The San Francisco-based company will provide debtor-in-possession financing to small and lower-middle-market businesses in bankruptcy, with a typical loan in the range of $1 million to $10 million, the company said.
"Legalist has always been in legal finance occupying the lower-middle-market segment, mostly dealing with small businesses in a tech-enabled approach," said Eva Shang, the company's co-founder and chief executive. "Now, with COVID and the wave of distress that's mainly affecting main street businesses, we're just taking the approach into bankruptcy."
Institutional investors such as university endowments, non-profit foundations and family offices support Legalist's bankruptcy strategy, the company said. Shang declined to provide additional details about the investors.
Shang and co-founder Christian Haigh launched the startup in 2016. Legalist differentiates its approach from some other funders by using technology to scrape data from court records to make investment decisions.
The company has courted several former Big Law litigators to join the team in the past few years, and in September added former California federal judge Jeremy Fogel to its advisory board. Legalist said it has more than 30 employees, including seven underwriting attorneys and three engineers, and manages assets over $200 million.
The newly launched bankruptcy team is headed by Nathan Jones, who formerly co-founded a firm focused on bankruptcy and distressed debt investing. Jones joined Legalist last year, according to his LinkedIn page.
Jones in a statement said he's eager to launch the bankruptcy strategy, calling it "especially necessary in an environment which will be marked by limited access to liquidity for many small businesses, amid uncertainty about economic recovery."