No products in the cart.
30% ROI Anyone? (1) – How Did I Find This?
You might know that my main source of passive income is legal lending (the details are in the series “99% Population Don’t Hear About” which yields 10%+ annually on 6 month term, and if you didn’t read this series, feel free to reach out to us and we will share it with you), and in the past ten years, I’ve only met one other person in this field. It’s quite rare to find anyone else doing this. Whenever I talk about it, people find it a bit magical, because unless you had a car accident like I did and stumbled upon this opportunity, you wouldn’t encounter this way of making passive income. So, let the winner run, cut the loser off – therefore I pay close attention to any opportunities related to legal, because compared to other investment strategies I have tried over the years, most of which end up losing money, anything related to legal has consistently been profitable for me for years.
Many of our American followers have asked if legal lending is feasible in the US. I usually share that it’s quite difficult there, for two main reasons. First, the nature of the business: handling car accident cases is tough in the US because it requires a combination of top-tier lawyers, ATE insurance coverage, and favorable disbursement funding clauses for both lawyers and lenders. In Canada, only the province and legal team I work with meet these criteria. In the US, each state has different laws, and finding the right combination I just mentioned by chance is nearly impossible. Most people in the US come to us for the lawyer contact directly, and decide if they want to do legal lending here. Secondly, the capital market matters. In Canada, there’s no legal fund industry; it’s entirely dominated by law firms and banks in this area. In the capital market conversations that I’ve had (including institutions), it seems there’s no legal funds, which shows how niche this asset class is. But the US is different: the legal funds industry is huge, and there’s much more more capital. Although most Americans haven’t heard of litigation financing, occasionally you meet people in the capital market who have at least heard of it or seen such funds. In the US, large institutions like Goldman Sachs, Morgan, and major law firms are major players in this space, making it hard for individual investors to get in. So, while there’s no industry for this in Canada, allowing me to seize the opportunity, in the US, litigation financing is monopolized, also leaving very little room for individual investors.
Given this context, I’ve been sporadically monitoring this industry in the US. The typical approach there is to invest directly in big lawsuits, which can either result in losses if the case is lost or yield returns of 30%-10x if won. However, after observing this for years, I still don’t quite like the go big or go home approach.
Then, by chance, I attended an event with a section on litigation financing, featuring the usual high-risk, high-reward model. During the Q&A, I found myself and another guy pretty much monopolizing the session with questions that clearly showed that both of us were in this industry, with questions about ATE insurance, disbursements, and underwriting etc. Later, we ran into each other again at another event, discovered mutual acquaintances (also lawyers), and struck up a conversation. It turned out he was also in litigation financing, having previously handled car accident cases in the US. His supply chain was unique: as a doctor, he directly referred accident patients to his medical centers, ensuring no risk in case underwriting. Once verified, he would push the patients to lawyers to start the legal process with insurance companies. He mentioned excellent returns but had to stop due to changing state laws that made his approach non-compliant, so he focused on VC investing. He got lucky
with a VC investment that turned into a unicorn, leading to early retirement. I checked out his portfolio, found a few promising companies, and made some small tag-along investments. Over time, we became acquainted and shared market insights often.
During another casual gathering of investors and lawyers, we discussed the previous event. He said their current data outperformed his past car accident cases, with a ROI of about 20-30%. I was surprised because I didn’t hear about this from the lawyers themselves during the event. He also mentioned that it seemed to be a case of either go big or go home first, but his follow-up conversation with them indicated that it was not the case, and they do an entirely different model than any litigation financing funds out there. Intrigued, I brought in the lawyer from the previous event to explain the details. After the conversation, it became clear that what they shared in the event in public was not the right stuff; I guess this is because they were lawyers and only communicated in such a convoluted, law-centric way that it was incomprehensible to non-lawyers and failed to consider investors’ perspectives. Next time, I’ll “translate” their model so you can start to understand why they were able to do 20-30% ROI!