When former professional wrestler Hulk Hogan successfully sued the website Gawker for violating his privacy, Internet billionaire Peter Thiel paid his legal bills. Now Thiel’s foundation is helping Harvard dropout Eva Shang launch Legalist, a company that will provide a similar kind of legal financing to small- and medium-sized businesses involved in litigation, in return for a percentage of the payoff.

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Twice a year, Y Combinator, a startup accelerator based in Mountain View, California, holds what it calls a Demo Day, which is a showcase of the latest batch of new companies it has nurtured. In the past, those have included Dropbox, Airbnb, and Reddit (as well as a number of companies no one remembers). Last week, at the most recent Demo Day, Eva Shang took to the stage to talk about her startup, Legalist.

Dressed in jeans and a black T-shirt emblazoned with Legalist’s logo, Shang, who dropped out of Harvard to focus on her startup with a classmate, spent her allotted two and a half minutes telling the Demo Day audience about Legalist’s business model. Using an algorithm to calculate the likelihood that a lawsuit will succeed, the company then invests in cases it deems promising. If a plaintiff it has funded prevails, Legalist takes a percentage of the winnings—usually between twenty-five and thirty per cent. The algorithm considers, among other things, the size of the presiding judge’s caseload, which is an indicator of how long a trial will take, and the judge’s past decisions, which is an indicator of how he or she might rule.

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It’s a startup idea that looks like it’s ripped straight from the headlines.

This summer, Forbes revealed that tech luminary Peter Thiel had secretly been backing Hulk Hogan’s lawsuit against Gawker. It was a wake-up call that people could fund a lawsuit bent on destroying a business — and that it’s perfectly legal to do so.

A new startup, Legalist, is looking to make money from the practice of bankrolling lawsuits. The startup plans to fund those that it calculates has a chance to win.

But Eva Shang, its cofounder, told Business Insider that it’s not looking to become Peter Thiel in startup form — even though Shang is a Thiel Fellow, meaning that she took a $100,000 investment from Thiel’s foundation to build Legalist.

“That’s the kind of thing we’re staying away from here,” Shang said.

In a presentation at Y Combinator’s Demo Day on Tuesday, Shang argued that litigation funding is poised to become an “explosive asset class.” The startup has funded one lawsuit for $75,000 and expects a return of over $1 million once the case is over. That money will then be reinvested in other lawsuits, and the process will repeat itself.

“It’s a niche field that you don’t really think about,” Shang said.

Legalist is only going to focus for now on business-tort cases. She used an example of a small bakery that had a water pipe burst in 2014 and has been locked in a lawsuit since then. The insurance company is trying to drag it out, she said, and with money running out, a lawyer could look to Legalist for help funding the remainder of the case.

Read the full article on the Yahoo! Finance.