very obscure asset class. It's really 0:18:00.240 --> 0:18:03.320 not the first thing that a college kid would think 0:18:03.359 --> 0:18:06.480 of as a business to run. And I also think 0:18:06.480 --> 0:18:08.680 that one of the features of being young is that 0:18:08.720 --> 0:18:12.080 you can't recognize or understand good advice, even when it 0:18:12.119 --> 0:18:15.320 comes your way. I remember there was one other hedge 0:18:15.320 --> 0:18:20.080 fund that did credit on these p top lending platforms 0:18:20.119 --> 0:18:22.280 that was a few years ahead of us, and back 0:18:22.320 --> 0:18:24.080 when we were trying to raise our first fund, they 0:18:24.080 --> 0:18:27.720 had already raised a few hundred million. So I went 0:18:27.760 --> 0:18:30.840 to their office and I was like, give me your advice. 0:18:30.880 --> 0:18:34.199 How did you do it? And the two tidbits that 0:18:34.240 --> 0:18:37.640 I remember from that conversation where he was like, I've 0:18:37.640 --> 0:18:41.760 got this really nice, expensive pair of shoes, they're like 0:18:41.800 --> 0:18:45.480 seven hundred dollars, and I also have these business cards 0:18:45.680 --> 0:18:49.040 that are very professional and they have just a lot 0:18:49.040 --> 0:18:52.960 of heft and texture. And it took a really long 0:18:53.000 --> 0:18:56.080 time for the moral of that story to actually become 0:18:56.240 --> 0:18:59.480 apparent to me, because I was perplexed by this information 0:18:59.560 --> 0:19:02.200 for just such a long time, and it was only 0:19:02.280 --> 0:19:05.119 years later that I was like, Oh, what he's really 0:19:05.160 --> 0:19:08.240 saying is when you're young, you should try to look 0:19:08.280 --> 0:19:13.520 professional and institutional and reassure investors, especially LP investors, that 0:19:13.560 --> 0:19:15.679 you're not going to lose their money. And he was 0:19:15.760 --> 0:19:17.800 using those details to make a point, but I was 0:19:17.880 --> 0:19:21.159 just too naive to understand what he was actually saying. 0:19:21.400 --> 0:19:22.959 So I think a lot of advice is like that. 0:19:23.000 --> 0:19:24.960 If it comes to you at the wrong time, it's 0:19:25.000 --> 0:19:26.640 as good as if you didn't hear it at all. 0:19:27.000 --> 0:19:30.040 It's very hard to take advice when you're young, because 0:19:30.080 --> 0:19:32.840 you don't have a frame of reference, right, You don't 0:19:32.880 --> 0:19:36.880 have the breath of hear the range of possibilities right. 0:19:37.080 --> 0:19:40.720 And that's why this advice is really useful for someone 0:19:40.760 --> 0:19:45.720 who's been through that. Really very very interesting. Now you're 0:19:45.760 --> 0:19:49.640 almost the firm is almost ten years old. What sort 0:19:49.640 --> 0:19:52.560 of advice are you getting now that you might be 0:19:52.560 --> 0:19:56.840 paying more attention to that in twenty sixteen, twenty seventeen 0:19:57.480 --> 0:20:00.000 just went right by without a whole lot of notice. 0:20:01.000 --> 0:20:06.800 I remember one of our advisors in LPs, who's a billionaire, 0:20:06.880 --> 0:20:10.119 came by our office and I was like, what's the 0:20:10.160 --> 0:20:12.600 secret to your success? And this is when I think 0:20:12.600 --> 0:20:15.119 I must have been like twenty two or so, and 0:20:15.160 --> 0:20:18.000 he was like, hire good people and retain them. And 0:20:18.040 --> 0:20:21.800 I was like, well, obviously, what else? And then the 0:20:22.400 --> 0:20:25.560 farther I get into the business, the more I'm like, oh, yeah, 0:20:25.560 --> 0:20:28.480 that is the main thing. It's just that when you're 0:20:28.520 --> 0:20:31.680 at that stage, it's not apparent to you exactly how 0:20:31.680 --> 0:20:32.280 to apply it. 0:20:32.520 --> 0:20:35.040 And that's really interesting. One of the things you don't 0:20:35.080 --> 0:20:38.200 realize when you are making your first I don't know 0:20:38.320 --> 0:20:42.000 ten hires, first dozen HighRes that five or ten years 0:20:42.040 --> 0:20:45.640 down the road, that group of people you're hiring are 0:20:45.720 --> 0:20:48.920 going to be the ones doing the subsequent hiring yeah road, 0:20:49.320 --> 0:20:52.960 And you just can't anticipate that until you've lived through it, 0:20:53.000 --> 0:20:55.919 and then it's like, wow, those were really important hires 0:20:55.960 --> 0:20:58.720 that first you know five or ten people. It makes 0:20:58.760 --> 0:21:01.719 such it sets the time for everything going forward, and 0:21:01.760 --> 0:21:04.119 there's no way to understand that until you've lived it. 0:21:04.320 --> 0:21:07.160 Maybe that's where the advice aspect comes in. 0:21:07.560 --> 0:21:12.000 I also think that the cohesion of an organization is 0:21:12.040 --> 0:21:17.760 so much more important than how talented the individual parts are. 0:21:18.320 --> 0:21:21.840 So there's this children's book called Enders Game, which I've 0:21:21.840 --> 0:21:23.159 always loved. You reread it. 0:21:23.320 --> 0:21:25.520 I don't know if I would call that a children's book. 0:21:25.920 --> 0:21:30.120 I mean it's a sci fi book scott orson Cards. 0:21:30.000 --> 0:21:34.760 Or scott Card. Yeah, but in Enders Game you'll notice 0:21:34.800 --> 0:21:38.320 that at the very end, they don't bring in the 0:21:38.359 --> 0:21:43.000 top kids from every class they alert. Yeah, and when 0:21:43.000 --> 0:21:45.760 they're actually battling the aliens for the final battle on 0:21:45.840 --> 0:21:47.960 behalf of all of humanity. I'm outing myself as a 0:21:48.000 --> 0:21:51.480 huge nerd here, but they bring in Ender's closest friends. 0:21:51.840 --> 0:21:52.439 And these are. 0:21:52.280 --> 0:21:56.160 People that he respects, not just one person, because all 0:21:56.240 --> 0:22:02.320 these any challenge against high are high odds. It's never 0:22:02.960 --> 0:22:06.000 just Michael Jordan. It's got to be everybody around him, 0:22:06.160 --> 0:22:08.880 right right, And if you look at I don't want 0:22:08.880 --> 0:22:12.880