Ex-Validity Officials to Launch $100 Million Litigation Funder

Three former employees of a litigation funder that went bust last year have formed a new firm with access to at least $100 million in capital.

Arcadia Finance will focus on investing in US-based commercial and IP litigation, as well as international arbitration, according to its founders. The trio—Dave Kerstein, Ronit Cohen, and Joshua Libling—previously worked at Validity Capital, which went into harvest mode last June after its main backer decided to stop funding the business.

“We’re trying to bring clients customized solutions and really cover the waterfront of their litigation financing needs,” Kerstein said in an interview. “We also have sort of advanced risk modeling that we’re using to really be able to be adept at finding solutions for a wide range of whatever client litigation financing needs and problems that they have.”

Arcadia will focus on deals between $2 million and $25 million, but will also explore funding matters for as low as $500,000 on a mix of single-case and portfolio arrangements. The company also is looking to team up with capital providers contributing from their own coffers, allowing Arcadia to look at large portfolio deals in the high eight-figure range.

The goal is to commit capital in about 12 to 18 months and deploy those commitments over a period of 36 months.

Validity Capital in June 2023 laid off half its staff after TowerBrook Capital, the company’s primary financial backer, decided to cut its investments. TowerBrook continued to invest in the roughly 60 cases it had already committed to fund after it determined the business could not be sold.

Kerstein, one of Validity’s co-founders, served as its managing director and senior investment officer. Cohen focused on underwriting at Validity, before being laid off, while Libling was a senior leadership team member with the primary responsibility for risk analysis and pricing tools.

“As soon as we knew that there weren’t going to be commitments to new investments going forward at Validity, that’s when we decided that we wanted to keep some of the team together and continue to do what we had been doing really successfully,” said Kerstein.

The Arcadia founders prioritized building a platform with multiple investment partners and highly flexible capital, lessons learned from the Validity experience, Kerstein said. He declined to name Arcadia’s current investors, saying only that most are US-based financial services companies with significant litigation finance industry experience.

Arcadia raised capital over the course of about one year, Kerstein said. The founders faced a learning curve because they had not previously worked as fund managers, but were able to leverage deep ties in the industry, he said.

A recent report by litigation finance consultant Westfleet Advisors found that investor commitments decreased by $500 million from 2022 to 2023, a 14% decline. The slowing of capital has lead to a bit of a retrenchment, with Validity and other funders conducting layoffs last year.

Many capital providers remain interested, but are waiting to see how their current investments mature, Kerstein said.

“That has led to some hesitancy to invest new capital because investors want to see a track record of what’s happened with the capital that’s already been invested,” he said. “I don’t think that’s really fully developed across the entire industry.”