Ralph Sutton

Litigation funder Validity Finance announced Tuesday that it had landed $100 million in new capital, as the COVID-19 pandemic has fueled demand among businesses and law firms for outside cash.

The firm also added its first in-house counsel to focus on structuring its financing deals, Validity announced, moving more work in-house while maintaining a relationship with its outside counsel for more complex work.

The new funds come from a variety of institutional and private investors, including founding partner Tower Brook Capital. The private equity outfit put up the bulk of Validity's initial $250 million and added a "very significant additional investment," according to Validity CEO Ralph Sutton.

Sutton said that Validity has been particularly busy in recent months, having completed more deals in the second quarter of 2020 than it did in all of 2019. The quarter also saw a 60% increase in inquiries about new opportunities compared to the previous year.

"We've seen a ton of opportunities come to us because we believe that our approach has been successful and there's a need for funding," Sutton said. "That need is enhanced by a lack of liquidity at law firms and companies. That's what the pandemic has shown us."

Sutton said that Validity had been looking to increase capital prior to the arrival of the coronavirus, noting that the company had reviewed 800 cases in the two and a half years since its founding. The same number took nearly five years to reach at his previous home, IMF Bentham (which recently rebranded as Omni Bridgeway.)

"The pace was faster than expected," he said.

Sutton added that the trust the company had built up with clients prior to the pandemic had played a crucial role in keeping inquiries coming. He emphasized that investment team members had an average of 18 years of litigation experience, and that a streamlined process—"about as fast as anybody in the industry"—was built on documents written in plain English.

Validity also has hired its first corporate counsel, bringing aboard former Fried, Frank, Harris, Shriver & Jacobson corporate associate Jason Listhaus as it looks to transition away from relying solely on outside lawyers to handle deals.

Sutton said that while he'd been working with Morgan, Lewis & Bockius partner Tom Mellor on transactions for a decade, the increased pace of deal flow made this the right time to add a in-house name. Mellor will remain on call for "complicated and interesting" situations, he said.

Listhaus, who started his career in Cadwalader, Wickersham & Taft's financial services practice, will manage deal-side aspects of Validity's investments, including helping structure and negotiate funding arrangements. He came to Validity's attention via Laura Corrao of CMW Legal Search.

Read More

LexShares Opens New $100M Litigation Fund to Investors

Litigation Funding and the Coronavirus Crisis

Law Firms Flock to Litigation Funders Amid COVID-19 Outbreak