The startup frenzy hasn’t yet hit the legal space in India. But that doesn’t mean it has nothing to offer to startups. If you squint, you will find a few companies trying to tap into this space to address gaps with technology-driven solutions. LegalPay is one such rare startup.
LegalPay founder and CEO Kundan Shahi describes it as a ‘fintech company’ catering to the legal expense market with services like third-party litigation funding.
Interestingly, such funding concepts have been around for quite some time and enjoy mainstream-like acceptability in the West. But the same cannot be said about India as many believed this to be illegal. Shahi points out that in 2018 the Supreme Court clarified that it was never barred.
“It [third-party litigation funding] was in practice since 1876 but the one condition is lawyers cannot participate,” the founder told Entrackr.
Shahi has had a constant interest in the legal space with his first stint being Advok8, a legal tech startup founded in 2016.
In developed economies, the legal expenses spent by listed companies can be recovered through legal insurance, but it’s nearly non-existent in India. “This creates a roadblock in accessing justice. Therefore, there exists no level-playing field for everyone,” he added.
This inspired Shahi to explore the legal expense space, leading to the birth of LegalPay in 2019.
LegalPay currently offers two products.
First is litigation funding wherein a third party takes care of your legal expenses. Shahi describes this as an ‘after-the-event process.” There’s an incentive to this: litigants working with the company do not have to repay the financier if there is no favourable judgement. Following a non-resource method, the company only takes a percentage of the litigation proceeds if its client wins the litigation.
Shahi acknowledges this business model is risky. You are basically transferring your financial risk to the company, he explains.
The second offering is interim financing: a short-term loan given to a cash-strapped company while it tries to find a mode of long-term financing.
LegalPay already bagged a headline-grabbing victory in this space last year with the revival of Yashomati hospital through interim financing. When Bengaluru-based Yashomati Hospital filed for insolvency in 2021, there was a risk of its valuation dropping and being liquidated. At this time LegalPay funded Rs 3-4 crores to the company to revive it. Within nine months of funding, the hospital was revived and LegalPay made an exit with a 26% return.
The startup is currently funding a Ghaziabad-based mall, which has filed for insolvency.
Funding, growth, and competition
The Delhi-based company saw its pre-seed/seed round funding from 9Unicorns, LetsVenture, Ambarish Gupta (founder of Knowlarity), Ashwini Kakkar (Chairman of Via.com) etc.
It also held its undisclosed pre-series A round in 2021 which saw Amity Incubators and Venture Catalyst as its lead investors.
LegalPay has a stronghold in the sector with above 500 companies as customers for litigation finances and working with around 1,000 insolvency professionals. Its main target is SMEs, investors, resolution professionals, and MSMEs. The company claims to have an annual recurring revenue of $1 million.
So far, the startup is enjoying its sole presence in the sector as there isn’t much competition locally. There is a bit more of a race internationally with companies like Burford Capital, Omni Bridgeway and Deminor as competitors.
LegalPay plans to venture into the pre-litigation market which holds 72% of the legal expenses and is one among the untapped spaces in the legal market.
Source @Entrackr
